Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
Let's say I have a rental property. I do a cash out refinance and don't reinvest the money I pulled out. Does that mean that I can no longer deduct the full interest on the rental property mortgage? I know the dollar value of the interest and principal payments would change, what I'm asking is will I still be able to deduct 100% of the interest after the cash out refinance or would it be prorated?
What about if I DO reinvest the proceeds in more rentals?
From my understanding, regardless if you did a cash-out refi or you mortgaged with a downpayment for this rental property (assuming it is) it's no different to the IRS from a interest tax deduction standpoint. What makes the interest 100% tax deductible is the fact that you own an income producing property, not the cash you put in or refinanced out.
If it's a mix use (househack) or 100% primary use, you might have to get some more insight from a tax professional who can tell you the new 2018-2025 tax code about the $375k/$750k limits for primary or perhaps a prorated amount for househack?
Nobody really pays attention to these rules, so thumbs up for asking.
@Lionel Li is mistaken, it does matter. If the old loan was $100k, and you refinanced into a $150k, only 2/3 of the new loan's interest is deductible against this rental.
If you use the $50k to buy another property, then the interest on $50k would be deductible against that other property.
Nobody really pays attention to these rules, so thumbs up for asking.
@Lionel Li is mistaken, it does matter. If the old loan was $100k, and you refinanced into a $150k, only 2/3 of the new loan's interest is deductible against this rental.
If you use the $50k to buy another property, then the interest on $50k would be deductible against that other property.
Thanks, I believe I had read something similar to that on a blog some time ago but can't find it. Seems like this question is asked in a lot of places online with no definitive answer in most places.