You just bought yourself a whole peck of tax trouble.
Why? Tax laws require you to allocate interest expenses based on the specific use of the borrowed funds. Those convoluted rules can lead to a record-keeping quagmire, especially if you mix your loan dollars with other funds.
Strategy: Deposit loan funds in a separate account and use them for a single purpose. Don’t commingle the loan proceeds with other funds. This is the best and most practical approach for avoiding dire tax complications.
Here’s the whole story: The amount of interest you can deduct depends on the way the IRS characterizes your loan. If loan proceeds are used for more than one type of expense, you must allocate the interest based on that use.
Specifically, you must...(register to read more)