Need clarification about mortgage interest deduction.
The acquisition debt is approximately $350,000. Did a cash out refi of $419,000.
$40,000 was used for home improvement. The balance of $29,000 was used towards purchase of land.
It is my understanding that the interest on $29,000 is not deductible, but the rest of the interest based on loan amount is deductible. Is this correct?
Also, do I have to keep entering the loan as a refi cash out for the duration of the loan?
I noticed nobody has replied to your question. You are correct that the $29,000 is not included when determining the mortgage interest. If you did the refi this year you will have two 1098s. Specify the the 1st 1098 as a refinanced mortgage. Specify the 2nd 1098 as a refinance of a previous loan. When asked for the amount used to buy or improve your home, enter the balance of the refinanced mortgage before refinancing plus the $40,000 spent on improvements. This enables Turbo Tax to figure the mortgage limitation correctly.
You will continue to specify the current mortgage as a cash-out refinance going forward. This enables Turbo Tax to apply principal payments to the $29,000 non-acquisition balance first.