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loan payment on rental property

October 13, 2016 • Anonymous • Log In to Post Comments

You pay cash for a rental property with money from a family member.  (the family member obtained a personal loan from the bank.)  You are making the payments on the loan.  Can the interest poartion of the loan be deducted as a rental expense?


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The loan must be secured against the property to deduct the interest. If the parent's have a lien against the property for a loan payable to them, the t/p can deduct the interest. BUT...the parents must report the interest on their return but may be able to take an investment interest deduction on their return.

I don't beleive the rental loan must be secured by the rental property.Rather only "qualified residence interest as defined in Reg 1.1.61-10T(o)(1) " must be secured by the property(1st or 2nd home). So personal loan interest would be deductible as rental interest as long as the loan proceeds were used to purchase or improve the rental.

 

Thanks Gerald. However, I believe the interest received by parents is still taxable to parents with an offsetting Schedule A interest deduction.

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