I REFINANCED MY MORTGAGE IN FEB. 2020 COMBINING MY HOME EQUITY LOAN. CAN I DEDUCT ALL OF THE MORTGAGE INTEREST ON THE NEW LOAN?

[jsatkovich]

more details, (hypothetical numbers
original mortgage $100,000.00  home equity $15,000.00  can I now deduct mortgage interest on the entire amount of the new combined mortgage of $115,000.00?

[ReneeM7122]

No, unfortunately when you refinance your mortgage and combine a home equity loan, the mortgage interest from the new loan isn’t tax deductible. Only the loan amount when you originally acquired the property remains deductible.

https://www.irs.gov/publications/p936  No matter when the indebtedness was incurred, you can no longer deduct the interest from a loan secured by your home to the extent the loan proceeds weren't used to buy, build, or substantially improve your home.

[edited 2/2/21|10:20 pst]

@jsatkovitch

@ 

[Opus 17]

No.  Only interest on acquisition debt is deductible.

Acquisition debt is debt used to buy, build or remodel your home.  You have to trace the balances.  For example, you bought the home for $130,000 with a $20,000 down payment and a $110,000 mortgage.  Your acquisition debt is $110,000.  At some time, you obtained an HELOC and did not use it for an improvement.  Your acquisition debt is still $110,000.    Recently, you refinanced and your original balance is paid down to $100,000, your new loan is $115,000.  Your acquisition debt is still $100,000, so your interest is 86.9% deductible.

Some of the closing costs can be added to your acquisition debt but not all of them, these are listed in publication 523. 

[Opus 17]

I need to take this a step farther.

For January, you can deduct the interest on the original mortgage but not the HELOC.  For Feb-December, you deduct a percentage of the interest equal to the percentage of acquisition debt.  When first refinanced, the acquisition debt is $100,000/$115,000 = 86.9%.  However, you can consider that you pay off the equity debt first, so by December, your total loan balance might be $112,000, which is 89.3% acquisition debt.  You can average those two values to get the overall deduction for 2020 of 88.1%.  Turbotax should do this calculation for you but that's how it's supposed to work.