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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121599  
Subject: Refi and AMT Date: 7/5/2011 6:24 PM
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I could use a quick answer to this because we plan to sign papers tonight.

We are about to refinance our home (again). All of our previous refinances have lowered the principal balance from the previous loan (the first loans in the chain were our purchase money loans). In this one, for the first time, we're going to take a small amount of cash out, approximately $2,000. (My wife is handling this transaction and didn't bring the cash-out aspect to my attention -- hence the rush.)

We are usually subject to AMT. Will the AMT tax treatment of this refinance differ from the tax treatment of our previous loans? --Bob
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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113639 of 121599
Subject: Re: Refi and AMT Date: 7/5/2011 7:56 PM
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We are usually subject to AMT. Will the AMT tax treatment of this refinance differ from the tax treatment of our previous loans?

Yes, and no.

The AMT treatment hasn't changed in a few years. Any interest attributable to the cash out portion is not deductible for AMT purposes. So nothing is changed in the tax treatment, except that you are finally subject to it.

Fortunately, the first dollars of principal you repay is that cash-out portion. So the issue won't last for long. And assuming that the interest on $2k of cash-out is pretty much immaterial, it won't really make a difference on your tax return.

I believe there are worksheets in the instructions for schedule A to help figure out how much of the interest is not deductible for AMT purposes. It's just a proration of your total interest paid, using the average balance of the loan. Once your loan balance gets back down to the principal amount you are refinancing today, the issue will go away.

--Peter

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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113640 of 121599
Subject: Re: Refi and AMT Date: 7/5/2011 8:07 PM
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ptheland writes (in part):

Fortunately, the first dollars of principal you repay is that cash-out portion. So the issue won't last for long. And assuming that the interest on $2k of cash-out is pretty much immaterial, it won't really make a difference on your tax return.

I reply:

Thanks. That's very helpful. --Bob

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