Example:
It's 2017 and you owe $100,000 on your loan. In that tax year you refiance the loan for $150,000 and after using the proceeds to pay off the old loan, you have $50,000 left. You put that $50,000 in the bank and do nothing with it for the rest of the 2017 tax year. For 2017, you can only deduct the percentage of the interest equal to the percentage of the refi loan used to pay off the old loan. That was $100,000. So only 66.6% of the interest paid on the new refi loan is deductible from this point forward.
In 2018 you spend $25,000 for new windows and a new roof on the same house that secures the loan. So in 2018 you can claim the percentage of interest that is equal to the percentage of the refi loan that was used to "buy, build, or improve" that same home that secures the loan. So 125,000 is 83.3% of the $150,000 re-fi loan. YOu can claim 83.3% of the interest paid in 2018 on that loan, and all tax years going forward.
In 2020 you spend $25,000 to enlarge the attached garage from a 1-car to a 2-car garage. So now you spent all of the money from the refi to "buy, build" or improve" the house that secures the loan. For 2020 and beyond, you can claim 100% of the interest.
