Cash out refi mortgage interest

3 Replies

Hi all:

My understanding is that the mortgage interest on HELOCs on your primary residence is no longer deductible under the new tax law. Even if it is used to buy an investment property.

But, what about mortgage interest on a cash out refinance on an investment property bought as an LLC. Is that deductible?

Thanks.

Mehul

@Mehul Parekh

All interest to buy an investment property is still deductible, no matter what the source of the money is.

It just needs to be clearly traceable to the property bought.

Originally posted by @Mehul Parekh :

But, what about mortgage interest on a cash out refinance on an investment property bought as an LLC. Is that deductible?

The second half of your question is a little vague in that you did not specify the use of the loan proceeds. 

The interest paid on the amount of remaining debt that you refinanced is still deductible as mortgage interest on the investment property (whether or not you have an LLC). The amount of the cash out -- the amount over and above the loan balance you refinanced -- may be deductible depending on how you used the cash out proceeds.

If you used the proceeds of the investment property refinance to improve the property then all of the refinance mortgage interest is deductible for that investment property.  If you used the cash out money to purchase another rental property, then the mortgage interest on that portion of the refinance loan is deductible against the new property's Schedule E.  If you used the refinance proceeds to buy a new car and pay for a trip to Disney World, then the mortgage interest is a non-deductible personal expense.

That is exactly what I had in mind. Buying another property with the cash out refi.

Thank you.

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