Home Mortgage Interest Deduction

[camassa]

I took out a mortgage in July 2016  to buy my primary home.  In 2024 I added to the balance of of my home acquisition debt to make substantial improvements to my primary home.  Is the additional debt subject to the $1M/$500K home acquisition debt limit since it is the same primary home purchased in 2016, or is it considered a new loan and subject to the $750K/$375K home acquisition debt limit for debt incurred after 12/15/2017?

In the step by step mode in TT, it asks "Is this loan a HELOC or a refinance of a previous loan?".  One of the possible responses is "No, this loan is neither of these".  What qualifies as "neither of these"?

Thanks

[Vanessa A]

Since you modified the loan in 2024, it would be subject to the $750/$375 limit.

Neither of these would mean it was the original loan that was not refinanced, did not take out extra money or was a home equity loan. 

[camassa]

Thanks, Vanessa.

[zomboo]

What do you mean by 'In 2024 I added to the balance of of my home acquisition debt'. Did you do a cash-out refinance or did you take out a second mortgage? If you refinanced and took out cash, the limit on the new loan is $750K. If you took out a second mortgage, your existing mortgage limit is still $1.1M and the limit on the second mortgage is $750K. Note, however, that the $750K limit on the second mortgage is reduced by the limit amount used up on the existing mortgage.

[camassa]

I did not take out a second mortgage.  I refinanced the original mortgage and borrowed additional funds to make substantial improvements to my home.

[KrisD15]

Enter the 1098 and report that it was a refinanced loan. 

Continue through the interview and indicate that there was cash taken, and that the cash was used on the home. 

[camassa64]

Thanks.  I now have almost enough information to properly determine the allowed mortgage interest deduction.

In addition, I see that Box 2 of the 1098 shows the outstanding mortgage balance at the end of the tax year, according to my mortgage statements.  I thought it was supposed to indicate the balance at the beginning of the tax year.  Which is correct? 

[zomboo]

Since you refinanced in 2024, you will have two 1098's, one for the original mortgage and one for the refinancing mortgage. Box 2 should should the balance as of Jan 1, 2024 for the original mortgage. For the refinancing mortgage, Box 2 should show the new beginning balance in Aug which includes the amount refinanced plus the cash out.

[camassa64]

Accepted Solution.