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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127683  
Subject: Re: Q about closing date & owner moving out Date: 6/7/2013 12:16 PM
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if I buy a house for cash, and then refinance the house in 90 days or in 4 years or whenever, won't I still be able to deduct the mortgage interest? This house we are buying is an investment property - it will be a rent house.

OK. That's a completely different can of worms.

Most things up-thread are correct for your primary residence. But since this isn't a primary residence, the rules are different. So ignore it all and let's start over.

To be deducted against the rental income, the loan proceeds have to be used in the rental activity. Clearly, if you get a loan at the time of purchase, you're fine. Deduct the loan interest from the rental income. And while I haven't researched it, I'm pretty sure that you'd be able to pay cash and then get a loan shortly after closing and still be OK. (Offhand, I'd guess that 90 days is still about right.)

But I'm also pretty sure there is a point at which getting a loan would be too late, and your suggestion of 4 years is almost certainly past that point. In that setting, you have to follow the loan proceeds to see what to do with the interest paid.

So if the loan proceeds went into your brokerage account, you've have investment interest and would have to follow those rules to determine how much, if any, of the interest is deductible. If the loan proceeds went to purchase another rental property, you'd deduct the interest from the rental income from THAT property, and not the one that is actually securing the loan. If you used the loan proceeds to buy a second residence for yourself, you'd have no deduction.

So it's important to determine what financing you want and get it in place promptly. Your assumption that you can get financing any time you want and still deduct it is not correct.

Back to your current issue. It sounds like you have already made your all-cash offer on the property. I'm guessing that means you have no financing contingency for your transaction. However, there is still nothing preventing you from getting a loan now and using that to complete the purchase. While I'd suggest consulting a local real estate lawyer to be sure, my understanding is that having no financing contingency means that you can't use any financing problems as an excuse to back out of the transaction and keep your security deposit. You committed to completing the purchase with or without a loan.

As long as you can complete the transaction within the time frames you agreed to, you can still use financing at the purchase if you want to.

--Peter
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