I currently have 2 mortgage loans, one for my primary residence and one for my rental property. I am planning on refinancing my primary mortgage (aprox 400k) and taking an additional cashout (aprox 200k) to pay off the loan on my rental property. My question is will I still be able to deduct interest related to the 200k cashout on Schedule E as a rental property expense? I will still have the same total loan balance, just consolidated with a lower rate.
I appreciate any advice.
Cash out refinance on primary home to pay off loan on rental loan. You could. However, when you get your 1098 Mortgage Interest Statement for the 600K loan, you will need to calculate the % of interest that belongs to the Rental Property portion of the loan to enter as a Rental Expense (or let TurboTax calculate)
I have a question regarding this scenario. Would the interests paid on the rental portion be considered on Schedule E as "mortgage interests" expense or as "Other interests" expense since the rental is not securing the refi loan?
Either option would be acceptable - "mortgage interest" or "other interest". Both are treated the same way on your Schedule E income (loss) and in calculating your tax.
I would go with "other interest" for the reason you mentioned, i.e. the rental property is not securing the refinanced loan.