@ Raj,
You wrote:
"If this were not the case people could pull out equity and purchase vehicles, take family trips, go on shopping sprees, etc and still be able to deduct for these lifestyle changes. At least that's how I see it (though I could be wrong). I know there are folks who probably do these things fairly often, but I personally prefer to play it safe should any questions be raised."
I am just turning over possibilities. I don't know much about real estate, but I do know that people are able to take reverse mortgages, if not for sake of "lifestyle changes", for lifestyle maintenance.
I find the tax code (on rental real property depreciation, for example) complicated to the point of being absurd. I struggled for hours to find someone at the IRS who would interpret it so I could do my Schedule E with Turbotax. Thus, I now take nothing for granted. Probably I have at least three choices: (1) to get some kind of reverse mortgage or refi on the rental property; (2) to do that with my residence; and (3) to pay cash to remodel my wife's kitchen. I am sentimentally disinclined to pay cash because so many remodel jobs cost more than they are worth, value-wise.
Anyway, first things first, namely, what are the tax implications of taking a new loan on the residence or the residential rental property? What is prohibited and what is allowed? Probably the right question is where do I look to sort that out. Because the tax code is so convoluted and arcane, I hope to get some pointers.
