What does "Since you first took out this loan, how much has been spent to buy, improve, or build the home it's secured by?" mean

[PaulinVA]

In Sept 2016, I did a cash out refinance of the mortgage on my principal residence.  I used some of the cash to pay off debt and saved the rest.

Since then, I have spent a considerable amount on improvements, in 2018 and 2019.

I get what the question is asking, sort of.  I looked at the draft 2020 IRS Pub 936, but it doesn't seem to address timing.

Why is TurboTax asking the question in the way it is?  Does it mean "Since you took the loan out" or does it mean "Immediately from the proceeds of the loan"?

[AlanT222 · Accepted solution]

It means immediately from the proceeds of the loan.  The cash you received must have been used to buy, build or improve the home.  Since you did not use the proceeds to do either, the interest on the amount you used for other bills or savings would not be deductible.  

[yrnomad]

so AlanT222 or anybody else that can answer. If your original loan was $150,000, you've paid it down to $140,000. But in 2016, you've refinanced and taken say and extra $30,000 in a refinance. So your new loan is $170,000 and of the $30,000 amount of cash out, you pay $15,000 in back debt, and do $5,000 of work that same year but couldn't get the rest scheduled until 2017's dry season... then you use the other $10,000.

So, does the 2017 count as the build/improve for that 2016 refi? Since it was a different tax year? ...and in some sense, we are still talking about the percentage used of the 2016 loan for non build/improve for 2020 taxes...

Which brings up question 2. If you paid that $15,000 on other debt in 2016, but in the period of time, having your first mortgage i.e. 2008-2016 (preceding refi), and the time from refi to today. If you've put in more than that $15,000 "out of pocket" into Build/Improve (not counting the $5,000 and 10,000 you did in 2016/2017. would that cancel that percentage that taxable percentage out, or is that value lost until you sell the house, and start over on the next?

[KrisD15]

Second question first, it is lost value for the interest, but would increase your basis (value) of the property for reporting capital gains if applicable. 

You can include the total amount used on the home from the loan even if used over more than one tax year. 

[HamptonShy]

My question on this tho, is we refinanced and took out 43,000.   In that question do I answer out of the 43,000?  So lets say we used 20,000 on improving house, do we say 20,000 in that box?

[Vanessa A]

That is correct.  If you took out $43,000 and used $20,000 for improving the house you would enter $20,000.  The interest on the other $23,000 is not deductible. 

[thejohnstonsrule]

I think the word that is throwing me is "buy". I refinanced my mortgage end of 2020 and cashed out enough to pay off my car.  The rest of the loan has been amortized as mortgage. I am not sure what to put in this field.

[JulieS]

The answer to that should be the total amount of the new loan minus the cash that was used to pay off your car loan. 

[thejohnstonsrule]

Thank you! Thats the most straightforward answer I have seen! 🙂

[Bridget13c]

I've been loosing my mind on this question. In order for the software to work correctly, it should say how much did you reinvest in your property to pay off the exisiting mortgage before your refi and/OR reinvest in the property for renovations or improvements? Or maybe put please put your total loan amount less what monies was used not on the property? I read about how to calculate what percentage of my interest still could be deducted minus my cash out but could not get it entered right per their directions. When I looked at the itemized list it kept not counting any of my mortgage interest when a large percentage still counted. 

[PatriciaV]

Your experience may be related to a similar issue that has been reported and is still under investigation. 

You may sign up for updates here: Why isn't my mortgage interest flowing into my Schedule A? 

Even if this doesn't seem to apply to your situation, the mortgage interest form & calculations will be updated in TurboTax when the investigation is complete.