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.)
