Refinancing rental properties

[jfwfla]

What is the name of your state? Florida

seniorjudge
Senior Member Join Date: Dec 2004
Posts: 7,750

Quote:
Originally Posted by jfwfla
What is the name of your state? Florida

I was wondering if I refi a condo I rent out in order to cash out equity, How will the IRS view the new loan?

In other words, I currently have a mortgage balance of about $46,000.00 and have been showing about $2,500.00 per year inerest deduction on my schedule E. If I refi to it's current value, I will have a $120,000.00 mortgage with about $7,000.00 interest deductions showing on my schedule E.

Will the IRS allow this even if I'm not using the cash to do anything concerning the rental property itself?

Post this in the tax section and tell them we sent you over so you do not get a nastygram for doubleposting.

 

[tdavidl]

i'm not certain, however, there are "tracing" rules in other sections of the code when it comes to debt as you describe. tracing means "what were the funds used for"

i suspect that if you simply cashed out & used the cash for personal purchases you would not be entitled to deduct the add'l interest on sched e. if you used the cash to buy another rental the add'l interest would go against that property, if you invested the cash it might be investment interest.

make sense ?

 

[jfwfla]

Thanks! Did anyone else know anything else regarding this?