Mortgage interest deduction on maybe rent house

[mwcpa]

if you convert personal property into business property, the business allocation of costs related to the period in service only... not the whole year....

for simpicity....
interest is 12,000 for the year.... the property was converted from personal use to 100% business use on November 1st...
only the interest applicable to November and December is an expense that is allowed for business purposes on schedule E, the other 10 months may qualify as home mortgage interest.....
in addition, "depreciation" is based on the lower of the "cost" of the property (exclude the land portion) or the fair market value on the date of conversion.... often people make a mistake here.....

[taxref]

MWCPA gives the correct answer.

You would file Schedule E with your tax return. That would detail your rental income and expenses. Only expenses relating to the rental period are included on the Schedule E.

[activeonlooker]

Would not the tracing rules come into effect here? If the funds from the HELOC were used to improve the home, then I concur with the others. However, if you used the HELOC to buy a new car, then the interest would become nondeductible.

[mwcpa]

" if you used the HELOC to buy a new car, then the interest would become nondeductible"
I agree... tracing rules come into play....