A mortgage broker told me that all interest on refinance mortgage is deductible, but I read that only the interest based on the old principle balance was deductible unless the amount borrowed in addition to the old outstanding balance was used to renovate the house or the amount qualified for a home equity loan?

Who is right?

Thanks.

Let's see, do we believe the salesman mortgage broker or do we believe the CPA.
Alex the CPA wins hands down in my book!
Congratulations, Alex, you are a winner!

Interest on the re-fi, up to the original purchase price, and another $100,000 of equity debt are deductible for regular tax.

--
Paul A. Thomas, CPA
Athens, Georgia
taxman at negia.net

You are. The broker was too general in his comment.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

From pub 936, at www.irs.gov/pub/irs-pdf/p936.pdf

Refinanced home acquisition debt. Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. Any additional debt is not home acquisition debt, but may qualify as home equity debt (discussed later).

The broker was correct only if he understood that you were refinancing only the remaining principle, and not borrowing extra funds. Otherwise, well, he's a salesman.

JOE

The author of the article you read is correct. The broker is wrong.

--
Alan
http://taxtopics.net

You all both partially right. Interest on the first $100,000 of cashout is deductible.

The excess amount borrowed (over the old balance) won't be "home acquisition debt", but it might be "home equity debt" and thus the interest would still be deductible, subject to the $100,000 limit on home equity debt (note that there is also a limit based on the FMV of the home: max equity debt = FMV - aquisition debt).

Also note that points paid on any part of the refi proceeds not used to improve the home generally must be amortized over the life of the refi loan, and that interest paid on the amount refinanced in excess of the original balance is treated differently for AMT purposes.

Whit Matteson, EA

For better information on such things I look for a site called editmyloan. Things could be real complicated about it. I had hard time understanding it often.

whats the full URL ?