Tax implications of using rental property equity to buy other rental property

Forum|Forum|4 years ago
April 14, 2022
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If I use equity on 2 rental properties obtained through a cash-out refi to buy another rental property, can the mortgage interest still be deducted against income of the original 2 properties (on which the loans are secured)? What about the costs to obtain those refi loans? Thank you.

AmyC

Employee

The portion of the interest that belongs to the new property would go on it. You will need to keep a track of the money trail. It is best if you have a notebook for finances and Sch E- kept separate from your returns. Keep it safe and each year, add your year-end statements from all your financial accounts plus a copy of your W2’s, your schedule E carryover information, and proof of your basis in your various investments- along with your paper trail.

You must keep tax records related to a rental house from the time you purchase until you sell plus 3 years. It is very easy to lose track of disallowed losses, depreciation, etc. In your case, the paper trail ties all the properties together so until all 3 are sold plus 3 years, keep the records.

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