Cash Out Refi Tax Write Off

[Matt N.]

Question: I am taking out a cash out refi on my condo that I had originally paid in all cash. I've read that the interest from the cash out refi mortgage is NOT tax deductible UNLESS it is used for improvements for the home. However, I was hoping to do a cash out refi for a rental property, then use the capital from the cash out to invest either in stocks or another property. From there, I was hoping to deduct the interest expenses from Schedule E.

Would a CPA or anybody else be able to help clarify?

[Ashish Acharya]

Originally posted by @Matt N.:

Question: I am taking out a cash out refi on my condo that I had originally paid in all cash. I've read that the interest from the cash out refi mortgage is NOT tax deductible UNLESS it is used for improvements for the home. However, I was hoping to do a cash out refi for a rental property, then use the capital from the cash out to invest either in stocks or another property. From there, I was hoping to deduct the interest expenses from Schedule E.

Would a CPA or anybody else be able to help clarify?

You have to follow the interest tracing rules. If you can trace the interest to the business/investment activities, the interest might be deductible. Of course, this is a high-level note and you need to research more or talk to your advisor.