Refi Vs Selling
I have a property i am thinking about refinancing and pulling about $100k out...and not selling for 3-4 yrs. down the road...does anyone know the tax ramifications in such a scenario...regards to all. CWal
finnigan...yes it is a rental originally bought for 76k (1990)...I will either reinvest in another property, pay off my existing home, or just invest the money for returns...thanks & regards, CWal
Well, then.
The refinance itself is not a taxable event, so the loan proceeds are not taxable income. The balance due on your loan at the time of sale has no impact on the taxable profit you realize when the property is sold.
Using all of the loan proceeds to purchase another investment rental property will allow you to deduct the mortgage interest on the loan on the Schedule E for your new property -- not the Schedule E for the property you refinanced.
Using the money to pay off your credit cards, to purchase a new car, or to buy CDs at the bank makes the interest on your loan personal interest. Personal interest is not deductible.
Using the loan proceeds to invest in the stock market makes the interest paid on your loan investment interest. Investment interest can be deducted on Schedule A (provided you itemize) but the amount of the deduction allowed is limited by the amount of investment income earned.
Using all of the loan proceeds to pay off your primary residence home loan gives you a free and clear home, but squanders any potential mortgage interest deduction. Even though the loan proceeds are applied to your home, you can only take the home mortgage interest deduction on Schedule A for a loan secured by your primary residence or a second home. Since your loan is secured by your investment property, none of the mortgage interest would be deductible. Better to use the loan proceeds to acquire income producing property. Better use of your money over the long haul.
[ Edited by NewKidInTown3 on Date 06/08/2007 ]
The assumption could be made that $76K of the $100K went to pay off the intial loan for the purchase so that would make at least $76K tax deductible regardless right?
thank you new kid & finnigan...maybe i was not quite clear...the property has a 150k appraisal with a 28k balance...yes the orig. pp was 76k in 1990...New Kid...in that scenario, does this change your advice from the above...thank you all...regards, CWal
Quote:
On 2007-06-12 00:08, cwal wrote:
thank you new kid & finnigan...maybe i was not quite clear...the property has a 150k appraisal with a 28k balance...yes the orig. pp was 76k in 1990...New Kid...in that scenario, does this change your advice from the above...thank you all...regards, CWal
There is no change based on the above. Talk to a tax professional for further guidance..[ Edited by finniganps on Date 06/12/2007 ]
Quote:thank you new kid & finnigan...maybe i was not quite clear...the property has a 150k appraisal with a 28k balance...yes the orig. pp was 76k in 1990...New Kid...in that scenario, does this change your advice from the above...thank you all...regards,
If you understand that it is what you do with the loan proceeds that determines whether the mortgage interest can be deducted, then this new information does not change the previous responses.
From the discussion above, we were led to believe that your current mortgage balance was $76K. Now that we know it is only $28K, a $150K refinance would make only $28K of your new loan refinanced acquisition debt. The mortgage interest on that $28K would still be expensed against rental income on your Schedule E.
Deductibility of the mortgage interest on the $122K balance of the $150K loan proceeds would be determined by the tracing rules discussed above[ Edited by NewKidInTown3 on Date 06/12/2007 ]