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Submitted by flu on November 26, 2012 - 9:35pm

Submitted by SK in CV on November 26, 2012 - 9:57pm.

Generally, the interest paid on a cash out refi of investment property is not deductible. Read that again. It is NOT deductible. Unless it meets some pretty stringent requirements. You have to be able to trace the funds to a deductible purpose. If the proceeds are invested in another piece of investment real estate it's deductible. If the money is invested in non-trade or business investments like stock or taxable bonds, it's deductible as investment interest (subject to investment interest expense limitations). Interest on debt used to acquire tax-free bonds specifically do not qualify for the investment interest expense deduction.

(In the old days, this would be like $200 you owe me.)

Submitted by gzz on November 26, 2012 - 10:13pm.

Your assumption about the yield you'd get in a bond fund is wrong, aside from the tax issue.

The safe short-term bonds pay close to nothing, and the longer bonds could default.

Some of the return on this fund is simply the result of rates falling, making older bonds more attractive. But market interest rates can't go down much further, short term rates are already 0.0 and 5-year rates below 1%.

The fund you linked to includes local bonds, and there have been a number of local defaults in the state lately. That doesn't mean it is a bad investment, but you would only come out ahead by taking on this risk.

Submitted by flu on November 26, 2012 - 10:14pm.

SK in CV wrote:
Generally, the interest paid on a cash out refi of investment property is not deductible. Read that again. It is NOT deductible. Unless it meets some pretty stringent requirements. You have to be able to trace the funds to a deductible purpose. If the proceeds are invested in another piece of investment real estate it's deductible. If the money is invested in non-trade or business investments like stock or taxable bonds, it's deductible as investment interest (subject to investment interest expense limitations). Interest on debt used to acquire tax-free bonds specifically do not qualify for the investment interest expense deduction.

(In the old days, this would be like $200 you owe me.)

Shit. I did not know this... So let me get this straight.. If one took out a loan on the original property when buying it, the mortgage interest is deductible. But if one first purchase it with cash and subsequently refinance it taking cash out, it's not? That sucks....

Looks like plan B... rolling it into another investment property it is....

Submitted by SK in CV on November 26, 2012 - 10:21pm.

flu wrote:

Shit. I did not know this... So let me get this straight.. If one took out a loan on the original property when buying it, the mortgage interest is deductible. But if one first purchase it with cash and subsequently refinance it taking cash out, it's not? That sucks....

Looks like plan B... rolling it into another investment property it is....

On a personal residence, I think financing put in place within 30 days of COE is treated as purchase money debt for tax purposes. (the part I'm not remembering right now is whether its 30 days. It might be 60.) I don't think there's any such exception for investment property. Yeah, it kinda sucks.

Submitted by flu on November 29, 2012 - 12:36pm.

.

Submitted by CA renter on November 27, 2012 - 12:45am.

SK in CV wrote:
flu wrote:

Shit. I did not know this... So let me get this straight.. If one took out a loan on the original property when buying it, the mortgage interest is deductible. But if one first purchase it with cash and subsequently refinance it taking cash out, it's not? That sucks....

Looks like plan B... rolling it into another investment property it is....

On a personal residence, I think financing put in place within 30 days of COE is treated as purchase money debt for tax purposes. (the part I'm not remembering right now is whether its 30 days. It might be 60.) I don't think there's any such exception for investment property. Yeah, it kinda sucks.

SK,

I thought the first $100K is deductible, but any amount over that is not unless you use it for improvements on that property. Does this only apply to owner-occupied cash-outs/HELOCs, or might it also apply to rentals?

From what I understand, it is the first $100K that is pulled out via cash-out refi or HELOC on ALL owned properties that can be deducted, so if flu were to cash out $80K on his primary, he could only deduct the interest on ~$20K of the cash-out on another property.

Am I totally off on this?

Submitted by flu on November 27, 2012 - 10:54am.

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Submitted by flu on November 27, 2012 - 12:52pm.

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Submitted by SK in CV on November 27, 2012 - 8:03am.

CA renter wrote:

SK,

I thought the first $100K is deductible, but any amount over that is not unless you use it for improvements on that property. Does this only apply to owner-occupied cash-outs/HELOCs, or might it also apply to rentals?

From what I understand, it is the first $100K that is pulled out via cash-out refi or HELOC on ALL owned properties that can be deducted, so if flu were to cash out $80K on his primary, he could only deduct the interest on ~$20K of the cash-out on another property.

Am I totally off on this?

Correct on the $100K on primary residence is deductible, but it's not considered purchase money debt. Does not apply for rentals.

Submitted by CA renter on November 27, 2012 - 3:53pm.

Thanks, SK.

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