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Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: Brilliantine on August 18, 2015, 06:33:30 PM

Title: Depreciation and Refinancing
Post by: Brilliantine on August 18, 2015, 06:33:30 PM
Hi,

I have a rental property which I originally purchased as my primary residence. It was first rented out starting January 2014 and I took advantage of some $3,800 in depreciation when I did my 2014 taxes.

Now I am considering refinancing the loan. Now, I have never refinanced a home loan so this may totally be a non-issue, but...

The current market value of the home will be much higher than the assessment (based on my previous purchase price, etc.)

I bought this home for $150k a few years ago and I think the current appraisal would come in at $180k or so.

What happens to the depreciation then? Do I owe it back to the IRS?

Thanks

Title: Re: Depreciation and Refinancing
Post by: Another Reader on August 18, 2015, 06:38:26 PM
Depreciation is recaptured when you sell the property.  A refinance does not trigger recapture.

You will pay a higher interest rate because the property is not owner-occupied than you would if you lived there.
Title: Re: Depreciation and Refinancing
Post by: PawPrint53 on August 19, 2015, 08:47:51 AM
Our mortgage rate for a rental was about 1.5 points higher than a loan for a primary residence.
Title: Re: Depreciation and Refinancing
Post by: Bearded Man on August 19, 2015, 09:27:21 AM
You can buy down the interest rate, even on an investment property. I also believe you can deduct the points paid to buy it down, so you get a tax benefit as well.

When you factor in the cost of interest over the life of the loan, a change of .5% can save you tens of thousands, in exchange for spending a few thousand, which is deductible anyway...

Title: Re: Depreciation and Refinancing
Post by: Brilliantine on August 19, 2015, 10:43:26 AM
Oh. Good point, Bearded Man.

Thanks for the input, everyone. The original loan was at 4% with 3% or 5% down so there is PMI. My primary motivation is to remove the PMI premiums. I believe I can get to less than 75% LTV especially if the appraisal cooperates.