Is home equity loan on a rental property tax deductible?
March 13th, 2010 | 
Author: I οwn a home rіght now whеrе I аm still paying PMI. I аlѕο hаνе a rental property. I want tο take a home justice loan οn thе rental property tο pay-οff ѕοmе οf mу finance ѕο I wіll nοt hаνе tο pay PMI tο mу first home anymore. Wіll thе interest I pay οn thе home justice loan οn mу rental property bе tax deductible?
Posted in Rental Properties
No
Any interest you pay on the rental property is deducted on Schedule E along with all other rental expenses.
Interest on the home justice line is deductible.
The interest on the loan secured by your rental property is deductible if the loan is made for a business purpose. For example, if you were improving your rental property or purchasing other business property.
But this is confidential debt which is not secured by your residence. No deduction is allowed.
No.
The rules are different between your residence and rental property when it comes to mortgages and other home loans.
With rental property, there is something called the “Trace Rule”. In order for the interest to be deductible, you have to be able to “trace” the usage of the funds to the rental property itself.
Using a home loan, secured by the rental property, to pay down your finance on your residence makes the interest on this loan confidential and non-deductible.
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