How to calculate interest deduction after cash out refi?

Question

Cash out refinanced 4 rentals. Goal is to buy more rentals with the money, but I'm not finding any deals yet.

How can I calculate the interest amount I'm allowed to deduct on the new loans for the rentals? Are they fully deductible since the money is not being used for personal stuff but set aside for investment into more rentals?

Do I subtract the old interest amount? (That doesn't seem quite right).

Alexandre Marques dos Santos · Answer

@Jack B.

Well seems you cant find deals and you cant ask properly questions, and in top of all, you are completely rude.  I am sorry i wasted MY Time trying to help someone who clearly do not deserve any help.

Jack B. · Answer

I saw your post from another thread years ago where you said if you hold the money waiting to buy, you can argue that it's still investment money, etc.

So as far as my original point, it sounds like 1) if I hold I can technically deduct ALL of the new interest amount since I haven't spent it on personal use and am holding for buying more rentals (it's not like it happens in a day right lol). 2) If I don't invest it, I basically only deduct the original interest amount from my old loan, not the NEW loan?

Ashish Acharya · Answer

Yes, you technically need to trace interest on the additional loan (on top of old refied loan).

If it was cash purchase, then you might have to trace entire loan amount to the new activity. I have seen this being treated wrong and deducted at the property level.

If you are just holding the proceeds, you can argue that’s it’s an investment interest expense. They are deductible at the personal but have limitations and depends if you are itemizing.

Alexandre Marques dos Santos · Answer

@Jack B.

Not sure if i understood your question.  But let me try from what i took it ...

You refi your house to buy a new one.  Interest is an expense for your business ( please i am not a CPA, so talk to one to confirm), and you want to find, from the payments you do, how much is interest and how much is principal, to be able to deduct from your income.

I will start saying bank will send this info.  If you want to find yourself, i would build a spreadsheet and use Excel to calculate.

What we know?  PV, tenor, interest and installment is equal.

With all the info, you can get to find how much is interest and how much is amortization.

One extra info ( check with your CPA).  I believe the expense you incur in refinancing should be deducted from your income ( i never did refinance, so uou need to double check this).