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LDSmith
Level 2

What is significance of pulling cash out on refinancing? We refinanced in 2014 on our main home.

 
1 Reply
Ashby
New Member

What is significance of pulling cash out on refinancing? We refinanced in 2014 on our main home.

Tax reform passed last year has changed the mortgage interest deduction. Only the portion of the money used to buy or improve a principle residence can be deducted.

Home equity loan interest deduction in 2018
 

Perhaps the biggest change was the elimination of the separate provision that allowed Americans to deduct interest on home equity debt of as much as $100,000 of the principal, but this doesn't necessarily mean that you can't deduct home equity loan interest at all anymore.

Deductibility of home equity interest depends on what the home equity loan was used for. If the home equity loan was used to improve the taxpayer's home, the interest is still deductible. On the other hand, if the home equity loan was used to cover personal expenses, it is no longer deductible.

Here's why. Although the home equity interest deduction has technically gone away, if the loan was used to substantially improve your home, it becomes a "qualified residence loan" under the IRS's interpretation of the new tax law. As the IRS's guidance puts it: "The limits ($750,000) apply to the combined amount of loans used to buy, build, or substantially improve the taxpayer's main home and second home."

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