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REfinancing and paying off HELOC

I refinanced my home in october 2021 including a payoff of a heloc loan.  I did not receive a 1098 from the heloc loaner (because the interest was <$600).  

When completing the forms on TurboTax, it asks me if i took out extra money - yes

Did i use it for improvement - not yet. The loan only closed in october and i have not yet had time to use the money for repairs. so i cannot say how much will be towards improvement. The answer is just a yes i've used this on the home i took it out on

and NO: i used some or all ....... something other than a home. 

it could be yes, i will use it in the future.  But no, i can't promise that will not use it. It is sitting in a bank right now. how do i answer this? 

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2 Replies
RobertB4444
Employee Tax Expert

REfinancing and paying off HELOC

If you answer that it was all for home improvements then you get to deduct the interest.  If not, you don't.   You'll have to make a judgement call on this one.  And you'll have to answer it again next year.

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REfinancing and paying off HELOC

this is actually a little more complicated - because there was a HELOC that was paid off.  

 

the acquisition debt is the original loan balance used to purchase the house. 

Then it appears there was a HELOC - what did you use that money for? home improvement or not?

then it appears you did a cash out  refi and paid off the 1st mortgage and the HELOC and you have yet to use the cashout money for improvement.  

 

Let's say the original aquisition debt was $100,000 and had amortized down to $90,000 at the time of the cash out.   Further, the HELOC has a balance of $25,000.  Then the cash out refi was a new $150,000 loan.

 

In this example, the interest on the first $90,000 is clearly deductible interest.  The interest on the remaining $60,000  (including the HELOC interest prior to the payoff) is not tax deductible, unless the momey was used to improve the house.  It could be some of that $60,000 is used to improve the home and at that point, the related interest is tax deductible.  

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