All Forum Posts by: Amol K.

Thank you everyone for your advice. 

Just two final questions on how much interest I am legally allowed to deduct, assuming that the extra Cash Out it not used for an activity that qualifies for deduction:

Q1: Which of the following interests could be deducted:

a) the principal balance of the original mortgage at the time it was refinanced

b) the principal balance of the original mortgage at the time it was opened

Q2: if I purchased a property with cash, and then later cash-out refinance it with a mortgage, can I deduct any interest from the new mortgage by default, or is it also determined by how I utilize the Cashout? (I will utilize it to pay off a HELOC, which I had drawn upon to purchase the property cash-down).

Thank you very much!

@David Robinson, no, it is rented it to a tenant

I understand that if I do a cash-out refinance on an investment property (Property A), and use the extra funds as down-payment for my next property (Property B), then I can deduct the interest paid on the cashed-out funds as well.

Does this still work if:

1) Property B was purchased 6 months before the refinancing transaction
2) Property B was purchased before, but within the same tax year as the refinancing transaction

Thank you very much!!

How does a 1099 for a refinanced property look? Does it break out the portion of interest on the original loan and the interest on the cash out? Or does it show the total interest, and it is my responsibility to calculate how much of it is actually deductible, based on how I invested the cashed out funds?

I was advised that it is the lenders responsibility to show the correct interest on the 1099. Once I have a 1099, I am allowed to deduct the entire interest on it. Could you confirm if this is accurate?

Can the following argument fly:

$100k of the new loan should be traced to the rental activity, since $100k was originally invested into the rental property: $80k borrowed from the bank, and $20k borrowed from myself?

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?

Thanks, @Ashish Acharya. Is it a yes for both questions?

If I cash-out refinance my personal car (originally purchased all cash), then use the proceeds to buy a rental property, can I deduct the interest paid on the car from the cash-flow coming from the rental property, for tax purposes?

If I borrow cash from my credit card (cash advance) and use it for the same purpose, can I deduct that interest?

Dear All, thank you very much for your answers. Below are some clarifications to the questions you had:

@Mike S., the LLC is acting in the capacity of the appointed rental management agent for me.

@Jaysen Medhurst, the LLC has no assets in it. I am purely using it as a rental management company.

@Account Closed, perhaps your client is comparing an LLC to a C-Corp. I am comparing it to not having any company at all, and doing rental management in my own name.

So would it be correct to conclude that with the way I am currently structured, the legal risk is about the same as not having any LLC at all? Does the situation change if I transfer the properties to the LLC? The reason I dont do that is to enjoy the low interest rates offered by conventional personal mortgages, instead of taking business loans.

Is this a correct summary of my options:

Option 1: stay as is
Option 2: dissolve the LLC and conduct rental management in my own name (not higher legal risk than Option 1)
Option 3: get a higher interest rate business loan in the LLC's name, transfer properties to LLC
Option 4: Option 2 + get PUP insurance as @JD Martin recommended

I have a few rental properties, all financed via conventional mortgages in my own name, and property titles also in my own name. I also have an LLC.

When I rent out these properties, the rental contract is between the LLC and the tenant. Rent is received in the bank account of the LLC.

In this scheme, is the LLC providing me any protection at all? What stops someone from suing me directly, or in addition to the LLC?