Discussion:Mortgage refinance deductibility
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Discussion Forum Index --> Tax Questions --> Mortgage refinance deductibility
Mike miller (talk|edits) said: | 7 June 2007 |
| Here is a question I have not been yet been able to find the answer to. If someone has a $400,000 1st mortgage balance and a $100,000 home equity loan and then does a cashout refinance for $500,000 is the interest on the full $500,000 new loan deductible or only $400,000?
Before the refinance, interest on both loans was deductible. However, since technically the home equity loan has been paid off, the remaining 1st mortgage acquisition debt was $400,000. So the big question is does the rolled over $100,000 from the home equity loan now become non-deductible personal interest? | |
| 7 June 2007 | |
| Publication 936
The above link should give you everything you want to know about deducting mortgage interest. I think the home equity cutoff is $100k if married and $50k if single. Hope this helps. | |
| 8 June 2007 | |
| Couple of issues that need clarification here. The $100k home equity loan may be home equity debt subject to the $100k limit, or it might be home acquisition debt. House purchases these days are frequently financed with a first and a second mortgage (often a HELOC for the second). If the proceeds of the HELOC went toward purchase of the house (or substantial improvement) it qualifies as home acq debt. So in your case, was the HELOC used for fast living, new BMER, pay off cc debt, or was it used to purchase or improve your home?
Secondly, home acquisition debt that is refinanced remains home acq debt after the refi to the extent that no new borrowings occurred in the refi. So, assuming the HELOC was not home acquisition debt, you would be in roughly the same position after the refi as before. I say roughly because if you borrowed additional cash to pay closing costs, the new home equity indebtedness may have gone over the $100k limit and then you would have some nondeductible interest. | |
Mike miller (talk|edits) said: | 8 June 2007 |
| The HELOC was not part of home acquisition debt nor was it used for home improvements. That is why the question of whether or not the $100,000 prior amount still qualifies for a tax deduction.
Again, what it comes down to is how the IRS treats the $100,000 prior HELOC amount. There is no longer a "home equity loan" which was one of the specific stipulations. There is now the original balance of $400,000 (acquisition debt) along with a new amount thrown in of $100,000 with the refinance. To me, this $100,000 rolled over from the HELOC could quite easily now be classified personal debt and be non-deductible. That is what I am trying to find out. If anyone can find the correct answer and provide the source/reference I would greatly appreciate it. | |
| 8 June 2007 | |
| Hi a debt may be part acquisition indebtedness and part home equity indebtedness. IRS pub 936 (2005) p9 and notice 88-74 bye | |
| 9 June 2007 | |
| Home equity indebtedness for tax purposes is not necessarily always a HELOC. For example, if the home is completely paid off and the taxpayer takes out a $500,000 first mortgage against the home, only the interest on the first $100,000 of the first mortgage would be deductible under the home equity indebtedness rule and nothing would be deductible under the home acquition indebtedness rule. | |
