Cash out refinance on primary home to pay off rental property

Forum|Forum|6 years ago
January 26, 2020
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We did a cash out refinance of our primary home for $300,000 -- and we used the mortgage to refinance the balance on our primary home ($200,000) and to pay off the balance on our rental property mortgage ($100,000).

The settlement directed the money to the two mortgage companies, so we never touched the $100,000 cash out. I'm trying to figure out the tax implications. Clearly I can't deduct the mortgage interest on the $100,000 cash out on our home, but can I deduct it for the rental property as an expense? Thanks!

NCPERSON1

please see publication 936 where is states in the middle of page 2

"Note Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan. "

https://www.irs.gov/pub/irs-pdf/p936.pdf

since the rental is not the "taxpayers home that secures the loan" the interest is not deductible.

the $200,000 that refinances the existed debt on your primary home is presumably 'acquisition debt' so it remains deductible.