Tax on mortgage interest payments using BRRR

[Turner Monroe]

I love the idea of the BRRR strategy, but there's one thing I can't figure out. Don't you lose the ability to tax deduct interest payments on the mortgage after the "Refinace" part of the strategy. Since the loan wasn't an acquisition loan, and instead a cash out refinance, it seems like you'd lose out there.

Is there any way to get around this?

[Linda Weygant]

OP might be talking about interest tracing.... maybe.  It's a stretch.

Mortgage interest is deductible whether it's for acquisition or refinance.  So long as the building is used as collateral for the loan, it is deductible as mortgage interest on whichever schedule is most appropriate (A or E or 8829 or whatever).

What sometimes happens is that CPAs will apply interest tracing so instead of taking the interest on the property where the the loan is actually secured, they will take it for whatever the loan proceeds were.

This can include people who take a home equity line out on their primary residence and use the proceeds to invest in a home.  It's appropriate to take that interest either on Schedule A, since it is still primary residence loan interest, or in the business where the proceeds were used.

I've not heard of the interest deduction actually being lost though.  Even people who use equity proceeds on a vacation or a new car or to blow at the casino or whatever - they can still deduct primary residence loan interest on Schedule A (or wherever appropriate).