All Forum Posts by: Rocco Swinney

@Matt Devincenzo

No worries for being blunt. But to your point Which area was I being in correct? 

Can you expand so I can have the correct info? 

@Matt Devincenzo

No worries for being blunt. But to your point Which area was I being in correct? 

Can you expand so I can have the correct info? 

@Rocco Swinney

No. Any amount of the cash out refi can be used for anything you want.

Home improvement, but a new car, pay off cc bills. Whatever you want.

The amount being tax deductible is not negotiable.

That amount comes from the bank. They will send you a 1099 every on how much interest you paid.

If you have a tax accountant they should be able to tell you the same thing.

@Rocco Swinney

Look at the question you are asking.

In your 1st property that you do a cash out of $50K.

That $50K is now the principle. You can use that cash part of it or all of it whenever and however you want.

But the bank will charge you interest on that $50K.

Maybe each month you might have to pay $250 for using that $50K

That $250 of interest that you are paying the bank is tax deductible.

Does this make more sense?

@Rocco Swinney

Look at the question you are asking.

In your 1st property that you do a cash out of $50K.

That $50K is now the principle. You can use that cash part of it or all of it whenever and however you want.

But the bank will charge you interest on that $50K.

Maybe each month you might have to pay $250 for using that $50K

That $250 of interest that you are paying the bank is tax deductible.

Does this make more sense?

@Rocco Swinney

You are confused because you are asking 2 different things. 

You can deduct all the interest paid on the $50K cash out refi. 
the $50K is not the interest. You do not pay this amount to the bank. 

The interest is on the payment you pay the bank monthly. So look at the mortgage statement that you pay on the new cash out refi and you will see how much is going to the principal and how much is going to the interest. 

Ex. I do a cashout refinance on investment property 1 for 100k in 2020. None of the interest is deductible until all or some of it is used on another investment property

50k of it was then used as a downpayment for investment property 2.     

Say i paid 10k in interest for 2020 on property 1. 5k (50%) is deductible from my understanding and not the full 10k since only (50k of the 100k or 50%) was only used so far?0

@Rocco Swinney This is my understanding...interest you pay on a cash out refi on a rental property does not automatically become deductible simply because the cash out refi was done on a rental. Interest tracing rules apply.

So, for example, you take $100k out of rental Property A and you use that to purchase rental Property B. Then the interest you’d pay on that money would be a tax-deductible expense against rental Property B.

However, let’s say you take $100k out of the same rental property, but you use the proceeds to buy a new sports car and take your family on vacation. That interest would not be deductible (even though it originally came from a rental property), because it wasn’t used to buy or improve your rental properties.

Now, where it gets a little trickier (and what I think you’re asking about), is what happens if you take out money from a rental property but you don’t actually use some/all of it for a long period of time (a year or more) to buy another rental property. You want to know if the interest would be tax-deductible while it’s just sitting in a bank account in the meantime, correct?

If so, it’s my understanding that if/when you ultimately did purchase another rental property, the interest would then be tax-deductible as an expense against that property. However, for the long period of time the money is just sitting in your bank account, the interest you pay would not be tax-deductible.

Here’s a recent article on BP from a CPA that seems to confirm that last part: 
https://www.biggerpockets.com/blog/tax-traps-tax-opportunities-refinances

(Read the comments section where someone asks “Is there a time limit if the money from the refi is just sitting in a bank account?” And the author responds “No time limit but just keep in mind that when it is sitting in the bank, the interest is not tax deductible in the interim.”)

Perhaps one of the expert CPA’s or accountants on here will chime in if I said anything that isn’t exactly correct (if they do, take their advice over mine because I’m neither a CPA or an accountant).

Ultimately, the best thing to do would probably be to consult with your own tax professional who is familiar with your unique tax and investing situation. 

Thanks so much! That is exactly what i am asking. I get the sense most folks do not realize this too, which hopefully this helps others. I greatly appreciate it, as my concern was not finding enough deals this year (halfway over already) and having the funds sit into next year to use on good deals

I'm still not sure what you mean @Rocco Swinney but if you refinanced a loan for $100k you can deduct all the interest on that loan regardless of what you spend the cash you got from that on.

You can deduct all the interest that you actually pay, your question is a bit confusing so I'm afraid I can't clarify any further because I don't understand the question @Rocco Swinney