cash out refi?

the rule is follow the money- if you take a mortgage on your primary residence and use it to replace the mortgage on the investment property (under the LLC) that mortgage is considered an investment loan and can be fully deducted against the income of the LLC. If your mortgage on the primary is more than what is needed to pay of the LLC mortgage you do not benefit from a deduction on the difference. In essence you are hedging against the cap on deduction of mortgage under the primary residence in case of a future change in tax laws.

thanks realtime.

"the rule is follow the money- if you take a mortgage on your primary residence and use it to replace the mortgage on the investment property (under the LLC) that mortgage is considered an investment loan and can be fully deducted against the income of the LLC"
--good, got it:)

"If your mortgage on the primary is more than what is needed to pay of the LLC mortgage you do not benefit from a deduction on the difference. "
--didnt quite get this. so, I'm currently paying the 2 mortgages and thus taking deductions from both. If I combine them, I would essentially only be able to deduct from the 1?

"In essence you are hedging against the cap on deduction of mortgage under the primary residence in case of a future change in tax laws."
--I am? haha. didn't know I was so smart! please explain

thanks!

The deduction on the cash out portion might not qualifies. I assume that mortgage on primary was paid off and you wish to refinance the primary and use the money to replace the mortgage on the investment property.If you still owe on the primary and refinance it with a larger mortgage that enables you to cover both the primary and the investment, the only problem is how to allocate the interest appropriately. I am not an accountant so I do not wish to give the wrong info. ask your accountant how to structure it correctly.
as far as the hedging- if there is a cap on personal deduction starting 2013, the cap might (!) not apply to mortgages that are part of investment properties and therefore are fully deductible against the income.

allocate the interest appropriately"
ahhh...got it. will ask accountant.

the cap might (!) not apply to mortgages that are part of investment properties and therefore are fully deductible against the income. "
nice , thanks!

Your investment property and personal property are separate. At the current time your mortgage interest on the investment property is deducted against your rental income. If you were to pay off this mortgage by taking money on your personal property then you would in fact be limited to itemizing on schedule A and only getting the benefit of whatever your tax rate may be, lets just say 28% vs fully deducting the interest on the investment property. On top of that depending on your income coming in, it could cause you to have a profit on the investment and therefore you would have to pay taxes on that, while causing yourself to be limited on the interest on Schedule A.

Why would you not just refinance the investment property as opposed to your personal residence? While the interest rate you might get would be slightly higher since it is an investment property, it would be more than offset by the fact that 100% of the interest is deductible.

Mikev-Are you an accountat? You are incorrect in your schedule A discussion since the mortgage for the investment property taken on the residential should not be reported on schedule A, at least not according to my accountant.

Jae is looking to take cash out on his primary to completely pay off the investment mortgage. Mikev is right. The interest on his primary mortgage will be off schedule A. He will no longer have a mortgage on his investment property since he will have paid off the mortgage. It makes more sense to refi his investment even at the higher rate and get 100% of his interest deducted against the rental income.

i'm 100% with lovetocook and Mikev. try to show the least profit, or some loss, on investment vs doing an interest deduction on personal taxes.

I am with you ab- and it can be done through the primary residence and the protion that goes against the investment is not reported on schedule A but agains the loss/profit of the investment. It is a way to reduce the interest on investment property and have higher profit...

@realtime yes I am an accountant. I did state correctly as others later pointed out. What he was asking would have caused him to have to report 100% on his schedule A and none on his Schedule E. there is no way to break it out once the mortgage is 100% on his primary residence. So my suggestion of refi of the investment property still stands, without of course knowing any other details of his personal finances.

interesting how different accountants treat investments differently. I was told that if you can trace the money from day 1 of the investment purchase, you can use a primary mortgage against the investment. However the residential property did not have an existing mortgage.

@realtime you are correct. I have not seen it done at all really as most I know and deal with have cash at the ready. If you properly trace and document the trail of the cash you could allocate the portion of the cash used for the investment property. I would assume it does not matter whether a new purchase or just paying off the debt, but I am not positive on that.

So depending on the use of the proceeds the amount for paydown of the investment property would be charged against schedule E with the balance to schedule A.

Mikev- I know I am correct. This exchange exposes the problem with this board. One should never rely on advises here and always seek a professional consultation when dealing with legal and accounting and investment and everything else that people here are stating as facts.

thanks everybody! there's never a dull moment on these boards. haha. but, I appreciate your opinions and responses. Of course I will run it all by my attorney and accountant before making any decisions. And, if no decision, we're still in a really good position regardless. I was just trying to save a few bucks:)

Mikev: Yeah, keeping them separate, as is, would be the simpler thing to do. I'm not looking at refinancing that investment loan by itself bc it's still a very low 4.5%. Current rates for conforming loans on investments being high 3 to perhaps 4 even? I was just thinking I could get it down to 2.725% if I rolled it into my primary:) every dollar counts when I'm trying to grow up to be like some of you guys here! haha. enjoy the weekend folks! thank god it's friday!