This is a complicated area.
1. If i take home equity from Primary Home (via Home refinance or HELOC) and use it to Purchase Business, can i deduct interest expense from the HELOC/Home Equity Loan?
Equity debt is not deductible as mortgage interest on schedule A. It may be deductible as a business interest expense on your business tax return (schedule C). For this to work, you must be able to trace the expense to the debt. If you can follow the tracing rules, you can deduct the interest. However, the sloppier you are, the harder it will be to sustain the deduction in case of audit. For example, if you take out a line of credit and use the initial draw to buy a business, but then use later draws for personal expenses like a car, vacation, pay off credit cards, or remodel the house, it becomes harder and harder to trace a particular dollar of interest to the business.
The issue of deducting investment interest would apply if you used the equity to buy income-producing securities. This is slightly different than using the interest to buy a business. You don't need form 4952, but you do need to be able to trace the interest from the loan to the business.
Also be aware, that in order to deduct the interest as a business expense, you must make an election to "not treat the debt as secured by the home." This does not require a special statement, just claiming the interest as a schedule C expense will confirm the election was made. But this is not reversible, and if the debt is treated as not secured by your home, that means that even if you used the debt later to remodel your home, it won't be deductible schedule A mortgage interest, because schedule A mortgage interest must be secured by the home to be deductible.
2. If i do Refinance my investment property to take cash out and use it to Purchase business, is the interest deductible?
If you refinance property A to purchase business B, the interest on the mortgage is not deductible (or only partly deductible) as expense on property A. The IRS says "When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally can’t be deducted as a rental expense."
So if you have business property A with a mortgage of $100,000 and you refinance it for $300,000, and use the other $200,000 to purchase business B, you can only deduct 33% of the interest as an expense on property A. You may be able to deduct the remaining interest as a business expense for business B, if you meet the same tracing rules I described above.
