Loan Fds on rental used to purchase residence?

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  • AZ-Tax
    Senior Member
    • Feb 2008
    • 2604
    #1

    Loan Fds on rental used to purchase residence?

    Client owns current home and considering converting into rental then obtaining mortgage on potential rental (currently no mortgage) then deduct interest on Sch E and use loan proceeds from rental to purchase residence. Why not just get a mortgage on residence and deduct on Sch A, 1st there will not be enough interest along with other Sch A items to surpase the Std deduction. 2nd, as you know, any looses on Sch E reduces AGI therefore reduces tax amt on SS income.

    Your thoughts?
    Tags: None
    • Y2KEA
      Senior Member
      • Nov 2005
      • 344
      #2
      Tracing rules apply. Can't go on Sch E. See 2009 TTB 4-14.

        Comment

        • Davc
          Senior Member
          • Dec 2006
          • 1088
          #3
          Interest on a loan secured by a rental used to purchase a residence is not deductible on Schedule E or Schedule A.

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