Cashout refinance interest

[Amol K.]

Could you please let me know if the interest in Step 5 below would be tax deductible:

1) Buy Property for $100k. $20k cash down, and $80k loan (for simplicity, say interest-only)

2) Property appreciates to $150k

3) Refinance to 80% LTV ($120k loan)

4) Use proceeds to pay off loan in 1) and reimburse myself the $20k I had put in

5) Is the entire interest on the $120k loan tax deductible?

[Ashish Acharya]

Originally posted by @Amol K.:

Could you please let me know if the interest in Step 5 below would be tax deductible:

1) Buy Property for $100k. $20k cash down, and $80k loan (for simplicity, say interest-only)

2) Property appreciates to $150k

3) Refinance to 80% LTV ($120k loan)

4) Use proceeds to pay off loan in 1) and reimburse myself the $20k I had put in

5) Is the entire interest on the $120k loan tax deductible?

You have to trace the interest on how it’s being used. You cannot deduct the interest on the additional refinanced loan(on top of 80k) if it was used for personal purpose. If you use that additional proceeds to reinvest, then yes they are deductible at the another business level.