Equity LOC to Buy New Home

[Jill Graff]

Taxpayer has nearly paid off her mortgage. She is being encouraged by the loan company to take a home equity line of credit on the mortgage and use it to purchase a new home and turn the old one into a rental.

Since the new home would not be the security for the mortgage, and the rental would not be using the equity LOC for rental-related expenses, can I assume that none of the home equity LOC would be deductible?

Thanks in advance.

[Gretel]

I agree with your conclusion. I am not sure however, how the $100,000 allowed equity debt figures into this, since it seems at the time the loan is taken out it is still her home and she is buying a second home.

[Burke]

Since the new home would not be the security for the mortgage, and the rental would not be using the equity LOC for rental-related expenses, can I assume that none of the home equity LOC would be deductible?Thanks in advance.

Not on Sche E. But perhaps on Sche A if it meets the mtge interest rules. And if she can itemize.