Cash Out Refinance With Delayed Home Improvements

[emmgunn]

About two years ago I did a cash-out refinance ($20,000) intending to use the money for some remodel projects. Unfortunately, some unexpected bills delayed those projects. I understand that the interest for the cash-out part of my new mortgage is not tax deductible unless it is used for IRS approved home improvements. So, for my 2020 taxes, when TurboTax asked how much of the loan went towards the purchase or improvements of a home, I entered an amount that was $20,000 less than the total loan amount (i.e., the amount to payoff my original home loan).

I'm trying to figure out if there is a deadline for when money must be spent on home improvements to qualify for mortgage interest deductions. For 2021, I had enough money for a $10,000 remodel project. So, for my 2021 taxes, when TurboTax asks how much of the loan went towards home purchase or improvements, can I add $10,000 to the amount I entered in 2020? Can I do the same, lets say 3 years from now, when I able to get to my next remodel project?

Thanks!

[DawnC]

You have three years from the date you filed your return or two years after you paid the tax due (whichever is later) to file an amendment.   You can amend your 2020 return to make changes to the deductible portion of the refinance done in 2020 if you did not claim the correct amount.    Any part of the refinance that you used on something else (such as the unexpected bills) can never been deducted as mortgage interest.   You can include the interest on the part of the loan for improvements done in 2021 on this tax return.  

For tax years 2018 through 2025, you can only deduct the interest from the amount of your loan that was used to buy, build, or improve the home that it’s secured by.

If you’ve ever used part of this loan to pay for things other than this home, you cannot deduct the interest from that amount of the loan, even if the transaction didn’t take place this year.

From - Can I deduct my mortgage

You must be able to show the amounts deducted were spent on eligible mortgage interest (buy, build, or maintain).