Is this loan a home equity line of credit (HELOC) or a refinance of a previous loan?

[ZeZa]

Turbotax Question:   Is this loan a home equity line of credit (HELOC) or a refinance of a previous loan?

The first (original) loan was in 2017. I refinanced that original loan in 2020. Therefore, I have had this new refinanced loan for the last four years, since 2020. It has not changed. I did not refinance again. Just that one time.

For the 2024 tax year:

(A) Is the question asking if "whatever loan" I have now is a refinanced loan regardless of when I got it (2020), or (B) is it asking if the loan I have now is a refinanced loan as of this tax year (meaning I got it refinanced AGAIN in 2024)?

Which is the answer, A or B?

This should be a basic reading comprehension question, but it's never like that with the IRS.

[zomboo]

The loan you have now will always be classified as a refinance of a previous loan. So answer (A) is correct.

[Vanessa A]

It is asking if "whatever loan" you have now has EVER been refinanced.

The reason for this question is because if you took any money out for anything other than to buy, build or substantially improve the home which the loan is secured by, the interest on that part of the loan is not deductible.   

Ex.  If you refinanced your loan in 2022 with a balance of $200,000 and took out $50,000 extra to buy a truck for a total loan amount of $250,000, only the interest on the first $200,000 would be deductible.  So you will need to note this every year that you are itemizing since you can only deduct the interest on the house part. 

[ZeZa]

Than you zomboo for replying.

That's what I think/thought about that question, that the answer is (A). However, I see another reply here by a Turbotax Expert (employee of TurboTax) and if I am reading the reply correctly, then that other answer says is (B).

Therefore, I am still hesitant... your answer makes sense to me, but this other person also makes sense. I'm left at the same crossroads... except that if I go with the Turbotax "Expert" title in this forum, then I guess I would have to go with (B).

The IRS will take the money no matter what, why can they at least make it straight forward. Even on their website the language is so obscure and with double meaning.

Thanks for helping zomboo.

[KrisD15]

As I look at the two answers in this thread, they both are answering the same, once a loan is refinanced, the resulting loan will always be a refinanced loan. 

To answer your question, it means A, was it EVER a result of refinancing the original loan. 

When a loan is an original loan to buy or build a home, the program knows that all the interest is allowed as long as the loan balance is not over the limit. 

When an original loan is refinanced, the program needs to know why it was refinanced. 

If refinanced to take out cash, the program needs to ask a few more questions to determine if any of the interest needs to be limited because the loan was used for something in addition to buying the house. 

Example, you took out a 200,000 to purchase a home in 2020. 

In 2022, you refinanced this loan, now it is a refinanced loan forever. 

If in 2022, the balance was 190,000 and you refinanced only to get a better rate, all the interest is allowed. 

HOWEVER 

In 2022, the balance was 190,000 and you refinanced and got a loan for 210,000 because the value of the house you bought increased, only the interest for part of the loan (190,000) is allowed.  This limit on deductible interest for this refinanced loan will be forever, so every year you'll need to answer "Yes, it was a refinance of a previous loan" 

@ZeZa 

[ZeZa]

Thank you for replying "Vanessa A - Employee Tax Expert".

I apologize if my understanding of your response is unclear, and I appreciate your patience.

Based on my example, I understood by your reply that the correct answer might be (B). Is this correct?

You mentioned that "It is asking if 'whatever loan' you have now has EVER been refinanced." This makes me think that the question is asking if the loan I currently have, which was refinanced several years ago, has been refinanced again in the current tax year. Is that correct? Which means the answer is (B).

Again, I apologize for any confusion, and I would really appreciate your help in clarifying whether the correct answer is (A) or (B) based on my example.

Thank you for your time and support.

[ZeZa]

Thank you for replying "KrisD15 - Employee Tax Expert".

I now know the answer to this question is: yes. (A)

Thanks again.