Solved: Home Mortgage Interest Worksheet - Cash Out refina...
Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
Announcements
TurboTax has you covered during Covid. Get the latest stimulus info here.
cancel
Showing results for 
Search instead for 
Did you mean: 
natedbrbr
Level 1

Home Mortgage Interest Worksheet - Cash Out refinance

Have a two-part question related to a cash-out refinance completed in 2019:

1. Is the correct calculation of acquisition debt as follows?: (Refinanced Loan Amount - Cash Out) + Amount paid into substantial home improvements = Acquisition debt. Example: (150,000 - 20,000) + 5,000 = 135,000

2. Is there any limitation to when the cash from the refinance can be used for home improvements? In my situation, I used part of the cash but still have plans to use more on forthcoming home improvements. Is there any time frame within which those improvements have to be completed to be included in the acquistion debt?

 

TIA

1 Best answer

Accepted Solutions
Opus 17
Level 15

Home Mortgage Interest Worksheet - Cash Out refinance

1. Not exactly, it's better to work forward rather than working backwards by subtraction. 

 

Acquisition debt is debt used to buy, build or substantially improve your home.  Suppose you bought a house for $180,000 with $30,000 down and a $150,000 mortgage.  Your acquisition debt is $150,000.  Sometime later you refinance for $180,000, and the original mortgage has been paid down to $135,000.  Your acquisition debt is now $135,000 and that carries over to the new loan.  If you then use $20,000 of the proceeds for an improvement, your acquisition debt would then be $155,000.   You can include some of the closing costs, but not all of them, in the acquisition debt.  See page 8 here.https://www.irs.gov/pub/irs-pdf/p523.pdf

 

2. The improvements must have been completed 90 days or less before the refinance, up to 2 years after the refinance.  But they don't qualify as acquisition costs until you actually pay for the improvement, you can't deduct the interest now based on your future plans. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

View solution in original post

2 Replies
Opus 17
Level 15

Home Mortgage Interest Worksheet - Cash Out refinance

1. Not exactly, it's better to work forward rather than working backwards by subtraction. 

 

Acquisition debt is debt used to buy, build or substantially improve your home.  Suppose you bought a house for $180,000 with $30,000 down and a $150,000 mortgage.  Your acquisition debt is $150,000.  Sometime later you refinance for $180,000, and the original mortgage has been paid down to $135,000.  Your acquisition debt is now $135,000 and that carries over to the new loan.  If you then use $20,000 of the proceeds for an improvement, your acquisition debt would then be $155,000.   You can include some of the closing costs, but not all of them, in the acquisition debt.  See page 8 here.https://www.irs.gov/pub/irs-pdf/p523.pdf

 

2. The improvements must have been completed 90 days or less before the refinance, up to 2 years after the refinance.  But they don't qualify as acquisition costs until you actually pay for the improvement, you can't deduct the interest now based on your future plans. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

View solution in original post

natedbrbr
Level 1

Home Mortgage Interest Worksheet - Cash Out refinance

Thank you! Answered my question completely.

Dynamic AdsDynamic Ads
v
Privacy Settings