topic Re: HELOC Refinance in Retirement tax questions

HELOC Refinance

SR12 — Fri, 28 Feb 2020 22:20:53 GMT

Hello,

I refinanced my home into a mortgage in 2018 that was treated as a HELOC that had no allowable dedictible interest. With interest rates lower in 2019 I refinanced the HELOC loan. Am I allowed to deduct my mortgage interest on the new loan that replaced the one that was treated as a HELOC?

Re: HELOC Refinance

KrisD15 — Fri, 28 Feb 2020 23:26:13 GMT

Yes.

It would still be considered a refinanced/HELOC; however, only if cash was taken out MIGHT the interest be reduced.

Only the original loan (the loan you signed for at closing) is the original loan. Once that is refinanced/HELOC, it will always be refinanced/HELOC loan.

If, after you enter the 1098's you get an error, follow these instructions and adjust the interest to the full amount if cash was never taken out (or if cash was taken out but used on the same property for improvements)

ONLINE USERS:

Please go back to the Home Mortgage Interest section:

Click Federal on the left side-bar

Click Deductions & Credits along the top

Scroll down to “Mortgage Interest and Refinancing (Form 1098)” Click Edit/Add

Scroll down the “Here’s your 1098 info” screen and click Done.

Next screen asks “Do any of these situations apply to you?” Select “Yes, one or all of these situations apply to me.” and Continue.

On the following screen, you will see the “Original amount”.

Enter the amount you can claim as a Home Mortgage Interest deduction in the “Adjusted amount” box. The Adjusted amount cannot be larger than the original amount or you will receive an error when trying to file. Instructions on who needs to adjust interest and how to calculate are available by clicking the blue “Help me figure this out” link.

DESKTOP USERS:

Go into Forms (top right)
Enter the amount on Tax & Int Wks
Mortgage Interest Limited Smart Worksheet section
Line A2

Step by Step

Federal

Deductions & Credits

Mortgage Interest, Refinancing and Insurance Click Update

Click Done

Click Yes, one or both of these situations apply to me. And Continue

Enter the Adjusted amount and Continue

Re: HELOC Refinance

NCperson — Sat, 29 Feb 2020 00:52:36 GMT

let me make this simpler.

the IRS does not care whether it's a HELOC, refi, cashout refi, etc.

What it cares about is 'aquisition debt' and 'equity debt'

your aquisition debt is the mortgage balance at the time you purchased the house, less the paydowns, plus any mortgage debt you took out to substantially improve your home. that is it.

example

1) purchased my home with a $200.000 mortgage. After 5 years the balance is $175,000.

2) I talk out a HELOC for $50,000, using half to improve the home and half to buy a car.

$225,000 is aquisition debt and the interest is tax deductible

$25,000 is equity debt and interest is not tax deductible.

as you pay down the HELOC, it is assumed that the 1st dollars paid off are equity debt.