I've struggled to understand interest tracing and even after re-reading the IRS documents I am still pretty fuzzy and hoping to find some guidance from this community. How would interest tracing work in this scenario:
1. A while back my wife and I did a cash out refinance (Loan A) of a condo (Investment Property A)
2. We used all the refi cash from loan A towards a portion of the down payment on an **owner occupied** multifamily (Investment Property B)
3. We recently cash out refi'd Investment property B (Loan B) and now that money is just sitting in it's own separate bank account.
4. We are about to use the cash from Loan B to invest in more real estate (our own as well as other people's syndicated deals). We are also considering using the funds to buy some gold as a hedge.
My understanding is that I can deduct 100% of the interest from Loan A, and Loan B as long as I keep the funds I received from Loan B separate from our personal funds and only use them for other investing activity, is that right?
-Are there any other limitations on how I invest Loan B that could impact my ability to deduct the mortgage interest?
-Would there be a way to purchase gold using Loan B funds without harming my ability to deduct the interest?
-My wife and I deposited the Loan B refinance funds into a newly created bank account that is in our personal name, any issue there?
Anyone have any experience or pointers on this?
As long as the loans are going toward business investments and even interest on your primary residence you should be able to deduct it all.