How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Guru_Guy Your Own Question

Guru_Guy
Guru_Guy, Lawyer (JD)
Category: Tax
Satisfied Customers: 2418
Experience:  I am a lawyer who understands tax law and finance.
1987257
Type Your Tax Question Here...
Guru_Guy is online now
A new question is answered every 9 seconds

If I pay off mortgages totaling $290000 on 2 ...

Resolved Question:

If I pay off mortgages totaling $290000 on 2 investment properties with proceeds from a home equity line of credit on my primary residence, will the interest I pay on the home equity loan be tax deductible?
Submitted: 6 years ago.
Category: Tax
Expert:  Guru_Guy replied 6 years ago.
Hello,

Under the scenario you describe, the loans would only be partially deductible.

First, you can only deduct up to the value of your home. So if, for example, the loans on your home total $300,000 and your home is only worth $280,000, that last $20,000 would not be deductible. For the rest of my answer, I will assume that the home equity line of credit, combined with all other mortgages tied to your primary residence, does not exceed the property's value.

An existing home owner who already has a mortgage, can take out additional mortgages for home improvement or repair. But if they take out a loan or line of credit for other purposes, such as financing other properties as in your case, then only the first $100,000 of additional borrowing would qualify as being tax deductible.

Since interest on debt on investment properties is already deductible as a business expense, borrowing more than $100,000 would not make much sense from a tax perspective.

I hope this answers your question.
___________________

IRS CIRCULAR 230 NOTICE: Absent an engagement for written tax advice prepared in compliance with the regulations promulgated by the U.S. Department of Treasury, no person prepared the written information contained in or accompanying this communication for use or reliance, and no taxpayer can, therefore, use or rely upon the written information contained in or accompanying this communication, (i) to avoid any penalties that the IRS may impose, or (ii) for the purpose of promoting, marketing, or recommending to another party any tax-related matters.
Customer: replied 6 years ago.
Reply to Guru_Guy's Post: If I pay off a $163000 mortgage @ 6.625% with fully tax deductible interest of $10799 (this year) with a $163000 home equity loan @ 4.6% with tax deductible interest of $4600 (constant for several years) I calculate my savings would be about $146 per month for the first year (not including reduced minimum payments which could accelerate principal reduction). Is that correct (25% tax bracket)?
Expert:  Guru_Guy replied 6 years ago.
A $163,000 mortgage, paying $900 per month, would result in $10,799 interest for the first years. If you are in the 25% tax rate and can fully deduct this amount, your after tax expenses would be $8099.

If you get the $163,000 home equity at 4.6%, that will cost you $7427 in interest for the first year. Since you can only deduct interest on the first $100,000, your cost after the tax benefit would be $6080.

So your savings would be just over $2000 per year with the line of credit option.

Notice that because of the lower interest rate, even if the line of credit was not deductible at all, you would still save a little money.

So given the much better interest rate, it does make sense in your case to go with the home equity line of credit.


___________________

IRS CIRCULAR 230 NOTICE: Absent an engagement for written tax advice prepared in compliance with the regulations promulgated by the U.S. Department of Treasury, no person prepared the written information contained in or accompanying this communication for use or reliance, and no taxpayer can, therefore, use or rely upon the written information contained in or accompanying this communication, (i) to avoid any penalties that the IRS may impose, or (ii) for the purpose of promoting, marketing, or recommending to another party any tax-related matters.
Guru_Guy, Lawyer (JD)
Category: Tax
Satisfied Customers: 2418
Experience: I am a lawyer who understands tax law and finance.
Guru_Guy and 4 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.