Cash out refi & mortgage interest

New to Real Estate · Member since 2020 · 52 posts · 8 votes

Hello Everyone,

I am considering a cash out refinance and I came across an article that states I must utilize the money from the refi to improve the property or buy another property to ensure the mortgage interest is a write off.

Does anyone know the accuracy of this?

Additionally, if the money must be used for the above reason, does it have to be used in the same year as the refi?

If there is any other information I should know, please let me know.

Thank you very much. I appreciate any help I can get.

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Chris McCormack
Accountant · Edina, MN · Member since 2020 · 172 posts · 97 votes
3y
Assuming the property being refinanced is an investment property then the interest is deductible on Schedule E. The refinanced cash comes to you tax free.
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Clark Peterson
Lender · Catskills / Hudson Valley / Greater NYC Metro · Member since 2023 · 24 posts · 11 votes
3y
Hi @Christopher Duron, if the property is an investment property the interest expense is deductible on Schedule E. The article may have been referring the the deductibility of interest on home equity lines of credit on primary or second homes (non-investment properties), which is deductible if the proceeds are used to make improvements to the property. Hope that helps!
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Devin PetersonBusiness Member
Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 667 votes
3y
Lots of ways around this - just have to make sure the cash out is for "business related" purposes. Satisfied by a simple LOE
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Christopher Duron
OP
New to Real Estate · Member since 2020 · 52 posts · 8 votes
3y
Thank you all very much.
The property referenced is an investment property with 4 units that my business partner and I have a schedule E for.
One more question on this, will me living in one unit and getting a “primary residence” rate affect the interest write off?

thanks again.
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Scott Raitt
Member since 2023 · 27 posts · 4 votes
3y
Quote from @Christopher Duron:

Thank you all very much.
The property referenced is an investment property with 4 units that my business partner and I have a schedule E for.
One more question on this, will me living in one unit and getting a “primary residence” rate affect the interest write off?

thanks again.

Would have to be Home improvement then. Have you explored financing costs?
If you are in one of the units then it is owner-occupied and helps you out.
Please PM if you wanted to discuss costings etc or have further questions - I'm in Escondido/Vista so local to you. (being able to claim the mortgage interest on your return will be dependant upon how well you can document the cost of the expenses also - have to do a good job of that. Happy to chat further
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