Arthur writes: The scenario: I buy an investment property, specifically an apartment building, for mostly cash with some partners. I refinance the property later. Is there a different in interest deductibility among the different loan options available to me - refinanced, home equity, line of credit, etc.?
Arthur, Schedule E makes no distinction between the types of loans you can get on your property. A refinancing is the same as an original mortgage, and so is a home equity (second mortgage), lump sum or line of credit. Your financial institution sends you a 1098 form showing you the interest paid, and you should add these together on Line 12 of Schedule E. If you have private financing (e.g. a land contract, or another financing arrangement that involves the property as collateral), report that separately on Line 13. Indeed, you aren't limited to secured debt. Interest on credit purchases, including credit card interest, is deductible on both Schedule E and C, even though this was eliminated for personal deduction years and years ago. (Probably wisely, because the last thing the government should be doing is encouraging personal debt. Business debt, though, is considered investment and should be encouraged.) If you can't pay off a contractor, but you keep up with payments including interest, that is all deductible.
Back to your question, though: certain types of interest aren't deductible. Interest on taxes due, for example, or interest paid with funds from the original borrower, and interest that is required to be capitalized (e.g. for products you produce, which doesn't apply to real estate you own rather than build).In general, then, there is no tax advantage or penalty for choosing a particular loan option, in terms of this deduction. There may well be tax effects in terms of depreciation or asset allocation, so keep those in mind.