Refinancing your home mortgage at a lower interest rate can save you a significant amount of money each month. However, you can also save some money on your taxes by deducting some of the costs.
So, if you have a $500,000 mortgage on your home and a $500,000 mortgage on your second home, you can deduct all of that interest. That mortgage interest tax deduction does not change if you are doing a refinance. You still may deduct all of that interest, if it does not exceed a total mortgage of $1 million.
If you paid "points" or "origination fees", you can amortize them over the life of the loan. The other costs (attorney’s fees, doc fees, title insurance, etc) get added to the cost basis of your property.. If you refinanced for more than your previous mortgage AND used the excess for home improvements, you may deduct in full the amount of the points attributable to the excess.
If the refinance meets the other requirements, including being for your main home and the points were calculated as a percentage of your refinance, you can deduct the entire amount in the year.
The recent changes to the tax laws have made big changes in the deductions you can take for interest paid on home loans – but a cash-out refinance for home improvements might still be an option. The changes to the tax laws at the end of 2017 eliminated the general deduction you could take for funds borrowed through a cash-out refinance.
Before you consider refinancing your mortgage, it’s smart to familiarize yourself with the tricky tax rules on what is or is not deductible when it comes to interest payments.That’s especially true following changes in the tax law that went into effect on January 1, 2018. The majority of those changes are set to expire at the end of 2025 unless Congress reauthorizes them.
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If you refinanced your home, you may be eligible to deduct some costs associated with your loan. Generally, if you itemize, the "points" paid to obtain your home mortgage may be deductible as mortgage interest. points paid to obtain an original home mortgage can be, depending on circumstances, fully deductible in the year paid.