topic Primary Home Cash Out Refinance used to pay off a qualifying 2nd Home Loan in Deductions & credits

Primary Home Cash Out Refinance used to pay off a qualifying 2nd Home Loan

victorze1987 — Sun, 29 Mar 2020 20:04:32 GMT

I bought a 2nd home in April 2019. Due to lower interest rates, I refinanced my primary home in Sep 2019 (Primary Home was paid off in Fed 2018) and used the cash out refinance to pay off my 2nd home in Sep 2019. Since I paid off a qualifying 2nd Home with the Primary Home refinance, is all of my mortgage interest from the primary home deductible?

Re: Primary Home Cash Out Refinance used to pay off a qualifying 2nd Home Loan

victorze1987 — Sun, 29 Mar 2020 20:15:46 GMT

All of the mortgage amounts are well below the 750K limit under the new mortgage interest deduction rules and the original primary home mortgage was paid off in Feb 2018. I basically moved my mortgage from the 2nd Home loan to the primary home at a better interest rate.

Re: Primary Home Cash Out Refinance used to pay off a qualifying 2nd Home Loan

KrisD15 — Sun, 29 Mar 2020 20:30:41 GMT

No, the loan must be attached to the house.

Although the loan is on one of your houses, it was not used to buy, build or improve that house, so the interest cannot be claimed as Home Mortgage Interest.

Re: Primary Home Cash Out Refinance used to pay off a qualifying 2nd Home Loan

cynthCO — Mon, 13 Jul 2020 23:11:26 GMT

Related question. We are considering buying 2nd home with a 'cash offer' using a margin loan from our brokerage house to generate the short term cash needed at closing (the market in the area we're considering skews heavily to cash/quick to close offers, so financing contingencies can cause an otherwise good offer to be rejected). Then the plan is to take out either a second mortgage (secured by the 2nd house), OR, a cash-out refinance on the primary residence to generate funds to help pay off that very short-term margin loan (along with liquidating some other assets). But that takes some time. Our hope is to not carry that margin loan any more than the time it takes to get a new mortgage or a refinance loan approved.

Is that a viable plan to still have mortgage interest on either loan-type (2nd mortgage or cash-out refi) considered deductible (up to $750K limits)? E.g., if the settlement statement for the original purchase of the 2nd home does not have a loan associated with it, can a subsequent secured loan still be used and meet the 'buy/build/improve' requirement for mortgage interest deductions on a qualified home?