Here's the scoop based on a scenario.
You refi your property in March of 2020 for a total of $300,000 with a cash-out amount of $100,000. You put that $100,000 in the bank. The interest you pay on that $100,000 is not deductible at this point.
The next month you sign contracts and legally obligate yourself to pay a total of $100,000 for qualified improvements to your home. Technically, the interest isn't deductible until you actually pay it. However, if you go ahead and claim that interest and the improvements are actually paid for in the same tax year, I Seriously doubt you'd be audited on it.
If you did not pay the obligation until the next tax year, then technically you can't claim that interest in the current tax year. But your chances of being audited on it may increase every so slightly that it would probably not make a difference in your audit chances anyway.
