House Lot Financed with Rental Property

Have a client that refinanced a rental property and drew out an additional amount to purchase a lot for his primary residence. For simplicity, let's say $100,000 for rental property refinance and $100,000 for lot; a total of $200,000 loan with $8,000 paid in interest for 2019. Loan is secured by rental property. I'm assuming he can deduct $4,000 as an expense for the rental property. Is there any way he can deduct the other $4,000 for the principle residence lot? House was built and moved into during 2019.

Sounds like non-deductible personal interest expense based on the fact pattern.

Qualified residence interest requires the debt to be secured by the residence. Lots of info via the yellow box.

Sounds like non-deductible personal interest expense based on the fact pattern.

Qualified residence interest requires the debt to be secured by the residence. Lots of info via the yellow box.

Agreed. You can interest trace and get a Sch E deduction the other way around. Doesn't work like this for a Sch A deduction.

Thanks folks! Just wanted to make sure I was not missing something!

I would think that it depends on if he refinanced the debt after the new principal residence was built within the time limit (90 days to 6 months if I remember correctly) as to whether or not it can be Qualified principal residence indebtedness in the future.

He refinanced the rental property in order to pull money out to purchase the lot to build the house on. House was then built and moved into about 10 months later, so I think it's just personal interest.

He could refinance the debt on the primary and pay off the $100k of the mortgage on rental property he used to purchase the lot.

The new debt would then be secured by the primary and he could deduct the interest on that $100k going forward.