All Forum Posts by: Russell Roberts

@Jay Chang replied "You can avoid tax gain by refinancing your property. This way, you can pull some of your capital out and not get taxed.:   

My followup question:   With the 2018 tax law changes, if the refinanced capital pulled out were used for some consumer/non-investment purposes, then is the interest expense on the new loan still tax deductible against the property's income?   Or would you be loosing the interest expense deductibility in that case?      

I'd like some feedback on a non-typical cash reserves idea using HELOC on investment property.

Goal: maintain $40,000 in cash reserves

Option 1: Deposit into bank money market for ~ 2.3%

Option 2: Purchase $120,000 SFR. 25% ($30,000) down payment, PLUS the $40,000 "cash reserve" funds. SFR has 7.5% cap rate. Since total equity invested is 58% (70/120), it is certain to cash flow well. Remaining $50,000 is borrowed from 30yr first lien HELOC, with a 75% LTV maximum credit line. So the $40,000 could be quickly accessed if needed (the Primary goal) from the HELOC. Advantage of Opt 2 is that the $40,000 is invested in a property with 7.5% cap rate instead of 2.3% money market.

The disadvantage I see is that the borrowed principal on HELOC is costing 6.25% instead of the 5.0% I'd likely get with fix rate 30yr term mortgage AND HELOC is adjustable rate tied to LIBOR + a margin. The interest rate arbitrage between cap rate 7.5% and borrowed funds 6.25% is thinner than I'd normally find acceptable (normally 2.5 spread minimum) , but the main goal on this one is access to cash reserve.

I'm leaning toward Opt 2. Thoughts welcomed.

Those are GREAT thoughts!!!  No wonder you have so many votes on BP.  THANKS for the ideas.

My father, who is nearing 80yrs and in reasonably good health, wants to sell 52 acres of farmland. It was purchased 45 years ago @ $250/acre and is now worth $5,000/acre. He's interested in providing seller financing over 10 years for the income stream. He'd like to minimize his capital gains tax. Any thoughts on strategy to reduce taxes? Subdivide and sell parcels in different years to stay in a lower tax tier? suggestions welcomed.

I also discovered a great podcast and blog post on this topic.

Who Said All HELOC Interest Is No Longer Tax Deductible?

Who Said You Can’t Deduct HELOC Interest? – Interest Tracing Explained

I also discovered a great podcast and blog post on this topic.

Who Said All HELOC Interest Is No Longer Tax Deductible?

Who Said You Can’t Deduct HELOC Interest? – Interest Tracing Explained

I also discovered a great podcast and blog post on this topic.

Who Said All HELOC Interest Is No Longer Tax Deductible?  

Who Said You Can’t Deduct HELOC Interest? – Interest Tracing Explained

@Michael Plaks  Great, helpful, and clear answer to a difficult question!!   Thank you.  

I did a cash out refinance on my primary residence in 2017.  I did Not use the loan proceeds to buy, build, or substantially improve my primary residence.  Instead, I used it to fund other real estate investments.  Some was used for down payment on single family rental properties.  Some was used to invest as limited partner in a larger syndication deal which provides me with a K-1. 

With the 2018 tax law changes, I understand that the interest expense no longer qualifies as deductible on my itemized federal income tax because I did not use the loan funds in a qualifying way (to improve the primary residence).

My question: Can I match up this personal residence interest expense against my investment property income from the single family rentals and K-1 returns?  That is exactly how I used those loan proceeds..    thanks for any advice.

Both replies are VERY helpful.  Thank you for the advice!!