Interest deduction on cash out REFI

[Mike Montana]

If you own a SFR without debt and REFI the property to cash out the equity then use the cash to invest in a syndication or buy another rental, is the interest on the loan collateralized by the SFR a tax-deductable expense? Does it matter if the SFR is individually owned and titled or heald in an LLC?

[Eamonn McElroy]

@Michael Plaks

Generally it's taken on Schedule E on a separate line and maintains the character of the partnership / S Corp interest (i.e. passive vs non-passive).  Reporting is similar to UPE and has the same basis and tax effects.

If the pship / S Corp owns a variety of income producing assets than a look through approach might be warranted and allocation is allowed based on any reasonable method.  (e.g. if the 20% of the assets of the partnership are common stock and the rest is trade or business rental real estate than it might be appropriate to put 20% of the loan interest on Sch A as investment interest and the rest on Sch E).