I understand cash out from primary home is tax deferred. But if I do cash out refinance from a rental property, how should I file the tax,
1. the cash out amount, is this taxable the year I do the refinance? even if I use it to buy another investment property? or to buy a different business?
2. the monthly interest incurred by the higher interest rate and higher loan amount. Should all interest be deducted from the gross rental income by the property which is refinanced? or a portion only, if the cash taken out doesn't go to another property in all?
3. I did some calculation, assume I have loan balance of 55k and refinance it to 90k with the 35k cash out, the rate is changed from to 3.75% to 3.875%, for the next 7year, the extra interest I would have to pay for this 35k, the annual interest rate is 6.96%. Did I calculate it in the correct way? It's even higher than HELOC, what is the benefit to do cash out refinance vs HELOC then, if I assume I can get the same amount of cash?
4. this question is not about refinance, but tax only. Somebody said when calculating net rental income, I can deduct both principal and interest from the rent paid. My understanding is to deduct interest only. Which one is correct?
Thank you.
