Will the partial equity taken out of a home refina...
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pattebi
New Member

Will the partial equity taken out of a home refinance be taxable?

Home value in excess of a million. Current mortgage balance of $160k and refinancing to $245k. Interest rate will be considerable lower.
3 Replies
Critter-3
Level 15

Will the partial equity taken out of a home refinance be taxable?

HELOC distributions are NOT taxable  however the portion of the mortgage interest attributed to the equity line is also not deductible on the Sch A. 

rjs
Level 15
Level 15

Will the partial equity taken out of a home refinance be taxable?

In a cash-out refinance, the money that you take out will not be taxable itself. It's a loan. You don't pay tax on money that you borrow. But you will not be able to deduct all of the interest on the refinanced loan. You can only deduct the interest on the portion of the loan that you use to "buy, build, or substantially improve" your home. That means you can only deduct the interest on the amount that is equal to the current balance before the refinancing, unless you use some of the additional money for "substantial" improvements to the home. See IRS Publication 936, Home Mortgage Interest Deduction, for the details.

 

Opus 17
Level 15

Will the partial equity taken out of a home refinance be taxable?

If your "acquisition debt" is $160K now, it remains 160K after the refinance, unless you use some of the money for "substantial improvements."

 

Assuming no improvements, then in the first month, your interest will be 160/245, or 65.3% deductible. In the second month, it might be 160/244 or 65.5% deductible, if your payment included $1000 toward principle.  Turbotax will help you calculate this on your tax return. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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