Is LTC necessary?

Our Experts Answer:

The answer depends on the amount of equity you have in the original property. This is because the interest deduction available against the rent is limited to the remaining loan that purchased the original home now rented - regardless of what property provides the mortgage security for the lending.

None of the interest on the new home loan is deductible against the rent from the old property. So the more equity you have in the old property the higher the tax bill from renting it that can't be sheltered by the new interest cost.

The solution is to restructure the old property by sale to an entity - perhaps an LTC - that debt funds the purchase of the old property. This frees up equity to put into the new home and reduces the private non deductible debt. So the key point is interest deductibility. This is determined by whether the borrowed money was used to buy the rented property, not by which property secures the loan.