Mortgage Interest Deduction - Acquisition Debt and refinance cash out

[mjm77]

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?

[zomboo]

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.