But due to the tracing rules he can deduct the rental portion of the refi on the Sch E ... so he used to have mortgages on 2 rentals(reported on the Sch E) and one personal home (reported on the Sch A) ... after the refi he will still have the same situation ... the consolidated loan can be divided 3 ways if the taxpayer wants to use the tracing rules ... so the net effect of the refi is he will pay less interest overall and 1% reduction on a million dollar loan is some serious scratch. I would do it if you can.
