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    sax properrties's Avatar
    sax properrties Posts: 1, Reputation: 1
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    #1

    May 9, 2007, 05:45 AM
    Rental Property Deduction
    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
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
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    #2

    May 9, 2007, 12:58 PM
    Yes, you can, as long as the loan does not exceed the fair market value for the home.
    IntlTax's Avatar
    IntlTax Posts: 831, Reputation: 23
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    #3

    May 9, 2007, 07:44 PM
    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.
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
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    #4

    May 10, 2007, 01:14 PM
    IntlTax is probably right. I have not done research either, but his statement feels right.
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