Paid off House Help in Orange County

[Brian F.]

Hey everyone, My name is Brian. I am fairly new to the BP community and have been overwhelmed by the amount of resources that this page has for young investors like myself. I currently own one single family home that is paid off, have renters in it, and self manage the property. The cashflow that has accumulated every month has introduced me into the world of real estate investing. I do have some questions regarding my next purchase. Please bare with me as I am new to all of this and am still trying to learn.

I am in the market to purchase another property. I have a few properties in mind but coming up with the financing is where I am questioning if it can be done. I would like to purchase another single family home and utilize the BRRRR method. I have all the property income that I have accumulated over the year and as well as am thinking of taking a mortgage out of the single family home. I have just signed another year with my very happy renters which can cover the cost of the loan that I take out of the house. Am I able to take my income and file it a certain way for tax purposes so I do not have to pay income tax on it? Taking a loan out of the house allows me to have the cash and be aggressive in the properties that I am trying to purchase as well. In my head I am utilizing my paid off property as my own bank so I am able to purchase another property and hopefully continue to repeat the process. Let me know what you guys think or if this is even recommended.

Appreciate all your help. 

[Linda Weygant]

Quote from @Brian F.:

Quote from @Linda Weygant:

@Brian F. - make sure your tax professional fully understands the Interest Tracing rules.  In some of the professional groups I'm in, I've been a little shocked recently on the number of CPAs who have disallowed interest deductions for their clients because they didn't understand those rules.

Hopefully your CPA is real estate focused and has a full understanding on how to maximize the interest deduction for you.

Thank you for everyone's concerns with regards to my CPA. Unfortunately I am trying to convince my current CPA about what I am trying to accomplish. If anyone has any and all recommendations about what I need to suggest to him, please let me know. 

 Tell your CPA to research "Interest Tracing Rules" and Section 1.163-8T

But honestly, if this is something they don't know, I'd be a little nervous about what else they don't know.  You want somebody that really knows the nuances of everything you do, not somebody that you have to educate.