Duplex (50% rental) refinanced to buy a 100% rental.

[fmaderjr]

A Client refinanced his duplex (50% rental) when he only owed about $5000 and took out a new $115,000 loan. All of this money was used to buy a new 100% rental property.

We don't want a schedule A deduction (his itemized without this interest are about $5000 below the standard deduction).

I know you can make an election to have home mortgage interest treated as rental interest if it was used to buy the rental property, but only 1/2 of this loan was secured by a residence. What about the other 1/2 of the interest that is secured by the rental portion of the duplex? It can't be deducted on that schedule E because it was not used to buy anything for the duplex. Can I just deduct it on the Schedule E for the new rental because it was spent to buy that property or is there some election I can make to allow me to do it? I can't find any info at all on this issue no matter no matter how much I seach.

Any thoughts would be greatly appreciated!

[OldJack]

>>Can I just deduct it on the Schedule E for the new rental<<

I would think that you can under the tracing rules.

[fmaderjr]

Thank you. Researching the tracing rules confirms you are correct.

I'm embarrassed to say I had forgotten the term "tracing rules" so my searches weren't turning up any results.