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Updated over 7 years ago on .
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Tax implications of cash out refi to buy investment property
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?
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@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?