I plan to refinance a rental property and plan to borrow more than the amount owed on the original loan. The bank has a minimum amount when borrowing that exceeds the present loan balance. I plan to use this overage to pay bills unrelated to the rental property. Can I still deduct 100% of the mortgage interest.

Thanks,

Sax

Yes, you can, as long as the loan does not exceed the fair market value for the home.

Without doing any research, I would think that you could not deduct the interest expense on the portion of the debt that was used to pay bills unrelated to the rental property. I believe that there are tracing rules under section 163 that require the funds borrowed to be "traced" to a particular activity. If the unrelated bills are personal in nature, then I would think that that interest would be nondeductible personal interest.

IntlTax is probably right. I have not done research either, but his statement feels right.