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Thanks to all for the suggestions/comments.

I am basically looking at this as a foray into having an asset allocation plan. Everything has been in the market up to now and the inheritance presented an opportunity to have some of our assets in real estate. I'm comfortable with the risks and can ride out not having a renter (the PITI is the same with the refinance – pulling 50k out just reduces the allocation to RE in favor of the market) and the swings in the market - so I think it's a go. However, I do have a little anxiety over the tax implications.

We have never itemized as we have never owned property and hence never had the deductions necessary to beat the standard.

In addition to this inherited property we are about to convert from a construction loan to a mortgage on a vacation home. So, I get two tax-related issues to tackle in my first year as a property owner.

On the inherited home I project that when the property is occupied I'll have a small positive cash flow given the current mortgage – and hence taxable income. If I refi and take cash out the higher proportion of the PITI going to interest will result in a smaller positive cash flow – and maybe even a passive loss, which I'm (foolishly?) viewing as a positive.

On the vacation home I'm thinking it will be considered a primary residence for tax purposes and the mortgage interest will be deductible. We live overseas in govt.- provided housing and plan to continue that until retirement from this lifestyle in 8-10 years. Is this a correct interpretation?

More thoughts welcome – thanks, Tom
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