Primary Home Cash-out refinance to buy a rental property - Closing cost and Interest

[sangeetmona]

My primary home is worth $ 310,000 and I had an outstanding loan of $ 55,000. I recently refinanced this with a cash-out option. New loan is $ 240,000 and cash-out amount was $180,000. Around $ 5,000 was closing cost. 

I used this 180 K to buy 2 rental properties  ($120,000 and  $ 60,000). My question is whether the interest that I'll be paying on my primary home loan and closing cost that I paid above can be included as expense on these 2 rental properties ? If yes how much in terms of percentage for each ? I've heard about the tracing rule but not sure what that is. Can someone help. Thanks

[Bsch4477]

Deleted. 

[M-MTax]

You can deduct the interest on the $120,000 and $60,000 that you used to buy the rental properties on SCH E. Those amounts get traced to the rentals.

[sangeetmona]

Thanks. Can you please confirm how much?

My refinance loan on primary property was 240K out of which only 120K and 60K was used for buying rental  property. 120K and 60K is 50% and 25% respectively of 240K. So can I take 50% and 25% of the interest and closing cost as expense for each rental property ?   

[M-MTax]

Yeah you have the percentages right but you can't deduct all of the closing costs as some have to be added to your basis.

[sangeetmona]

Thanks. I meant 25% and 50% of the closing cost as well......