line of equity

[Naila Ahmad]

My client has a rental property which he reports on Schedule E. He has regular mortgage and a line of equity on that rental property. he has invested the line of equity money in another business that has nothing to do with this rental property. My question is , can he deduct mortgage interest paid on the line of equity on schedule E? if yes , can I just add this interest expense with his qualified interest expense. Any help will be appreciated.

[Pacun]

It depends if the other business uses Schedule E.

[Booger]

Sure, why not?

P.S. And when your client gets audited, you can tell the auditor that Booger from

a tax practitioners website said that it was OK to deduct the interest on Schedule E.

(Nice Cite).

Booger

[jainen]

>>it was OK to deduct the interest on Schedule E<<

I agree. You can deduct rental costs even if you use the rental receipts for a different business. And most of the income comes from equity growth--that's the main business purpose because fair market rents lag so far behind property values. So it's reasonable to deduct the costs of tapping that equity.

And I also agree that you can tell the auditor that Booger said it was okay.

[lbbwest]

My client has a rental property which he reports on Schedule E. He has regular mortgage and a line of equity on that rental property. he has invested the line of equity money in another business that has nothing to do with this rental property. My question is , can he deduct mortgage interest paid on the line of equity on schedule E? if yes , can I just add this interest expense with his qualified interest expense. Any help will be appreciated.

Gee, Publication 535 Chapter 4, says you have to allocate expenses according to the flow of funds, not the security; but if you prefer you can deduct it on the Schedule E rental property and say that jainen and Booger said it was okay. lbb

[Julie]

Pacun and lbbwest are right. Without the sarcasm, just put it on the C. That's what the interest belongs to, so that's where it should go.

Gee, Publication 535 Chapter 4, says you have to allocate expenses according to the flow of funds, not the security; but if you prefer you can deduct it on the Schedule E rental property and say that jainen and Booger said it was okay. lbb

[lbbwest]

Pacun and lbbwest are right. Without the sarcasm, just put it on the C. That's what the interest belongs to, so that's where it should go.

"in another business that has nothing to do with this rental property"

Poster did not state what type of entity the other business is, there for one can not determine if a schedule C is an appropriate placement of the interest expense. (sarcasm free post)

[Naila Ahmad]

Gee, Publication 535 Chapter 4, says you have to allocate expenses according to the flow of funds, not the security; but if you prefer you can deduct it on the Schedule E rental property and say that jainen and Booger said it was okay. lbb

Julie, I think you are right that expenses should be allocated according to the flow of funds, but the problem is that my client took the loan against the rental property and loaned the amount to his corporation to do business. So I don't know how he can claim this interest expense in Schedule C. and since it is under his S.S#, how can he deduct interest expense for his corporation. I think I was not clear enough in my first posting.

[Maribeth]

Hmmm . . . . . he loaned his corporation the proceeds. Did the corporation make the payments to the mortgage company on your client's behalf? If so, the corporation probably paid interest expense to your client who now has interest income from the corporation. Your client then would have investment interest expense for the same amount that would be reported on Form 4952 and deducted as investment interest. This scenario would not hold true if your client purchased his stock with the proceeds from the rental loan.

Maribeth