I own my home free and clear but , I owe $50,000 on my Class A motor home and $25,000 yet on my automobile . The motor home qualifies as a second home so I can declare the interest paid at 3.74% and the payment is $550 per month. The automobile interest is at 3.79% and the payment is $450 per month. My question is should I refinance $100,000 for 30 years at 3.5% interest , taking 50K cash out to pay off the motor home and 25K to pay off the auto loan and use the remaining 25K on needed home improvements ! My new payment would be $450 vs the $1000 I pay out now . I'm concerned , that by doing this , I may loose the $2000 interest credit by transferring that 50K debt into a home loan ! Would I be better off keeping the Recreational Vehicle loan as it is and applying for fee free home equity loan of 50K ? I realize that only the money used towards home improvements would be tax declarable and not the $2500 applied to pay off the automobile . Tom
the way it works is that any 'new' debt must be used to substantially improve your home.
so the $50,000 is just replacement of debt - it remains tax deductible (assuming the balance is lower than when you first purchased the mobile home).
the $25,000 of home improvement is tax deductible
the $25,000 to pay off the car loan is not deductible.
The IRS doesn't care whether it's a HELOC for a cash out mortgage; the math is the same
So $75,000 would be 'tax deductible' debt and $25,000 would not be. As you pay down this $100,000 mortgage, the IRS assumes the non-deductible portion is paid down first, so over time, the percentage of interest that is deductible would keep going up.
the way it works is that any 'new' debt must be used to substantially improve your home.
so the $50,000 is just replacement of debt - it remains tax deductible (assuming the balance is lower than when you first purchased the mobile home).
the $25,000 of home improvement is tax deductible
the $25,000 to pay off the car loan is not deductible.
The IRS doesn't care whether it's a HELOC for a cash out mortgage; the math is the same
So $75,000 would be 'tax deductible' debt and $25,000 would not be. As you pay down this $100,000 mortgage, the IRS assumes the non-deductible portion is paid down first, so over time, the percentage of interest that is deductible would keep going up.