Scouring around for tax information on refinanced mortgages has been my latest errand almost every homeowner I know has refinanced and surprisingly not many were bothered about the taxes. But, now that the tax time is near every one wants to know about deductions and savings. So here are a couple of points...
Charge-deductions: There are points when you refinance and these points are there to calculate charges on loans taken out by you. The usual rate is one point for every one percent of loan amount. This is where you can get some deductions. These charges or points can be deducted and if this not your first time refinancing you can deduct the remaining points from your previous loan. The points from the present loan will be deducted over time.
There are tax savings: Up to a loan amount of $100,000 on home equity this is true. Even how you used the $100,000 is not a concern, so you can be relieved. However, if you borrowed more than $100,000, the whole scenario changes and questions regarding how you spend the amount and should you be taxed the minimum tax etc are all raised. So, all those home improvement you made or the fancy cars you brought are all going to be scrutinized if your home equity loan amount was over $100,000.
The $100,000 clarification: This point is better explained with an example. If you had taken out a home equity loan of 190,000 and your loan amount of the first mortgage was only $100,000 you can deduct the whole amount. The difference between the new loan and old mortgage, if over $100,000, you are in the taxable bracket.
Most of us are sitting pretty by cashing out on home equity and though we have all have heard about the changes in interest and the ripple effects on our monthly cash outflow, surprisingly, few of us are really clear about taxes and deductions in refinancing.
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