since the residence was paid off at the time of the new mortgage, and all the proceeds were used to pay off the commercial property, no part of the loan is deductible on schedule A.)
Did I miss something? Wasn't this a refi of the primary residence? Unless I misinterpreted something, that primary residence is securing the new loan. Therefore, that percentage of the interest equal to the final balance on the original mortgage is a SCH A deduction. Wow! Wording that clearly isn't easy.
Balance left on original mortgage at the time of refi - $50,000
Refi amount - $75,000 (Making the cash out $25,000)
With those numbers, only 66.6% of the interest paid on the mortgage refi is deductible over the life of the new loan.
Now that "could" change. Let's say for example you bank that $25K and two years later you use that $25K to add on a room to the rental. (tracing rules would of course apply here big time.) At that point, the other 33.3% of the interest paid on the loan would be a SCH E deductible mortgage interest expense for the remaining life of the loan, beginning on the in service date of the property improvement to the rental. (But things get weird when you have personal use, take the rental out of service, or sell the property.)
I sure do wish I could access the HD on my other laptop that died not that long ago. I have all my bookmarks on that one and had a bookmark for this exact, specific and explicit situation to one of the IRS pubs. Or it might have been a "tax topic" number. Can't recall. In fact, it was one of the other SUs that provided me that link. I may take a stab at removing that hard drive to an external case to see if I can access it later tonight. All the data was backed up. Just my favorites and bookmarks were not. (sigh)
