Home Equity Interest deduction

[TAX]

Client borrowed $100,000 money on Home equity loan and paid $5,000 interest in 2008.

He used this loan to fund his scorp business. So his Scorp shows loan from shareholder as $100,000.

Can he deduct this interest on business return?

Does he need to give 1099 from Scorp to himself?

Thanks!

[S T]

Report

I believe you can report on form 1040 Schedule E page 2 , use the tracing rules, and make Election Not to Treat Debt as Secured by a Qualified Residence

election is made under provisions of Regulation 1.l163-10T(o)(5) to treat debt for this taxable year as not being secured by a ‘qualified residence.’ The proceeds of such debt are allocable to the taxpayer’s trade or business, according to the provisions of Regulation Section 1.163-8T

Sandy

[dyne]

The problem is that interest paid on a home equity loan is an add back to the
alternative minimum tax, IF it is applicable; and can cause the taxpayer's
federal income tax to increase substantially. It goes on line 4 of the AMT form 6251.
I always advise taxpayers NOT to obtain a home equity loan for ANY reason.

[Jesse]

The problem is that interest paid on a home equity loan is an add back to the
alternative minimum tax, IF it is applicable; and can cause the taxpayer's
federal income tax to increase substantially. It goes on line 4 of the AMT form 6251.
I always advise taxpayers NOT to obtain a home equity loan for ANY reason.

Not arguing, just asking, if you elect the debt to not be treated as home equity debt and trace it to the business purpose, would you still add it back for AMT?

[dyne]

I do not know for sure, but I would add it back to the AMT computation.