If the cash out portion of the cash out refinance is used for primary home improvement, I am pretty sure the interest of that portion is not deductible as expense of that rental (regardless of the fact that the loan is secured by the rental)
I did a cash out refinance on rental A and used it as a down payment of my rental B. The interest of the cash out portion of rental A is reported as an expense of my rental B instead of rental A. So in my case, it is still true that 100% deductible as rental business expense, but reporting on a different rental. I think the second answer is more accurate than this one.
