You are required by federal law to depreciate rental property. Weather you have a mortgage on it or not, is totally irrelevant.
I do cash-our refinance to take 100k. I use this 100k to buy new second home. I then convert first home to rental. is the mortgage interest treat at expense on rental income/business ?
No. If the cash out was not used to "build or improve" the rental property, not one single penny of the interest is a SCH E deduction. If you used it to purchase a 2nd home that is your primary residence, 2nd home, vacation property or any other type of personal use real estate property, then the interest is an itemized deduction reported/claimed on SCH A.
