Tax Rules for Refinancing

The Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (TCJA) passed in 2017 and changed the rules regarding deductible mortgage interest. Married couples filing jointly may be able to deduct up to $750k in interest, while single people or married couples filing separately may be able to deduct up to $375k—a drop from the $1 million and $500k deduction caps before the TCJA.

What’s Deductible?

If you paid property taxes during the closing of your refi loan, you may be able to deduct them on your next return (this doesn’t apply to cash held in escrow for future payments). You may also be able to deduct mortgage interest after a cash-out refi as long as you use the cash to make capital improvements (permanent renovations that increase property value) to your primary or second residence.

What’s Not?

Under the guidelines of the TCJA, interest paid on home equity debt is no longer deductible for expenses unrelated to home renovation. You also won’t be able to deduct homeowner’s insurance payments or the closing costs from your refinancing process.

This information should give you a better idea of what to expect come tax season, but we highly recommend speaking with a tax advisor or a CPA for guidance regarding your personal situation. Trust the experts to help you get the most benefit out of your refi mortgage each tax year.