Updated over 6 years ago on .
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Tax implication of refinancing main home for granny flat rental
Hi BP,
We are looking to do a cash out refinance of our primary residence (no outstanding mortgage). Half of it will be to convert our garage to a granny flat for STR. My understanding is that the tax treatment is the same as if I were using that amount to buy a separate rental property. Specifically:
1. I can depreciate the granny flat
2. I can deduct mortgage interests
3. I can deduct a portion of property tax equal to the ratio of granny flat / (granny flat + main home)
4. The cost of construction gets added to the home basis
Is there anything I'm missing?