Cash out refi - interest tracing rules

[Matt N.]

Hi! I was reading about the interest tracing rules and it seems like if I do a cash out refi (even on a primary residence) and then put that cash in a separate investment banking account, I can begin writing off interest from the investment. Does anyone know the following: 

1) If this sounds doable, and if there is guidance on what I can do with this. For example, can I purchase stocks with this cash and still write off taxes?

2) What if I use the cash to purchase upgrades for another investment property - can I write off both the cost of the upgrade AND the portion of interest associated with the upgrade?

3) If it just sits in the investment account, can I still accumulate taxable interest year after year until I use the cash for an income-generating property or stock?

Thank you!

[Ashish Acharya]

Originally posted by @Matt N.:

Hi! I was reading about the interest tracing rules and it seems like if I do a cash out refi (even on a primary residence) and then put that cash in a separate investment banking account, I can begin writing off interest from the investment. Does anyone know the following: 

1) If this sounds doable, and if there is guidance on what I can do with this. For example, can I purchase stocks with this cash and still write off taxes?

2) What if I use the cash to purchase upgrades for another investment property - can I write off both the cost of the upgrade AND the portion of interest associated with the upgrade?

3) If it just sits in the investment account, can I still accumulate taxable interest year after year until I use the cash for an income-generating property or stock?

Thank you!

1) Yes, but your interest might be limited based on how you file your taxes. 

2) The cost of the upgrade will be depreciated and the interest can be written off.

3) Maybe, make sure it sits in your business/investment accounts, not personal accounts.