Question for the Money Doctors
Question submitted on Jul 30, 2021.
QuestionWe are considering refinancing our home and one option offered includes a cash out option where we could pay off our second trust. Could we still claim the mortgage interest deduction on our taxes? We itemize and are in a high tax bracket so we don't want to lose this deduction.
As with most tax questions, it depends. If the second mortgage was used for buying, building or improving a residence, then that portion of the interest, along with interest paid on the current mortgage balance would continue to be deductible to the extent the entire mortgage does not exceed $750,000. If the second was not used for those qualifying purposes and instead used for purposes such as paying off credit card debt, buying a vehicle, etc, then the interest has not been deductible since the passage of the major tax code overhaul in 2018 and that portion of the refinanced debt would not be deductible.
I would definitely recommend seeking the advice of a CPA in your area to help you answer all of the questions that arise from your initial inquiry. I cannot adequately address all of the considerations in my reply. Visit www.aicpa.org/findacpapfs to find a CPA/PFS near you.
For additional information visit //www.360financialliteracy.org/