Mtg Interest Ded For Converted Rental

[GTS1101]

Regarding rental properties that were previously taxpayers primary residence can they deduct all the mortgage interest against rental income even if some of proceeds were used for personal purposes.

I have a client who owned their first home and took out equity against that home to pay off cars and credit card debit. They are within the 100,000 home equity limits so they have been deducting all the interest on schedule A. They have bought another house and are renting out the previous home. When deducting the mortgage interest on the rental are they limited to the interest only for the property or can they deduct all the interest against the rental that was used for equity and other purposes?

Thanks!

GTS1101

[Roland Slugg]

Not residence interest

The prior home ceased to be a "qualified residence" when it was changed to rental use. (Code §163(h)(4)(A)(i)(II) and Code §163(h)(4)(A)(iii)) The interest on the H-E loan is not investment interest. It is now non-deductible personal interest.