Interest on HELOC used solely for S-Corp

[juggy_jagadish]

I have a HELOC and the funds are used SOLELY for my S-Corp. It is not used for any personal or home improvement purposes. The HELOC is in my personal name. My S-Corp is not a real estate rental.

Can I deduct the interest on my S-Corp taxes? If not, can I deduct it on my personal taxes? Where? Any input or advice? TIA!

[PatriciaV]

The interest is not deductible for you or your S-Corp because the funds were not used on your home.

According to the IRS Home equity loan interest: No matter when the indebtedness was incurred, you can no longer deduct the interest from a loan secured by your home to the extent the loan proceeds weren't used to buy, build, or substantially improve your home.

[juggy_jagadish]

Right, I understand the interest cannot be deducted as mortgage interest but I am told that it can be deducted as an expense on schedule E to offset pass through income from the S-Corp. Trying to figure out how to do this. Thanks.

[KrisD15 · Accepted solution]

If you took out a HELOC and use it for expenses of the S-Corp, enter the expenses paid for with the HELOC.

If you paid interest on the HELOC which was used solely for the S-Corp, enter that amount as an Interest Expense. It is not entered via Form 1098. 

Keep Form 1098 with your tax file to verify the interest claimed as a business expense. 

[juggy_jagadish]

Thank you. The HELOC is used solely for the S-Corp. On which form or window in TT Deluxe (desktop version) do I enter the interest expense?

[PatriciaV]

If the income from the S-Corp is reported to you on Schedule K-1, you would enter the HELOC interest as investment interest expense. Find this topic in TurboTax for Desktop under Federal Taxes >> Deductions & Credits >> Retirement and Investments >> Investment Interest Expense.

For more info, see What Are Deductible Investment Interest Expenses?

[juggy_jagadish]

The S-Corp is for a business activity. Investment interest expense deduction is limited to interest income, although it can be carried forward. Would it not be better to deduct the interest as a business expense under Schedule E?

[PatriciaV]

The only way to report this on Schedule E is for the interest expense to be claimed by the S-Corp and included on Schedule K-1. If this is a single-member LLC, that treatment is a possibility.

[juggy_jagadish]

Sorry, I’m a little confused. If the S-Corp already claims the interest, there would be no need to claim it on the personal returns right? 
What am I missing?

[RobertB4444]

If you enter the interest expense on your 1120-S as an expense to the S-Corp that is the only place that you need to enter it.

@juggy_jagadish 

[juggy_jagadish]

I don’t think the S-Corp can take the deduction because the HELOC is not in the name of the S-Corp. it is in my personal name.

[PatriciaV]

You are correct. The HELOC is your personal debt, so the interest expense would be reported on your personal Form 1040 tax return. Because the proceeds of the loan were used by an investment, the related interest expense is investment interest expense. As stated earlier, this is an itemized deduction for Schedule A. There is no path to enter this interest expense on Schedule E.