Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax

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

Customer Question
If I pay off mortgages...
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: 9 years ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 16 minutes by:
5/1/2008
Tax Professional: Guru_Guy, Lawyer (JD) replied 9 years ago
Guru_Guy
Guru_Guy, Lawyer (JD)
Category: Tax
Satisfied Customers: 2,418
Experience: I am a lawyer who understands tax law and finance.
Verified
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.
Ask Your Own Tax Question
Customer reply replied 9 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)?
Tax Professional: Guru_Guy, Lawyer (JD) replied 9 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
Guru_Guy, Lawyer (JD)
Category: Tax
Satisfied Customers: 2,418
Experience: I am a lawyer who understands tax law and finance.
Verified
Guru_Guy and 87 other Tax Specialists are ready to help you
Ask your own question now
Ask Guru_Guy Your Own Question
Guru_Guy
Guru_Guy
Guru_Guy, Lawyer (JD)
Category: Tax
Satisfied Customers: 2,418
2,418 Satisfied Customers
Experience: I am a lawyer who understands tax law and finance.

Guru_Guy is online now

A new question is answered every 9 seconds

How JustAnswer works:

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

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.WMatteson, 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.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, 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.

OrvilleHesperia, 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!!!!

AlexLos 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.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
What are the taxes rates 2016 for term gains in irrevocable
what are the taxes rates 2016 for long term gains in irrevocable trusts … read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
726 satisfied customers
If lease payments are being taken as a tax deduction can the
If lease payments are being taken as a tax deduction can the mileage method be used to account for other expenses? Or are you required to use actual expenses?… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
Are the following items tax deductible with regards to an SBA loan?
Are the following items tax deductible with regards ***** ***** SBA loan ? 1. SBA guaranty fee 2. packaging fee 3. Environmental expense ( towards environmental assessment ) 4. Appraisal fee What docu… read more
Charles Greiner
Charles Greiner
Owner
Bachelor's Degree
2,436 satisfied customers
Given that the current 1041 tax rate on 401(k) income is
Given that the current 1041 tax rate on 401(k) income is $3206 + 39.6% over $12,400, what will be the new tax rate and will it apply for 2017?… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
Is the house or taxes deductible for him. How does it affect
Is the house or taxes deductible for him. How does it affect his taxes. How can the house be in both our names, without making me an equal partner.… read more
Fred Rook
Fred Rook
Corporate Controller
BSBA
31 satisfied customers
Trying to decide between pre-tax and post tax deduction for
trying to decide between pre-tax and post tax deduction for my health care coverage … read more
abci168
abci168
Principal
27 satisfied customers
I'm looking for help with tax deductions. I will be
I will be receiving a large lump sum this year. I want to know if there is a limit to how much state tax I can deduct for federal filing? … read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
You may recall that tax deductions are only deductible by
You may recall that tax deductions are only deductible by the legislative grace of Congress. After this lesson, you might have realized that Congress was pretty generous with the types of business exp… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,463 satisfied customers
Estate capital gains tax rate for 61, single, unable to
estate capital gains tax rate for 61, single, unable to work, is claimed as a dependent form sister,only income collects $500 month stipend from gov., which pays for health insurance and meds. is gett… read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
Have a question about tax deductions my 401K withdrawals
Have a question about tax deductions my 401K withdrawals since I may need to a distribution of a large amount? … read more
abci168
abci168
Principal
27 satisfied customers
Are medical equipment purchesed tax deductable. I have been
I have been prescribed a portable oxygen generator is this equipment deductable … read more
abci168
abci168
Principal
27 satisfied customers
I bought a new rental property. Can I get any tax deductions
I bought a new rental property. Can I get any tax deductions for the money I spend to buy the property? … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,463 satisfied customers
What would the federal and state tax rate percentages be for
What would the federal and state tax rate percentages be for a $7700 IRA early withdrawal in Ohio?… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,463 satisfied customers
What is the income tax rate if it is not withdrawn from the
Hi! What is the income tax rate if it is not withdrawn from the LLC? The owner has not withdrawn any balance from the business all the amount reinvested into the business. Thank you!… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,463 satisfied customers
I would like clarification on the IRS tax deductions and a
I would like clarification on the IRS tax deductions and a rental property I purchased recently. … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
Has the tax rate on an inheritance for non residents
Has the tax rate on an inheritance for non residents recently been changed? Iv'e been told it is now 5% and no longer 30%.… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,463 satisfied customers
Second opinion] Has the tax rate in Peru on capital gains
Second opinion] Has the tax rate in Peru on capital gains for non residents recently been changed? I heard it is now 5% and no longer 30%.… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
My question is about tax deductions (Mortgage Interest.
My question is about tax deductions (Mortgage Interest. Mortgage Insurance premium & Real Estate Taxes) that can be deducted by two, unrelated people, who own a house together.The two unrelated owners… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x