Pulling equity from rental for primary

Subject:        Pulling equity from rental for primary for tax deduction
Expert:         taxman at centa.com
Date:           Wednesday July 05, 2006
Time:           12:38 PM -0700
QUESTION:
I believe the interest on the mortgage of a rental property is a tax
deduction whereas your principle residence is not. My question is if you had
'extra' equity in your rental property either from mortgage pay down or
increase in market value, can you (from a legal tax point of view)
re-mortgage, pull as much of the equity out as possible and put it against
your principle mortgage thereby reducing your non-deductible interest and
increasing your deductible interest?
Thanks!
--------------------------------------
david ingram replies:
The answer is no --  The borrowed money was used for your personal
residence, therefore the interest is not deductible.  Two cases I can think
of were lost in court in similar circumstances -  One was Manfred Huber and
the other was Eva Huber.
============
You "can", however, take the rent from the rental and pay down some of your
own mortgage each month and using a line of credit secured against the
rental (or your home) borrow money to make the payments and repairs and pay
the taxes on the rental..
This would make the non-deductible interest on your mortgage go down each
month while the deductible interest goes up.  Another faster way if you are
married is for you or your spouse (if the property is joint) borrow the
money to buy the other out.  The bought out spouse uses that money to pay
down the non-deductible mortgage on your house.
Good question.
There are also a bunch of suggestions for free at www.centa.com - click on
the November 2001 newsletter in the top left hand box.  Mortgage interest
starts on page 2 of the newsletter.
-----------------
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