Cash-out refi tax implication

[YaWen Hsu]

Hi, I am thinking to refinance two of my loans. I have a primary with ~$200k and an investment property with ~$270k left in loan amount. Both properties are in California.

My mortgage broker recommended me to do cash-out refi on my primary to get a better interest rate with no point no fee. I can use the cash to pay off my rental. With my research, I believe this is not a good move because I can’t deduct the interest paid on mortgage if I don’t use it toward home enhancement or other properties. Instead, I’ll do two separate refinance on two loans with a bit higher interest rates and some fees. From my calculation, it’ll take me 7 months to recover the fees from the refi-saving. I plan to keep both properties for more than 2 years, so I still think it makes sense.

Since this is not a small move and I can’t get a hold of my accountant, I like to borrow the wisdom of this group to see if having two refinance indeed a better choice.

Also, I plan to move into my investment property sometimes next year and probably refinance again. I look to stay there for at least two years and then sell the property as the HOA is really high. Anything I might miss or want to consider with the refinance plan?

Thanks in advance!

[Michael Plaks]

@Daniel Dietz

Loans have nothing to do with capital gains, ever. Initial loans, refis - none of them.

Bought for $100k, sold for $200k - you have $100k capital gain, with or without loans.

Without a loan, you walk away with $200k cash and $100k capital gain.
With a $100k loan, you walk away with $100k cash but still $100k capital gain.