Can I use interest from cash out as expense against rental income if I use the cash for another rental house?

[Wid1]

I have a paid off rental property (house A) that I want to cash out and I am planning to use the cash purchase another rental property (house B).

So, I will be paying mortgage interest on house A. Can I use the mortgage interest as an expense against my rental income for house A?

I tried to read the following tracing rules guidelines below but I cannot find anything for this specific case.
https://www.irs.gov/publications/p535/ch04.html#en_US_2014_publink1000243081

Thanks in advance

[Marketstar]

Yes, you should deduct interest paid on the loan that is secured by property A regardless of what you do with the cash proceeds from the loan.

[Wid1]

When you say "regardless of what you do with the cash proceeds", the mortgage interest is tax deductible even if I use the cash for personal such as paying off my primary home mortgage?

[Marketstar]

Yes.

[view2]

If you own rental property and borrow against it to buy a home, the interest does not qualify as mortgage interest because the loan is not secured by the home itself. Interest paid on that loan can't be deducted as a rental expense either, because the funds were not used for the rental property. The interest expense is actually considered personal interest, which is no longer deductible.

<a rel="nofollow" target="_blank" href="https://turbotax.intuit.com/tax-tools/tax-tips/Home-Ownership/Deducting-Mortgage-Interest-FAQs/INF12...>

[view2]

When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Chapter 4 of Pub. 535 explains mortgage interest in detail.

<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p527/ch01.html">https://www.irs.gov/publications/p527/ch01.html</a>

[Marketstar]

Ok, but his original question was to use the loan proceeds from a rental to purchase a second rental.

[view2]

The follow up comment is the reference of the links, completely different application of proceeds.

[Wid1]

I am sorry, I am a bit confused. So, according to TurboTaxVinceL, if I use the cash for purchasing rental property B, then I can use the mortgage interest on property A as expense (tax deduction) agains property A. Do you think this is correct view2?
Are you saying that I can't use it for expense against property A if I use the cash for primary home?

[view2]

Passive activity interest is interest paid by the borrower to finance a passive activity.
A passive activity is generally a rental activity such as rental real estate reported on Schedule E.
On audit because it is a rental property.You must have a provable paper trail as to where the money goes.

[Wid1]

Ok, thanks view2. I just want to confirm. You are saying that I can use mortgage interest for property A as expense as long as I use the cash for rental property business as long as, it doesn't matter if it's used for property A again or property B. Is this correct?

Thanks again.

[view2]

Generally In a passive actively [residential rental property] you do not need to account separately  for  a  deduction  unless  such  deduction may,  if  separately  taken  into  account,  result  in an income tax liability for any tax year different from that which would result were such deduction not taken into account separately.
The money is used in a passive activity and the expense of the money is in a passive activity.