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PaulinVA
Level 2

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

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"?

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AlanT222
Expert Alumni

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

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.  

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AlanT222
Expert Alumni

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

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.  

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yrnomad
Returning Member

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

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
Expert Alumni

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

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. 

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