I refinanced my mortgage in 2020 and only took out cash to cover some of the closing costs. When responding to the question about how much of the loan was used to buy, improve, or build the home it's secured by, I'm entering the amount needed to pay off the previous loan, correct? The question is confusing as I didn't "purchase" the home with the refinanced funds, but did refinance the home, which I guess to the new lender is like the purchased amount, correct? If I put $0 in this field, then I'm not able to include the interest paid as a deduction which is forcing me into the standard deduction instead of being able to deduct more than the standard, which I believe I should be able to do. Please confirm or correct. Thank you.
For purposes of calculating deductible mortgage interest, you can include the interest from the amount of your loan that was used to buy, build, or improve the home that it’s secured by. As long as those closing costs were for the mortgage that is secured by the home, they are included as part of buying the home. You would only exclude the amount if it were a different home or mortgage.
Examples of common ways you might have used this money not on your home include:
Example: John took out a home equity line of credit on his home on Tuberose Street for $40,000. He used $25,000 to remodel his kitchen and bathrooms in his Tuberose Street home, and $15,000 as a downpayment on a second house on Snowdrop Lane. He can only deduct the interest he paid on $25,000 he used to improve his Tuberose Street home.
It depends. Here is how I would report this in Turbo.
Thanks, Dave. My questions are not appearing exactly as you have laid out; however, I think I get the jest. In a previous query regarding the response to the question about if the cash taken was used for the home, in my case, cash was taken to cover some of the closing costs, an "expert" said that I should say "No" to the question. So I'm not sure which is the correct answer. When I respond "yes", as you have suggested, I don't get the follow-up question about how much of the loan was used to buy, improve, build. If I say "No" to the question, as the previous "expert" recommended, then I'm asked the question. So:
Are funds taken in a refi to cover closing costs a use of funds to "buy, improve, or build" the house the loan is secured by? and
If the answer is "no", do I put the payoff for the previous loan in response to the question on "how much" of the funds were used to "buy, improve or build" the house?
For purposes of calculating deductible mortgage interest, you can include the interest from the amount of your loan that was used to buy, build, or improve the home that it’s secured by. As long as those closing costs were for the mortgage that is secured by the home, they are included as part of buying the home. You would only exclude the amount if it were a different home or mortgage.
Examples of common ways you might have used this money not on your home include:
Example: John took out a home equity line of credit on his home on Tuberose Street for $40,000. He used $25,000 to remodel his kitchen and bathrooms in his Tuberose Street home, and $15,000 as a downpayment on a second house on Snowdrop Lane. He can only deduct the interest he paid on $25,000 he used to improve his Tuberose Street home.
Thank you, DawnC. Assume this applies whether the mortgage is for a purchase or refi.