Big refinance coming up ... taxes??

[streetcore]

Hi, I have a multi family that is being refinanced this summer. I expect a good sized check as there has been over 3K/month in rent roll growth.

If I put this money in a separate bank account and don't touch it, and then use that to buy another investment property, then my understanding is that the increased interest expense on the refinanced mortgage is a tax deductible.

If I put that money in my own bank account and just spent it, then the refinanced mortgage higher interest is not deductible.

Is this correct?

Thanks

 

[Thomas Beyer]

Who owns the property ? You personally ? Or a corporation ?

Assuming personally, you are correct that a higher loan does not automatically allow you to deduct all interest, but if it is lower than original purchase price plus all improvements to date you can still deduct it and spend it. I.e. you are just taking out your original equity, and as such you are increasing the debt on the asset, and debt is usually tax deductible on an income property.

I am not a lawyer nor accountant so you may wish to ask her/him, too what additional debt is deductible.