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Hello,

I am trying to find out how much interest of the proceeds I would receive from refinancing my home (for more than the current payoff balance) would be tax-deductible. It was suggested I try this board.

Here is my situation:

*Purchased home in 1981. Original purchase price 83k. Financed 78k.
*Refinanced in 1992 to a 15-year mortgage (the one I have now).
*I have a current pay-off balance of about 38k.
*My house appraised for about 275k.
*Married – File Jointly
*I don't plan to do any home improvements with the proceeds. I am going to invest it.

If I refinance (paying off the current mortgage) how much money am I permitted to 'pocket' and still be allowed to write-off the interest on the loan for tax purposes.

I've read the IRS stuff and I just get confused. It all starts sounding like gibberish to me -- with talk of loans before 1987 and after 1987, etc. I truly get more confused the more I read.

The mortgage company has told me that if I take a loan for 220k (paying off my current mortgage; the closing cost; and pocketing about 180k) -- interest on the whole 220k will be tax-deductible?

I thought I could only borrow 100k over what I already owed (i.e., a loan 138k and pocket 100k); and if I borrowed more, then I'd have to use it for a MAJOR home improvement(s) for it to qualify for tax deductions.

I appreciate any help.
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The mortgage company has told me that if I take a loan for 220k (paying off my current mortgage; the closing cost; and pocketing about 180k) -- interest on the whole 220k will be tax-deductible?

I thought I could only borrow 100k over what I already owed (i.e., a loan 138k and pocket 100k); and if I borrowed more, then I'd have to use it for a MAJOR home improvement(s) for it to qualify for tax deductions.


You're right, and the mortgage company should go back to "consult your tax advisor."

Phil Marti
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Phil,

Thanks for your response.

awaryfool (Ken)
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I thought I could only borrow 100k over what I already owed (i.e., a loan 138k and pocket 100k); and if I borrowed more, then I'd have to use it for a MAJOR home improvement(s) for it to qualify for tax deductions.

You are correct as to the amount of mortgage interest deduction you may take. However, as you are going to be using a major part of the proceeds for investments, the portion of the loan allocated to investment could be deducted under investment interest expense. The amount of investment interest that can be deducted is limited only by the amount of investment income, with the excess of interest over caried over to future years until there is sufficient income.

Investment inteerest also is not compatible with tax-exempt bonds.
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