Cash-out mortgage to invest abroad- Tax implications?

[Tara G.]

We have a paid off rental home held in an LLC that we have a business LoC against (which can be converted to a fixed cash-out mortgage). We are looking to invest the proceeds in real estate abroad. Can we deduct mortgage interest expenses from the rental income generated by this property? what are the limitations to investing the proceeds? Do the proceeds need to be invested in the name of the LLC? BTW, this used to be our primary home that we deeded to the LLC about 5 years ago.. TIA!

[Steven Hamilton II]

Tara G.,

Once you start keeping track of everything you will be able to deduct the interest inside the LLC if you use the LLC to make the purchases.

The loan proceeds will have zero tax consequences.

Any interest in excess of the basis will be deductible related to the specific investment as long as you can directly trace where the funds were used and what percentage. I highly recommend writing promissory notes for each part of the transaction to document what goes where.

Tara, feel free to shoot me a message and I can explain for your situation.

It sounds to me like you have large building project going on here. Cost segregation sounds like it is going to be ideal here.

Do not forget however, that foreign rental property is not depreciated over 27.5 years residential or 39 years for commercial. It is depreciated over 40 years since it is not US property.

-Steven