Before reading this article, you should read the article titled “Home Equity Loans Pros and Cons—Learn How to Avoid Tax Pitfalls” in this issue (click here). This will increase your understanding of how tax law attacks the home equity loan.

Now that you have finished that article, let’s suppose that you have a rental property and you want to fix it up. Let’s suppose further that the favorable interest rates on a home equity loan have your attention and you would like to use a home equity loan for the fix-up.

How would such a loan work for tax purposes?

Before we can answer that question, we need to take a look at limited liability companies (LLCs).

Overview of LLCs

There are two basic types of LLCs: (1) single-member LLCs and (2) multimember LLCs.

With one big exception, the single-member LLC is owned by a single person. ... Log in to view full article.