GUIDE
Cash-Out Refinance Bookkeeping: How to Record a Rental Refinance in Your Books
Recording a refinance means taking the old loan off the books, putting the new loan on, setting the loan costs aside as a loan cost, and putting the cash that is left into the bank as borrowed money, not income.
This guide records one cash-out refinance from its closing statement, then checks it. The example uses Demo Rentals LLC, a sample company. Every number is invented data.
What happens in the books at a refinance?
4 things, in one entry: the old loan comes off, the new loan goes on, the loan costs are set aside as a loan cost, and the cash that is left goes to the bank. Nothing is income.
A refinance is the hinge of a BRRRR: the short rehab loan is replaced by a long rental loan. It is the fourth of the 5 phases in BRRRR bookkeeping.
The loan it pays off is often a hard money loan. The refinance is the payoff that closes that loan, so it clears the same account a sale would clear on a flip, as in hard money loan bookkeeping.
What is the entry for a cash-out refinance?
Debit the bank for the cash received, the old loan to clear it, and loan costs. Credit the new loan for its full amount. The 2 sides are equal, and no line touches the profit and loss statement.
On Oct 22, 2026, Example Mortgage Co refinanced Property 2, 1640 Test Way, Vacaville, with a new loan of $240,000. It paid off the $180,000 purchase loan from Sample Hard Money Lending.
| Account | Debit | Credit |
|---|---|---|
| Checking, Demo Rentals LLC: cash out received | $55,200 | |
| Loan, Property 2, Sample Hard Money Lending: paid off | $180,000 | |
| Loan costs, Property 2 new loan | $4,800 | |
| Loan, Property 2, Example Mortgage Co: new loan | $240,000 | |
| Totals | $240,000 | $240,000 |
Debits and credits are equal.
| Loan cost | Amount |
|---|---|
| Origination fee, 1% | $2,400 |
| Appraisal | $650 |
| Title and escrow | $1,750 |
| Total loan costs | $4,800 |
- 1Get the refinance closing statement and the old lender’s payoff letter.
- 2Debit the old loan for the payoff on the statement, so its balance goes to $0.
- 3Credit the new loan for its full amount, not the amount wired to you.
- 4Debit loan costs for every fee the statement charges for getting the new loan.
- 5Debit the bank for the net wire, and check it against the bank statement.
- 6File the closing statement with the property, for the year-end package.
Why is cash-out refinance money not income?
Because it is borrowed. Cash out is part of the new loan, which has to be repaid. It raises the bank balance and the loan balance by the same amount and never touches the profit and loss statement.
Demo Rentals LLC received $55,200 in cash and owes $240,000 on the new loan. Booked as income by mistake, Property 2's 2026 profit would be overstated by the full $55,200. Recorded as a loan, the profit and loss statement shows only rent and costs.
How are the refinance loan costs recorded?
As a loan cost: an asset tied to the new loan, not a cost of the month and not part of the property's basis. Your CPA decides how it is written off over the life of the loan.
IRS Publication 551, Basis of Assets lists fees for refinancing a mortgage among the costs you can't include in a property's basis. So we leave the $4,800 out of Property 2's basis record, the one kept in its rental property cost basis and depreciation records.
How the points and the other loan costs are treated on the return is your CPA's call. The books keep them on their own account, dated and tied to the loan, until the CPA sets the amounts.
The purchase loan also had $3,600 of points, paid on Jun 2, 2026. That loan is now paid off. What happens to its points is also your CPA's decision, made from the same records.
How do you check the refinance against the statements?
Roll both loans forward. The old loan's payoff must match the payoff letter and leave $0. The new loan must match the closing statement and the lender's first statement. The cash must match the bank.
| Loan | Before Oct 22, 2026 | Refinance | After | Checked against |
|---|---|---|---|---|
| Sample Hard Money Lending, purchase loan | $180,000 | -$180,000 | $0 | Payoff letter and refinance statement |
| Example Mortgage Co, new loan | $0 | $240,000 | $240,000 | Refinance statement and the lender's first statement |
The purchase loan was interest-only, so its balance stayed at $180,000 from Jun 2, 2026 to the payoff.
The third check is the bank. The $55,200 wire must appear on the bank statement on the day it arrived. If any of the 3 checks fails, the refinance statement is read again before the month is closed.
What happens to the cash after the refinance?
It sits in the bank until it is spent, and each payment is recorded for what it is. Repaying money borrowed from another of your LLCs clears that balance. Funding the next purchase starts a new property record.
On Oct 23, 2026, Demo Rentals LLC used $41,380 of the cash out to repay Demo Flips LLC. The entry is a debit to Due to Demo Flips LLC and a credit to checking. Demo Flips LLC records the other side, so the pair stays in balance, as in due to and due from accounting. $13,820 of the cash out is left in the bank.
What will the first payment on the new loan look like?
It will be due Dec 1, 2026, for $1,616.92: $1,425.00 of interest and $191.92 of principal. The new loan has no escrow, so Demo Rentals LLC will pay Property 2's tax and insurance itself.
| Part of the payment | Amount | How it will be recorded |
|---|---|---|
| Interest | $1,425.00 | A cost of Property 2 |
| Principal | $191.92 | Reduces the loan |
| Payment | $1,616.92 | Balance after: $239,808.08 |
This payment is in the future. The figures come from the loan's schedule.
We split each later payment from the lender's statement the same way, as in how to record a rental property mortgage payment.
Your company's performance, one deal at a time.
For your rentals, Flipper Bookkeeping keeps the books and sends you, every month, a profit and loss for each property and each rehab, with cash against profit. See rental property bookkeeping services.
Free to use: the rental income and expense template.