Settle a debate - refinance mortgage on rental, HELOC tax deduction?
A friend thinks I made a mistake. I think his opinion is a direct contravention of tax law and would lose an audit in a heartbeat.
Rental Home value: 650k
Mortgage balance:260k
HELOC balance: 180k
The HELOC was used as downpay of our new primary residence.
He claims we should have refinanced so the mortgage balance was $440k so all that interest was deductible.
To me, it’s clear as day that the amount downpayed has not paper trail other than the HELOC and whether or not it’s converted into a mortgage is irrelevant - the funds were used for personal gain.
I’m sure people get away with it. But for what would amount to around $1500 annual savings it seems ludicrous to even consider playing so fast and loose with tax rules (let alone consider the FV of refinance fees).
I believe you’d need to use that HELOC amount for a non-registered account investment. Meaning we’d have had to withdraw the downpay from such accounts and deal with the cap gains. A whole lot of fucking around for a very negligible return at best.
So, any tax law folks in here? The fact it’s remortgaged is irrelevant - the balance that has a paper trail back to our primary residence/personal gain is not a tax deduction regardless. Correct?