Only partially.
You can only claim the interest on the portion of the loan that was used to buy, build or substantially improve your home (the part that paid off the actual mortgage). So the portion of interest on the loan balance that was used to pay off a legal fee is not deductible. Also, if you used part of the original mortgage for anything other than the home, that part is not deductible either.
An example of how to calculate this number is below.
If you refinanced your home in 2012, with a balance on your mortgage of $225,000 and took out $75,000 to pay off debt. Your new balance was $300,000. The $225,000 is your original home purchase amount, the $75,000 is not so that interest is not deductible. Your original home purchase price is now 75% of the mortgage balance.
If you refinance again a month later before making any payments (for easy math sake) and take out $400,000, of which you use $100,000 to buy a boat, you would only count 56% of the balance as your original home loan balance. (225,000/400,000=.5625) So with no other refinancing, your current loan balance is $300,000, you would only be able to deduct interest on 56.25% of the balance or $168,700 (300,000x .5625)
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