Hi all,
Need some tax help.. Here's my scenario.. I'm starting a business using HELOC money (home equity line of credit). I know I can deduct the interest expense. But here's the question - say my business makes $10k profit in its first year. Can I apply this $10k towards my mortgage (non-tax-deductible) instead of my HELOC (tax deductible)? And if so, can I do this indefinitely? Like say I used $100k of HELOC money, have $400k left on my mortgage, and in 3 years I've made $200k profit. Can I put all $200k against the mortgage and nothing against the HELOC, continuing to write off the interest expense? Is there any limit to how long and how much I can do this? Or do I need to put all (or part of the) business proceeds directly against the HELOC instead of my mortgage?
I like the idea of taking out the funds from the mortgage, getting the tax deduction, and then paying off my non-deductible mortgage with the business income. I know this is akin to the Smith Maneuver, but even in the Smith case I'm unclear how much you need to pay yourself back, and if you sell your investment for less than you bought it, can you continue deducting any leftover HELOC interest indefinitely?
Appreciate any insight
Need some tax help.. Here's my scenario.. I'm starting a business using HELOC money (home equity line of credit). I know I can deduct the interest expense. But here's the question - say my business makes $10k profit in its first year. Can I apply this $10k towards my mortgage (non-tax-deductible) instead of my HELOC (tax deductible)? And if so, can I do this indefinitely? Like say I used $100k of HELOC money, have $400k left on my mortgage, and in 3 years I've made $200k profit. Can I put all $200k against the mortgage and nothing against the HELOC, continuing to write off the interest expense? Is there any limit to how long and how much I can do this? Or do I need to put all (or part of the) business proceeds directly against the HELOC instead of my mortgage?
I like the idea of taking out the funds from the mortgage, getting the tax deduction, and then paying off my non-deductible mortgage with the business income. I know this is akin to the Smith Maneuver, but even in the Smith case I'm unclear how much you need to pay yourself back, and if you sell your investment for less than you bought it, can you continue deducting any leftover HELOC interest indefinitely?
Appreciate any insight