I need another piece of information I forgot about earlier.
Bought the property in 2006 for $600K.
So the cost basis on the unit that is your primary residence is half that, or $300K. That will never change, unless there's another bubble burst in the housing market.
Towards third quarter 2019 had a balance of $480K
I refinanced a new mortgage inclusive of his profit share and closing costs bringing me back to $620K (current mortgage)
The outstanding balance on the old loan at the time of refi was $480K. Half of that is yours, or $240K.
You refinanced at $620K, I assume paying the difference of $380K to the seller for their unit you purchased from them. If that's right, then that unit is now a rental property and the cost basis on that rental is $380K. (If you took any "cash out" on the loan, then it will be less than $380K)
Now, $240K is 38.7% of the 620K loan. Therefore you can claim 38.7% of the mortgage interest as a SCH A itemized deduction, every year for the life of this loan.
Assuming there was no cash out and the remaining $380K is what you paid the seller, that $380K is 63.1% the remaining loan. Therefore, 63.1% of the mortgage interest is deductible on the SCH E every year, for the life of that loan.
If there was any cash paid to you on this loan, then the percentage of the loan that was paid to you in cash, means an equal percentage of the mortgage interest is not deductible at all. You'd have to reduce the percentage of interest claimed on the rental, as appropriate.
Take note that if you did "NOT" refi with the intent of cashing out, yet you still got say, a few thousand when all was said and done, then that doesn't count as a "cash out". You would have had to refinanced the loan with the intent of taking some cash for yourself.
