I want to reduce my taxable income as much as possible.

@Erin Elam , Borrowing money from any lender is not a taxable event.

The interest only would be taxable. 

I dont think this is taxable income to you since its a savings on your personal expenses and not business expenses.

If notes are held in a taxable account you will pay more taxes annually on the income. 

I am pulling out the 50k from my taxable funds.

Generally if you give someone money in a business setting it is taxable income to them, not a deduction. 

It will reduce your taxable income by $8k - which will result in $1,7000 ish in tax savings. ($8,000 x 22% tax bracket)If you have other expenses, depreciaton, ect- your rental may generate a potential tax savings greater than that $1,700. 

If you compare the results of investing in a taxable account vs tax-deferred in just 15 years the difference will be huge (hundreds of thousands $$$).

If youre in California, your local recorders office will have the exemption forms that allow these changes without triggering a taxable event.