Can I refinance one of my current rentals to purchase another rental and deduct the principle and interest payments on Schedule E?

[fdchomesite]

If I can deduct the refinance of a current rental property to purchase an other rental property would I prorate the principle and interest payments between the two properties assigning the increase amount of the refinance to the new rental that I purchase?

[MargaretL · Accepted solution]

Yes, you can refinance. But no - you cannot deduct principal; it is never tax deductible. As to the interest, you would have to split the mortgage interest between two properties on Schedule E. The interest should be allocated based on the loan related to each property.