Situation: Taxpayer owns three rental properties, free and clear of debt. Taxpayer undergoes an overhaul of his personal finances, which leads to the following:
1) Borrows $100,000 against Property #1 of his three rental properties (all residential property).
2) Spends $50,000 of proceeds in badly needed repairs for all three rental properties.
3) Spends remaining $50,000 to pay off personal auto, credit cards, misc personal debt.
He will receive a 1098 from the mortgage company for appx $5000. How can he maximize the deductibility of this interest? If I understand deductibility, he can only allocate $2500 among the three rental properties as interest expense, and is not entitled to deduct the remaining $2500.
[Just a reminder -- if he goes to a storefront tax shop, most likely someone will just simply keypunch the entire $5000 as an allowable deduction against rental property #1 on Sch E. We have had recent discussions where ignorance serves the taxpayer better than knowledge.]
Notice also, that with the repairs, he should already have substantial deductions, as only some $20K would have to be depreciated. Notwithstanding, the question as presented deals only with the deductibility of interest. He will most likely have a non-deductible rental loss because of income level, but we want to capture the full amount of interest to write off against future rental profits.
1) Borrows $100,000 against Property #1 of his three rental properties (all residential property).
2) Spends $50,000 of proceeds in badly needed repairs for all three rental properties.
3) Spends remaining $50,000 to pay off personal auto, credit cards, misc personal debt.
He will receive a 1098 from the mortgage company for appx $5000. How can he maximize the deductibility of this interest? If I understand deductibility, he can only allocate $2500 among the three rental properties as interest expense, and is not entitled to deduct the remaining $2500.
[Just a reminder -- if he goes to a storefront tax shop, most likely someone will just simply keypunch the entire $5000 as an allowable deduction against rental property #1 on Sch E. We have had recent discussions where ignorance serves the taxpayer better than knowledge.]
Notice also, that with the repairs, he should already have substantial deductions, as only some $20K would have to be depreciated. Notwithstanding, the question as presented deals only with the deductibility of interest. He will most likely have a non-deductible rental loss because of income level, but we want to capture the full amount of interest to write off against future rental profits.
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