I am looking at an equity loan on my primary and using it to pay cash for a duplex. I already know that I can do this, but can I take the interest deduction from the equity loan and apply it towards the rental property at tax time? I don’t see why that I should not be able to, It’s not like I am double dipping, and I just want the deduction for the rental instead of the primary. Does anyone have any experience with this? If it matters, before i do any of this, I am going to open a DBA and all of my rental accounting will be done through that.
If the equity loan is on your primary it will have to go on your schedule A, whereas the deductions from your rental property go on schedule E. Unfortunately the IRS does not allow us to make up our own rules when it comes to paying taxes and filling out our returns. Just curious though why are you putting your primary residence at risk by taking money out to pay for the duplex? If push comes to shove it will be your home that gets foreclosed not your duplex. You may want to rethink your decision or at least talk to a mortgage professional who can give you some advice.
The reason that I am looking at the equity route is that my primary is almost paid in full and if I take out the equity, I would borrow enough to pay off the remaining ballance on the primary and still have only one loan that I can afford to pay without collecting any rents. Hopefully I will accually make money or break even on the rents and othe expences, But if something happens and I don’t, I wont loose the house because I can afford it. I will not over extend myself, I never have. I do not have any other debt to worry about and am looking into this for tax purposes. the equity route works for me because I dont have a lot of cash on hand for a down payment to get a conventional morgage and I can get a better rate on an equity loan. Am I missing something? I am open to suggestions because I obviously dont want to lose money. Thanks
You sound like you have thought this through and have very sound reasoning. However the payment on the loan will still be due whether the duplex is producing income or not. I am a strong believer in not putting your personal property at risk.