I am buying a house (I live in USA and this whole question is about tax situation in USA). But it used to be someone’s investment property and comes with the addendum that current tenants get to live for another 6 months (when their lease ends).
Due to this, the mortgage I need to use for this house is that of an investment property (since I won’t be living in it for another 6 months after purchasing).
So now I have the mortgage rate of an investment property - 3.5%
After 6 months, I move into the house. By that time, interest rates would have gone up and probably interest rate on primary residence loan itself would be 3.5%
So I thought - “what’s the point in refinancing. I will end up wasting the fee associated with refinancing.”
I googled that it could cost up to 3% of remaining principal amount to refinance.
But a friend said that if it’s an investment property, you cannot claim the tax deductions on the loan interest (even if I am living in it). Is he correct?
It seems like I get worse of both worlds - higher rates associated with investment property, but no tax benefit of a primary residence loan (even if I am living in it).
How does IRS decide if it is an investment property or a primary residence? Does it go by the fact if I a living in it or not? Or does it go by what kind of mortgage loan was used?