Renting out Townhouse with HELOC on new house -

My question is: US-specific
QUESTION: we bought a townhouse as primary residence in xxxxxxxxxxxx,
Maryland in July, 2004. in Sept 2005 we bought another single family house
and moved into that (primary residence) and rented the townhouse.
To buy the single family house we have taken HELOC (interest only loan) of
179,000$ at prime - .5% (till life of loan) and we are paying almost 1000$
per month towards HELOC.
Question is do we get a tax break on the HELOC.
What percentage of it do we get as tax break?
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david ingram replies:
Any interest paid on the townhouse is deductible against the rent received.
You would report both figures plus property taxes condo fees, management
fees, repairs and anything else shown as a deductible expense on schedule E
of your 1040.
The interest on the HELOC (Home Equity Line Of Credit) is deductible under
mortgage interest on schedule A of the 1040 and at $1,000 per month will
certainly be a deduction along with any interest and property taxes on the
townhouse until you rented it and property taxes on the new house for the
balance of 2005.
I cannot tell you what it will be worth.  You have to give up about $7,000
of standard deductions to claim itemized deductions and then it depends on
your tax bracket.  At $20,000, you might save 15% and at $400,000 you could
be saving over 40% counting state and federal and possibly city or county
taxes which you will find in New York, the Bronx, Philadelphia and Grand
Rapids, Michigan among others.
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