Couple bought an investment property using a line of credit on their residence. Intention was to buy and sell the property "quickly." Home on the market for 1 1/2 years and just rented 11/05. All of the incurred expenses for 05 can count towards the rental because the house was ready and available for rent/sale. Correct? My main question: Since the line of credit is on their personal residence (per records the rental is completely paid for), does the mortgage interest paid go to Sch. A or Sch. E?? Thanks.
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TTB, page 4-11, "A taxpayer can elect to treat debt secured by a home as not secured by a home [Reg. Sec. 1.163-10T(o)(5)]. This election is advantageous when home mortgage proceeds are used for business purposes."
Then it gives an example where the taxpayer could not deduct the full interest if it was treated as home equity debt because home equity debt is limited to $100,000. So the taxpayer makes the election and treats all of the debt as business debt.
I would assume in your case the debt probably will exceed $100,000 if it was to purchase a rental house (at least in Minnesota it would). Therefore, you should make the election so that all of the interest is deductible on Schedule E. -
What is required to make the election? Does it have to be formally made or by putting it on the Sched E sufficient?Comment
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When did they list or advertise the property as a rental? This sounds like a change of use. It was not intended to be a rental.Originally posted by UnregisteredComment
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The regulation does not say how to make the election.Originally posted by Danielle
Ususally, if the regulations talk about an election but do not provide specific instructions like telling you to attach a statement, the election is made simply by doing it that way.Comment
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