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jsonp
Returning Member

cash out refinance interest deduction on crowd funing?

Hi, I have a rental property that i want to do cash out refinance. My question is that is the interest of the loan can be deduct/expense if i use fund to invest in crowdfunding like fundrise, crowdstreet... Since i do use the fund to do real estate investment. Thanks

2 Replies
Opus 17
Level 15

cash out refinance interest deduction on crowd funing?

You can't deduct the interest as an expense of the rental property unless you use the proceeds for improvements to that specific property.  If you use the proceeds for other investments, you may be able to deduct the interest as an investment expense specific to those investments, but you have to be able to trace the money.  You must be able to prove that specific loan proceeds were used to buy specific investments, and that specific interest charges can be accurately allocated to specific investments. The more complicated your arrangements, the harder it will be to trace and properly allocate those expenses.

 

There are other rules for deducting interest on money used to purchase investments.  First, this is a schedule A itemized deduction, so you will only benefit if the total of all your itemized deductions is larger than your standard deduction.  And second, you can only deduct interest up to current year taxable income that you report.   For example, suppose you borrow $10,000 to buy stock in company A.  You pay $500 in interest.  The stock appreciates in value, but you don't sell it, and it pays a $100 dividend.  Since your only taxable investment income is $100, that's the limit of your deductible interest.   The remaining disallowed interest deduction is carried forward and can be claimed against investment income in the future (such as when you sell the stock and have a taxable capital gain.). The interest is reported on form 4952. https://www.irs.gov/forms-pubs/about-form-4952

 

 

The ability to deduct interest on investments is the only investment expense deduction that survived the TCJA of 2018.  All other investment expenses (for advice, recordkeeping, account maintenance fees, etc.) which used to be 2% itemized deductions are disallowed for tax years 2018-2025.

 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
jsonp
Returning Member

cash out refinance interest deduction on crowd funing?

@Opus 17 

you said "And second, you can only deduct interest up to current year taxable income that you report", is this only for the amount you borrow to invest or all investment. example:

 

I have Rental Property A. I borrow $10000 and put that $10000 to ereit. The loan on interest on property A is $500 and the ereit income is $100. I also have another property B which have taxable income $2000. Do i still only able to deduct $100 or the entire  $500. Thanks

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