Many people are not fully aware of all of the rules that surround deducting interest on home mortgage refinance loans. First of all, the rules are slightly different for deducting interest on home mortgages and home refinance mortgages. Understanding these differences can prevent confusion at tax time--and ensure you don't take a bigger deduction than is available.
First, it should be understood that everyone is given the ability to deduct the interest associated with the first $100,000 of home equity debt. Second, the home owner who refinances a mortgage can only deduct the debt remaining on the first mortgage. These two deductions can be combined. In addition, if you are buying a home over $1 million, the deduction stops on interest over the first million.
Now, let's make sense of all of this. For example, if you owed $50,000 on your first mortgage, but refinance into a larger debt because of extending the amount of time to pay the debt, only the interest on the $50,000 is deductible. The additional interest that you will pay for extending the time period of the loan is your debt to pay. With the $50,000, you can add the $100,000 of home equity debt deduction for the combined amount of interest on $150,000 that is tax deductible. If the total you will pay on the refinance mortgage is $190,000, for example, the interest paid on the other $40,000 cannot be deducted.
For more information on all of this, contact the professionals at Downs Finance. They have been in business for nearly 10 years helping people with all aspects of mortgage loans. They can help you make the right choice with your mortgage needs.