With these income levels (AGI >150K if MFJ) one needs to be very careful in tax planning because they can fall under the dreaded AMT.
Under AMT rules, HELOC interest can only be deducted if it is used to buy, build or improve your (primary) house. AFAIK, if you used HELOC to buy investment property then you can’t deduct that interest if under AMT!
(If you have a lot of equity in the house and can manage to cash out without resorting to a HELOC then this does not apply!)[/quote]
I could be wrong, but I think that if you used the HELOC of your primary, it depends on how you use the HELOC…
My understanding is that if you use the HELOC to buy a rental property, that you would be claiming the HELOC interest on schedule E for the rental property, not claiming it on schedule A (mortgage interest deduction)… Hence, I don’t think AMT affects the HELOC interest in this case, because on schedule E it would be considered rental expense.
I’ll ask a accountant coming week, but if anyone knows definitely they can chime in.
