I have a rented condo and one that I live in. I can refi the live in and pay off mortgage on rental. Smart?

Question

I have been told (by a bank person) to refinance my primary residence condo and then pay off the mortgage on the other condo I own and rent to a tenant. I think it is better, from a tax standpoint, to have and report rental interest expense on Schedule E rather than primary residence interest deduction on Schedule C. But maybe I am missing something important here. Any advice?

Answer 1

I think the answer depends on a number of variables, including loan balances, rent received, annual income excluding rent, etc.

This would be an excellent question for your tax preparer.

Of course, if you use software to calculate your taxes then just make another copy of the file and run the scenario both ways.

Now, I come from the school of thought that your money should be working for you. If you pay off your mortgage on either property and lose the tax benefits, then you are going to be paying Uncle Sam.

If you have a lot of equity, why not put it to work and buy something else that will give you a cash return AND lower your taxes?

Just a few thoughts. Hope this helps!

Answer 2

it sounds like a wash. It also sounds like the bank is trying to drum up some unnecessary business. The real question in refinancing is whether you need the cash or need to get out of a bad loan (high interest, ARM/Balloon, high pmt.). Keep in mind that if you're re-financing an very old loan, your interest expense could actually increase due to the amortization schedule. If the old loan is at a decent rate with good terms, and if you don't need the cash, I'd keep it in place.

Answer 3

You lost me. From your question you are renting, if so you can't refi because you don't own it.

As far as which way would be better if you did actually own one of them is to get turbo tax and run the numbers both ways.