Mortgage refinance deductiblity

[Msvan]

I want to do a hole renovation and do a cash out refi to pay for it. IRS publication 936 says that I can deduct mortgage interest on the cash out part if it's used for substantial home improvement. However, the document talks only about refinances AFTER the renovation. My renovation is substantial so I need the money BEFORE it's done. Does that mean I can not deduc

[fanfare]

You can still deduct the interest on that money even before your renovation is completed.

IRS is not going to audit you anyway.

[Carl]

Here's the scoop based on a scenario.

You refi your property in March of 2020 for a total of $300,000 with a cash-out amount of $100,000. You put that $100,000 in the bank. The interest you pay on that $100,000 is not deductible at this point.

The next month you sign contracts and legally obligate yourself to pay a total of $100,000 for qualified improvements to your home. Technically, the interest isn't deductible until you actually pay it. However, if you go ahead and claim that interest and the improvements are actually paid for in the same tax year, I Seriously doubt you'd be audited on it.

If you did not pay the obligation until the next tax year, then technically you can't claim that interest in the current tax year. But your chances of being audited on it may increase every so slightly that it would probably not make a difference in your audit chances anyway.