Business deduction: How to deduct mortgage interest for business when loan is in personal name?

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Kennedy
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Joined: Mon Nov 10, 2014 2:47 pm

Business deduction: How to deduct mortgage interest for business when loan is in personal name?

Post by Kennedy » Mon Oct 14, 2019 12:04 am

I'm thinking about buying some acreage upon which to build a business to use as a commercial project. This does not in any way involve marijuana, in case this question is raised. (This isn't a "home-based business" as customers will come to a commercial building on the property to conduct the business.) The twist is that there is an existing home on the acreage that would become my personal residence. (The property is "un-zoned" and can be used for whatever purposes I desire.)

I would buy the property (with the house) using a conventional loan in my personal name and then construct the buildings for the business on the acreage later using a combination of cash and a business construction loan.

How would I take the mortgage interest deduction on my business taxes? The standard deduction is more than what my itemized deduction would be with the mortgage, so I would not receive any tax-related benefit in taking the mortgage interest as a deduction on my personal taxes.

Can I take a portion of the mortgage interest as an expense on my schedule C even though the mortgage is in my personal name? I'm assuming so since the business would be an LLC, as long as I fairly portion the interest as an expense using only the amount that would reasonably be attributed to the business?

I do my own taxes. Although that may need to change once I get the business up and running, I was hoping not to involve a CPA at this stage to answer this question.

JBTX
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Re: Business deduction: How to deduct mortgage interest for business when loan is in personal name?

Post by JBTX » Mon Oct 14, 2019 12:18 pm

I would strongly suggest you get a competent cpa who deals with small businesses. It may very well be that they recommend setting us a separate legal entity for the new property. If nothing else for liability protection. On the surface having a personal loan for tax purposes funding a business venture doesn't make a ton of sense, but you really need someone who knows this stuff and can evaluate the details of your situation.

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JamesSFO
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Re: Business deduction: How to deduct mortgage interest for business when loan is in personal name?

Post by JamesSFO » Mon Oct 14, 2019 12:21 pm

FWIW, I've gotten conflicting advice from CPAs on this. Our current CPA said the HELOC I used to temporarily fund a loan would not be deductible and the new CPA we had hired said it would be... YMMV.

RudyS
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Re: Business deduction: How to deduct mortgage interest for business when loan is in personal name?

Post by RudyS » Mon Oct 14, 2019 3:33 pm

This looks to be similar to the tax treatment of a home office. That's what you suggested. You are using part of the property for the business. The way to calculate percentage used for business might be be tricky; for sure it is beyond my ability.

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