Loan interest for rental property

Forum|Forum|1 year ago
April 2, 2025
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I used my HELOC to purchase a rental property in 2022. The property took 2 years to complete the build - 2024. Can I claim there interest from that loan as an investment expense for those two years or does it need to be for each calendar year, even though it wasn't built yet.

Thank You

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DavidD66

The interest you paid both before and after the construction period can be deducted as a business expense in the year you paid ( or accrued) it. The interest you pay on the loan during the construction period is not deductible. Instead, this cost must be added to the basis of your property and depreciated over 27.5 years.

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cc12389Author

Thanks for the reply!

I'm not too sure what you mean when you mention the cost must be added to the basis of the property and depreciated over 27.5 years.

It's not simply reported as an investment expense under carrying costs?

PatriciaV

You have the option to capitalize carrying costs (including interest) as part of the basis of the property. Otherwise, the costs are deductible in the year they are paid.

For more info, see How do I make an election in Section 266 to capitalize the taxes paid to the basis of vacant property?

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