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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 6172
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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Trying to decide whether to refinance an investment building

Customer Question

Trying to decide whether to refinance an investment building or get a home loan on my residence. Loan would be $350,000.00 to $450,000.00. Building value $1.5 M. Residence value $500,000. Investment bldg. gross income is $80,000.00. Net around $20,000.00.
Residence does not have a mortgage currently. Personal income for married couple with one college child is $120-$150,000.00. No other deductions or income. Bldg loan is shorter term, higher interest rate, more fees and higher appraisal fee.
Just not sure which would make more sense.
Submitted: 9 months ago.
Category: Tax
Expert:  Stephen G. replied 9 months ago.

It depends upon what you intend to use the money for.

Customer: replied 9 months ago.
Financing for the residence would be to pay off the building.
Customer: replied 9 months ago.
OR we are looking to refinance the building. Just looking at the most beneficially financially.
Expert:  Stephen G. replied 9 months ago.

The reason I asked is that the way the rules work now, the tax deduction for the interest follows the proceeds of the financing, so for example if you take a mortgage out on your residence, which will yield the best & lowest interest rate, and use the proceeds to pay off the building, then the tax deductions would flow to Schedule E.

If you were using the proceeds for something else, you could only deduct the interest on $100,000 of debt against your personal residence that wasn't used to improve or expand you residence.

So as long as the new yacht or plane doesn't cost more than $100,000., which is part of the mortgage securing your residence, the interest is deductible.

It would be unusual if you could get more favorable financing against your building verses your residence. So that's the answer; the best option would be a fixed rate for 15 years against your residence with proceeds reducing or eliminating the financing against your building.

Expert:  Stephen G. replied 9 months ago.

Do you have any additional follow-up questions?

If not, please remember to rate my response as that is the only way we receive credit for our work.

Thanks very much,

Steve G.

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