Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
I've read/heard that doing a cash out refinance post 1031 exchange can allow you to tap equity tax free. But does it really?
It seems you can also not deduct the interest expense tied to the cash you just took out, UNLESS you invest the money in more real estate. You'll just be paying the money you would have saved on capital gains tax on non deductible interest over the life of the loan instead AND have the extra cost of the refinance fees...
This doesn't seem like a penalty free way of taping equity.
Surely there has to be some exit strategy that minimizes giving your money away to everyone. By the time realtors, banks, appraisers, escrow and inspectors all get paid, you've given away half of your money....
You can deduct interest on a HELOC of up to 100k regardless of what it's used for.
REEEAAALLY? That's good to know. Does anyone know if a bank will do a HELOC on a rental?
Only thing that sucks about refinances and HELOC's is that you have to be employed, which I am, but when I retire and want to tap the cash, it's going to be difficult to tap without W2 income. At least the HELOC gives me something I can work with so I can tap equity without selling and incurring transaction costs.
HELOC is for owner occupied dwellings. @Natalie Kolodij can confirm, but investors with lines of credit on rentals generally have a LOC, not a HELOC. The IRS says you have ONE personal residence (not counting a 'second home' that may be up to the lender as to how it qualifies.)
