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Discussion:Perhaps an easy rental refi question . . .

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Discussion Forum Index --> Basic Tax Questions --> Perhaps an easy rental refi question . . .


Discussion Forum Index --> Tax Questions --> Perhaps an easy rental refi question . . .

Kendrick (talk|edits) said:

1 April 2014
3 bro's put $100K in apiece and then they buy a $300K rental property and own it jointly, each putting a third of the income and expenses on their respective Schedules E.

2 years later, they get a loan on the property for $150K, and pay each of themselves $50K of the original $100K back.

Now they expect to deduct the mortgage interest against rental income.

Seems they may have a problem here. Does the tax law construe this as personal interest, and not deductible?

Terry Oraha (talk|edits) said:

1 April 2014
Research "debt financed distribution"

Ckenefick (talk|edits) said:

1 April 2014
Don't know if we can go by those rules given the Sch E reporting...

Terry Oraha (talk|edits) said:

1 April 2014
yep, I missed that part! that Sch E part.

PVVCPA (talk|edits) said:

April 1, 2014
Suggest they go back into the market for a new tax preparer. There are plenty out there that will not ask such ridiculous questions.

Kendrick (talk|edits) said:

1 April 2014
Hey PVVCPA. What is with your answer? You constipated or something? Just trying to get some help here.

Ckenefick (talk|edits) said:

1 April 2014
PVV was being sarcastic, implying that your question was a very good one, so good that a client/prospective client might not like the fact that you asked it, given the ramification of losing part of the deduction. As a result, client/prospective client might go find some chump accountant that will give him the full write-off, either because chump accountant doesn't know the rules or because chump accountant likes to bend the rules.

And yes, I think PVV has been in the bathroom all day long.

Kevinh5 (talk|edits) said:

1 April 2014
PVV's response was taken tongue in cheek by me, clearly with the understanding that you are a good preparer and others not willing to ask such questions are not as good. Back off a little, please, Kendrick. It's all good. Under the tracing rules, interest on the 150K is not deductible.

Spell Czech (talk|edits) said:

1 April 2014
"Under the tracing rules, interest on the 150K is not deductible."

Do we know that yet?

PVVCPA (talk|edits) said:

April 1, 2014
Hey! I finished my last box of girl scout cookies 2 weeks ago. I am far more regular now. But thank you for your concern.

I agree with Ck & Kevin, except for the part about being in the bathroom all day. I am glad somebody gets me.

Kendrick (talk|edits) said:

2 April 2014
Sorry to be so sensitive. Got a phone call this morning that a client/friend died from cancer last week, the second client/friend who has died from cancer within a month. The next call was that my best friend's mom died last night.

Well, I guess we all get to do it.

So, anyway, the comment sounded sort of nasty to me.

Regardless, it seems that everyone here thinks there is no way the interest could be deductible. Though Spell Czech sounded interested in a possibility.

Ckenefick (talk|edits) said:

2 April 2014
Though Spell Czech sounded interested in a possibility.

Me too. This was a rental and maybe that cash back @ re-fi went into some bank account used to hold the joint rental money. And maybe some expenditures were made out of that account that could be "traced" to the cash back...maybe...perhaps within a certain window of time.

PVVCPA (talk|edits) said:

April 2, 2014
Other ideas...

Where did the bro's get their original $100K from? Perhaps they borrowed this against their residence or another rental. Did they use the $50K to pay this back?

Maybe they each put $50K into an account at E*Trade...investment interest?

Anyhow, they each need to answer the question...what did you do with your $50K?

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