Yes, you will deduct all cash taken out for each refinance. Although, in the end, what you are reporting is the amount that is NOT a cashout.
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)
Now, if you used the $100,000 to build an addition onto your house instead of buying a boat with it, this would be counted as substantially improving your home, therefore the amount that would now have deductible interest would be 81.25% ((225,000+100,0000/400,000=.8125) In this situation, you would be able to deduct the interest on 81.25% of your current balance if there was no further financing.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
