Mortgage interest deduction for loan before 12/15/2017 and refinanced in 2020

newTTuser · ‎February 17, 2021

I am using TT deluxe download.

I have two 1098. one for 8months with original loan funded before 12/15/17 and second one for the refinance done in 2020. Original loan and refinanced loan both are above 750k.

I see this note while working on mortgage interest deduction:

Multiple 1098s related to a Refinance done in 2020

1. Input just 1 1098 to cover the refinance.
2. Gather all of your 1098s related to the refinance.
3. Separately add up the amounts in Boxes 1, 5 and any property taxes paid

4. Box 1, Box 5 and Property Taxes- Input the total amounts for each on the

refinanced debt
5. Box 2- Input the amount of debt on 01/01/2020.
6. Box 3- Mortgage origination date- Input the oldest date on your 1098s

related to the refinance

So, I followed the instruction and only made one 1098 entry. Added box 1,5 and property taxes and put correct amount and date for Box 2 and Box 3. That made all the interest(from both 1098s) deductible.

I also saw following note after making single 1098 entry.

What if I refinanced?

If you refinance debt, the loan limitation is based on when the loan was originally secured, and not when the loan was refinanced.

Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. Any additional debt not used to buy, build, or substantially improve a qualified home isn't home acquisition debt.

Examples:
Susan secured a $1,000,000 loan to purchase a home in July of 2017. She refinanced the loan in July of 2019 when the loan balance was $950,000. Susan's new refinanced loan has a loan balance of $950,000. She does not have a loan interest limitation as her loan was originally secured to buy the home before December 15, 2017.

George secured a $750,000 loan to purchase a home in January of 2019. In August of 2019 George refinanced the home when the loan balance was $740,000. George obtained a new loan for $800,000 to refinance the outstanding home loan, but uses $60,000 to pay off credit card debt and for closing costs on the refinance. George would be limited to deducting only interest paid on $740,000 of debt.

For more information, please refer to IRS Publication 936.

So if the original loan is from before 12/15/17 and was refinanced in 2020, loan limitation, from mortgage interest deduction point of view ,still remains 1 million?

Also, if I do a cash back refinance and use the funds for home addition, I would be able to deduct full interest in that case also?