By Robert Allen Kosbie, CPA, CFP, MBA

We own an apartment building worth more than $1 million. The loan has a
balance of $110,000 that is due at the end of the year. We must

can we deduct the interest as a business expense? If we pay the loan off
with proceeds of an equity loan on our home, can we deduct the interest
as a business expense? If not, can we deduct the interest as a personal
itemized deduction?

I understand the problem you face with refinancing your loan when
lenders prefer not to lend the amount desired. The answer to your
questions regarding business interest deductions when borrowing a larger
amount to meet lender requirements or borrowing on a home equity loan is
it depends.

Ultimately, the answer will depend on how you use the proceeds and will
involve interest-tracing rules. The amount used to pay off the current
debt would be traced to the rental property and still be deductible
against the rental property income. Any additional debt would be
deductible against the rental property only if you used the proceeds for
the rental property (e.g., repairs and upgrades). Any additional
proceeds used for personal matters, including investments, would not be
deductible as business interest. They may be deductible, however, as
personal mortgage interest or investment interest depending on your
situation.

Robert Allen Kosbie, CPA, CFP, MBA, is owner of Kosbie & Kosbie, CPAs.
You can reach him at (619) 312-1160.