2nd Home to Rental After Cashout Refi

[Matthew K.]

Team,

I am in the process of closing a refi on a property in PA.  After close I intend to use this property as an investment property.  Is it as simple as just fileing as a rental instead of a 2nd when I do taxes next year?  It will be a long term rental.  Thanks, Matt

[Matthew Morrow]

Hi Matt,

In general Yes, however a few things play into it. If filing yourself or if its in your name then the property should be listed on the Schedule E form come tax time. It get slightly more complicated if with a partner / corporation- then you need a K-1. 

Regardless, This is very common and your accountant should know how to prep this in short order.

[Michael Plaks]

Quote from @Matthew K.:

I am in the process of closing a refi on a property in PA.  After close I intend to use this property as an investment property.  Is it as simple as just fileing as a rental instead of a 2nd when I do taxes next year?  It will be a long term rental.  

Yes, it would be filed similar to if you just purchased it.

Two complications are tax basis for depreciation and interest deduction. Basis will be what you originally purchased it for, plus most closing costs and major improvements since that time. It does not matter what it is worth today, unless the value dropped below what you bought it for. Mortgage interest deduction for the refi will likely be limited to the portion equal to the original mortgage, unless the refi cash is used to improve this property.

Please keep in mind that these are general principles, and there could me many nuances in your particular situation.

[Matthew K.]

Thank you for your replies to this question.  Much appreciated!