Tax implications of cash out refi to buy investment property

[Frank Wells]

Thank you in advance for taking the time to read and/or answer my question.  I appreciate your time.  I'm, not sure how to pose this question either but here goes...

I recently used a cash-out refi to purchase a SFR rental property for 100% cash but I am now wondering if it would have wiser to buy it using a traditional mortgage from a tax perspective. Will I file a Schedule E for this property and get benefits like depreciation?

[Taylor Brugna]

@Josh C., sure thing.  The main question to ask is: What is the debt being used for? 

Let's say you have a primary residence and take a 100k heloc on it to buy a rental property. You wouldn't take the interest on schedule a (for your primary), you would take the interest on schedule e for the new rental property. What if you refinanced a rental and then used the proceeds to pay off your primary mortgage?That wouldn't be a rental deduction.

What's important where the debt proceeds are actually going. I can't go refinance a rental, buy a fancy sports car and call it rental interest.

Does that make more sense?