Blog
  • Home
  • Blog
  • How Refinancing Your Home Affects Your Taxes

How Refinancing Your Home Affects Your Taxes

Refinancing your home can reduce your mortgage and give you access to equities in your home that you can use to pay off important expenses. When interest rates plummet, millions of homeowners across America decide to refinance their mortgages. But the tax rules associated with refinancing can be tricky, so before you refinance, do your own research or get in touch with one of our Tax Pros – we offer free income tax service consultation.76800249

Should You Even Refinance?

This ’Should You Refinance Your Mortgage’ sheet from dummies.com will help you find the answer.

refinanace

If you intend to live in the house for a few years longer than the break-even time, refinance away!

Tax Deductions from Refinancing

To help you understand how tax deductions from refinancing your mortgage works; let’s look at a hypothetical case.

Say your old mortgage was for $500,000, and you’re refinancing the mortgage for a loan of $550,000. You can use the extra $50,000 to pay off some loans and cover expenses like credit card bills. When it comes to your taxes, your new mortgage amount is split into two parts. One part is the original mortgage amount, which is home-acquisition debt. Interest on this debt, up to a million dollars of it, can be written off as an itemized deduction.

The other part is the money you took out when you refinanced. In this case, it’s the extra $50,000. This is called home equity debt for tax purposes. Interest on this for up to $100,000 is also deductible.

How Tax Works On Loan Origination Fees

Let’s break it down.

  • Loan origination fees, also known as points, will be charged when you refinance.
  • Each point is 1% of the new loan balance.
  • Points for the home-acquisition debt must be amortized.
  • Continuing with our example case, this is 1% of $500,000, or $5000 for every point.
  • You can write off the amortization amount as interest.
  • The 1% fee on the home equity debt can also be amortized over the duration of the loan.

Note: “amortized points” is just a fancy term for points that have been deducted.

Good News for Serial Refinancers

If you’ve refinanced your mortgage before, you probably have a hefty unamortized balance for the points you’ve collected. You can deduct this entire balance when you refinance again! But this doesn’t apply if you refinance with the same lender. In this case, you will have to continue amortizing points from the old loan and just use the new loan’s duration to figure the write-off.

The Deadly AMT

If you are eligible for alternative minimum tax (AMT), you can deduct interest on your home equity debt only if the money was used towards improving your home. So, if you used that extra money to pay credit card bills and clear car loans, you can’t deduct the interest.

The post How Refinancing Your Home Affects Your Taxes appeared first on .

Share this...

Similar Articles

Leave a reply

Affordable Care Act (ACA)

Affordable Care Act (ACA) and what it means for your taxes

Learn More

EasyMoney Loan

Get Refund Advance up to $60001 No Credit Check. High Approvals.

Learn More

Find an ATC office

Stay Updated

Subscribe to our free newsletter and receive the latest updates.

Your information will not be published.

#ATC has grown from 4 tax service retail offices to over 34 Store Fronts and continues to thrive despite the competitive climate.

Our humble tax preparation firm has grown by leaps and bounds; earning thousands of satisfied customers.

Schedule an appointment today.

#ATC has grown from 4 tax service retail offices to over 34 Store Fronts and continues to thrive despite the competitive climate.Our humble tax preparation firm has grown by leaps and bounds; earning thousands of satisfied customers.Schedule an appointment today.

ATC has been in this industry for 14 years now and counting.

Get nothing but the best taxing services from our fully-experienced and trained tax professionals.

#atcincometax #taxrefund #incometaxes

ATC has been in this industry for 14 years now and counting.Get nothing but the best taxing services from our fully-experienced and trained tax professionals.#atcincometax #taxrefund #incometaxes

ATC to be there every step of the way.

Don’t let this IRS notice stress you. Book an appointment for a free tax consultation. Call us at 855-ATC-1050

#atcincometax

ATC to be there every step of the way.Don’t let this IRS notice stress you. Book an appointment for a free tax consultation. Call us at 855-ATC-1050#atcincometax

We seek to provide reliable and accurate advice pertaining to all income tax services across the board.

Choose ATC this tax season!

We seek to provide reliable and accurate advice pertaining to all income tax services across the board.Choose ATC this tax season!

Learn the ins and outs of tax deductions and credits through our ATC tax tools and services.

Our checklist will help you determine if you qualify for the child tax credit.

Click here: https://t.co/UbCT7sjUL2

#atcincometax #taxrefund #incometaxes #taxreturn #taxes #money

Learn the ins and outs of tax deductions and credits through our ATC tax tools and services.Our checklist will help you determine if you qualify for the child tax credit.Click here: https://t.co/UbCT7sjUL2#atcincometax #taxrefund #incometaxes #taxreturn #taxes #money

This message is only visible to admins:
Unable to display Facebook posts

Error: Error validating application. Application has been deleted.
Type: OAuthException
Code: 190
Click here to Troubleshoot.