Can a cash-out refinance mortgage on one property be written off from another?

[Aaron Knoll]

Two questions, for those in the know:

1. I currently own my house in full, mortgage. It would appraise at roughly $300k.

I'm considering buying a new property (currently rented out), refinancing this house by taking out a $180k loan on it. In addition, I'd take out a smaller mortgage on the rental property. 

When I read the IRS rules, my understanding is that *any* loan used to purchase investment property can have interested/points deducted from rental. So in theory, I could deduct both mortgages' interest from rental income on the new property -- is that correct?

Next: sometime 2--3 years from now, we would occupy the rental house and rent out (or sell) our current house. Would writing off *both* mortgages from the new rental investment prevent us from writing off either of them on our current house, should we ultimately rent that out?

2. How is building cost (for depreciation) assessed? Is it based on tax value of the property, or on "cost of building replacement" for insurance? Or neither?

Thanks! 

[Bill Gulley]

It is agreed that the purchase price shall be 600,000, 200,00 for land and 400,000 for improvements.

Just had a good thread up this am on conversion of rental properties and capital gains, it covered the tax requirements for rentals to primary. The interest and loan expenses allocated to investments would cease and become interest under your personal home if secured by that home. Or, become a business deduction, interest expense on the new rental if it is financed. While I'm an accountant/auditor, I'm not a tax guy any more, check out the other latest thread! :)