I own a rental property (mortgaged) with some equity (~40K) in it. When I file taxes, I use the interest paid on the mortgaged loan for the rental propety to subtract from the rental income. This helps deduct the rental expenses to reduce the income tax liability due to teh rental income. Now, I need some funds to pay off some personal loans and am planning on refinancing the rental property loan to an higher amount (reduce equity) but use the recovered difference to go from a lower loan amount to a higher loan amount and pay-off some personal loans with that difference. Here is the question:
- If the rental loan is refinanced, it is legitimate/legal to use the greater interest paid on the new loan and deduct it as a rental expense? - Can the points and closing cost paid for the refinanced loan be deducted as an expense on the rental property?
Thank you very much for your feedback in this regard.