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Setting Up a HELOC Deductible?

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    Setting Up a HELOC Deductible?

    Heloc is a home equity line of credit. It is set up as a mortgage, but with no balance. The interest paid on this type of loan is deductible, but is setting it up a deduction?

    #2
    Originally posted by zeros View Post
    is setting it up a deduction?
    Based on my own experience, and the way most banks operate, I would say setting it up is a Pain In The Rear, and the bank will undoubtedly screw up the paperwork and cause delays in the process.

    But if you are asking what I think you are trying to ask, then ask yourself, are the expenses of "setting up" the HELOC a form of interest expense? If not, under what code section would they be deductible?

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      #3
      GAAP Version

      If this were a business, the AICPA guidance would be to amortize the loan fee over the life of the loan. You will not receive a 1098 for this, but I would think the fee would be deductible as "other interest". But it could not be taken in the year of occurrence.

      Further GAAP guidance would be to amortize this on a compound interest basis as the deductible interest decreased. Since there is no initial balance, this is impossible, so I might amortize on a straight-line basis and see what happens. The straight line version results in lesser amounts in the early months on a fixed loan.

      If the HELOC is for 36 months, I would deduct 1/36th of the loan fee every month. 5 such months in the current year would allow a deduction of 13.89% of the fee in the current year.

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        #4
        If you are asking about the typical costs that a lender charges to establish the HELOC such as: application fee, appraisal, lender fees, title search, doc prep, and professionals' fees (attorney, escrow agent, title agent, notary)
        AND
        If this is not used as part of home's original purchase acquisition debt -

        THEN the above types of charges are not deductible in the year paid, are not amortizable, and do not add to basis.
        jklcpa

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          #5
          WHAT interest ??

          Originally posted by JudyL View Post
          If you are asking about the typical costs that a lender charges to establish the HELOC such as: application fee, appraisal, lender fees, title search, doc prep, and professionals' fees (attorney, escrow agent, title agent, notary)
          AND
          If this is not used as part of home's original purchase acquisition debt -

          THEN the above types of charges are not deductible in the year paid, are not amortizable, and do not add to basis.
          Whew! I feel much better.

          'Twas beginning to doubt my lessening vision with comments of "form of interest" etc.

          May even be worth reviewing concept of "acquisition debt."

          At least now I know how the banks make their money, even though they no longer pay any of it to their account holders.

          FE

          Comment


            #6
            Originally posted by FEDUKE404 View Post
            Whew! I feel much better.

            'Twas beginning to doubt my lessening vision with comments of "form of interest" etc.

            May even be worth reviewing concept of "acquisition debt."

            At least now I know how the banks make their money, even though they no longer pay any of it to their account holders.
            Well-being update? Check.

            Vision test? Check.

            Plans for CPE? Check.

            Life's wisdom learned? Check.

            Comment

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