Investment Property - Can't Deduct Impacts Nobody Mentions???

[Rocco Swinney]

Hi All!

I started using biggerpockets about a month ago and I see so many folks mention about obtaining a cash-out refinance on their investment properties... I was hoping someone could clarify the below, as my understanding is you CANNOT simply deduct the interest right away. Example Only below:

Ex,. Investment Property worth 200k. You takeout a cash out refinance for 100k. The 100k is not deducible at this time. However, you end up using 50k of it on a down payment for another investment property for 2020. So you can only deduct 50% of the interest from property 1because only 50k of the 100k was used for investment purposes for 2020. There is not a timeframe when you must use the other 50k, correct? Ex. In 2021 you then use the other 50k as a down payment on another investment property so for 2021 you can then deduct 100% interest from the original investment property you obtained the cash out refinance on.