The National Directory of Certified Public Accountants

Ask A CPA - Interest - Itemized Deduction

Refinance - Interest Expenses

Generally yes. If you refinance the same amount of your old mortgage existing balance with a new mortgage, then the mortgage interest is fully deductible. If you refinance your home mortgage for more than the existing balance, then the deductibility depends on the amount financed and the use of the funds. If the excess funds are used to build, buy or substantially improve your first or second home, then it is considered a Home Acquisition debt. If the excess is used for other purposes, such as paying off credit card debt, for a car loan or paying for your child's education, then it is considered Home Equity debt. There is a $100,000 (50,000 for MFS)maximum Home Equity debt interest allowed limitation and a 1 million (500,000 MFS) maximum Home Acquisition debt interest allowed limitation. The deduction will be claimed as a Schedule A mortgage interest itemized deduction. The total itemized deductions claimed may also be limited based on your Adjusted Gross Income. Points paid on a refinance are amortized over the life of the new mortgage. Speak to your local CPA about the deductibility of the refinanced mortgage interest.

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