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I purchased a second home which is a rental property. I could not afford the mortgage, so got a mortgage for 2/3 of the cost and the rest I paid for from my Line Of Credit. I have claimed the interest part of the mortgage and the interest part on the LOC. I know would like to convert the LOC into a mortgage to start having the principal on that part start to go down, so I am not jut paying the interest. Especially as rates are lower now. If I paid off that original borrowed LOC money and moved those funds to a new mortgage, can I still claim the interest even though it is a new loan? The debt still relates to the rental property purchase.
Yes, you can still deduct the interest even though it's a new loan. This is because the loan proceeds are being used for an income-producing purpose.