KPM

Retirement Account Required Minimum Distributions Vacation Property Rentals Affecting Your Taxes Social Security Benefit Taxation Tax Implications of Unemployment Unused 529 College Funds IRA Contribution Gift Tax Return Difference Between Filing Jointly Or Separately Substantiation For Your 2023 Charitable Donations IRA Questions Filing 2023 Tax Year Returns Kiddie Tax Rules Medical Expense Tax Deduction Tax Obligations Of Moving To Another State How Are Court Awards & Out-Of-Court Settlements Taxed Nanny Tax Reduce Your 2023 Tax Bill FSA 2024 Inflation-Adjusted Federal Tax Amounts 10% Penalty Tax Restricted Stock 401(K) Plan SECURE 2.0 Scholarships Considered Taxable Income Casualty Loss Tax Deductions Tax Implications HSA Investment Gift Tax Selling your home Employer-Provided Life Insurance ABLE account Student Loan Interest Tax Breaks Catch-Up Contributions Tax Text Or Email From The IRS

Two Tax Consequences to Consider if Refinancing a Home

Now may be a great time to refinance, because mortgage rates are still low but expected to increase. Before deciding to refinance, however, here are a couple of tax consequences to consider:

  1. Cash-out refinancing. If you borrow more than you need to cover your outstanding mortgage balance, the tax treatment of the cash-out portion depends on how you use the excess cash. If you use it for home improvements, it is considered acquisition indebtedness, and the interest is deductible subject to a $1 million debt limit. If you use it for another purpose, such as buying a car or paying college tuition, it is considered home equity debt, and deductible interest is subject to a $100,000 debt limit.
  2. Prepaying interest. ‘Points’ paid when refinancing generally are amortized and deducted ratably over the life of the loan, rather than being immediately deductible. If you are already amortizing points from a previous refinancing and you refinance with a new lender, you can deduct the unamortized balance in the year you refinance. But if you refinance with the same lender, you must add the unamortized points from the old loan to any points you pay on the new loan and then deduct the total over the life of the new loan.

Is your head spinning? Do not worry; we can help you understand exactly what the tax consequences of refinancing will be for you. Contact us today!

Related Articles

Talk with the pros

Our CPAs and advisors are a great resource if you’re ready to learn even more.