I need help with complicated refi on rental property

[kristinelise57]

I consolidated an unrelated loan into a refinance of my rental property. So the new loan is in part for the rental property, and in part for personal property that I occupy. Do I just figure out what percentage of the loan goes with each property and apply that percentage to interest paid for each property every tax year for remainder of the loan term?

[PaulaM · Accepted solution]

Yes, find the ratio of loan proceeds for each property and and deduct the interest in the corresponding property section. Apply the same percentage each year to the total interest amount.

Ex: Interest of $7,000 is 40% rental property and 60% personal property. $2,800 is a rental interest deduction and $4,200 is a personal property deduction.

[kristinelise57]

I'm not sure I asked this question correctly. Does it make a difference that what I actually did is use cash from a refinance to pay off the other loan? Do I still only consider the new loan amount in relation to what was previously owed on the rental property?

[PaulaM]

If I understood you correctly, you refinanced a rental property and rolled a personal loan in it as well? If so, then any amounts used that were personal in nature, would be not be deductible unless the personal loan that was combined was for your personal home.

[kristinelise57]

The personal loan rolled in was for a second home. After more digging, my impression is still that I claim the percent that went toward the remaining principal on the rental property as a rental expense, and the percent that went toward the second home as a mortgage expense.

[PaulaM]

Yes, exactly. Enter the proportionate share in each section as stated above. 🙂