Can a debt free property be refinanced and use the proceeds to pay off acquisition debt on 2 other properties (all owned by the same person) and deduct the interest?

Forum|Forum|6 years ago
December 6, 2019
1 reply
16 views

I was trying to find information on the following situation under the new tax laws:

Taxpayer has 3 properties as follows:

Property A: personal residence $250k mortgage (acquisition indebtedness)

Property B: rental property $500k mortgage (acquisition indebtedness)

Property C: Rental property no mortgage

If he refinances property C for $750k and uses the proceeds to pay off the mortgages on properties A & B will he be able to deduct the mortgage interest now on property C since on property C it does not represent acquisition indebtedness for property C?

Lacerte Tax

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Best answer by TaxGuyBill

If a $750,000 loan is taken on Property C, then Property C can't take any deduction. That loan did not do anything for Property C.

However, Property B can take the interest on the portion for the $500,000. It is essentially just refinancing the loan.

Property A can't take any deduction. Although it is refinancing Acquisition Indebtedness, another requirement for the personal interest deduction on Schedule A is that the loan must be against that personal residence.

T

TaxGuyBillAnswer

Level 15

If a $750,000 loan is taken on Property C, then Property C can't take any deduction. That loan did not do anything for Property C.

However, Property B can take the interest on the portion for the $500,000. It is essentially just refinancing the loan.

Property A can't take any deduction. Although it is refinancing Acquisition Indebtedness, another requirement for the personal interest deduction on Schedule A is that the loan must be against that personal residence.

J

jdpnyAuthor

Level 2

Thank you the follow up. That confirms the research we've been doing.

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