Skattefradrag Pa Refinansiering: How to Claim Refinance Tax Deductions

Before refinancing, understand how new mortgage deduction rules could change your tax situation. The 2017 Tax Cuts and Jobs Act altered how mortgage interest is claimed as part of your deductions, but what does that entail, exactly?

All costs associated with refinancing can be deducted when itemizing your taxes; with one exception being property taxes which can only be deducted when using funds from cash-out refinancing for significant capital improvements. Read the article below to learn more about how refinancing your tax deductions may work for you.

1. Mortgage Interest

Refinancing involves replacing an existing mortgage with one featuring lower interest rates or shorter payoff terms, often at reduced points to reduce rates (source: https://www.lawhelp.org/dc/resource/what-do-i-need-to-know-about-refinancing-my-m). Any interest accrued on your new loan and any points paid can generally be deducted when itemizing on taxes; this benefit applies only for primary residences – second homes and rental properties don’t qualify. You must also meet criteria to itemize deductions (your itemized deductions must exceed standard deduction).

Considerations when deducting interest on your refinancing loan include its use to purchase, build or improve real property; whether loan proceeds were used in doing so; how much original acquisition debt remains outstanding and whether your refinance is either cash-out or rate-and-term refinancing, according to Jones.

Refinancing to a loan with the same purchase price and payoff term allows you to deduct most of the interest paid immediately; however, deductions for points purchased at closing must be spread out over multiple years; this differs from how an original mortgage deducts interest payments.

However, with a cash-out refinancing loan, any proceeds must be used to “buy, build or substantially improve” your property; such as upgrading an outdated kitchen, installing energy efficient windows or building a deck. Interest incurred on any funds used elsewhere won’t be tax deductible even if eventually used to make improvements on the same home.

2. Closing Costs

Closing costs incurred when refinancing, such as lender fees, title insurance premiums and real estate commissions are tax deductible if you itemize on your federal income taxes. Mortgage points used to lower the interest rate on your new loan may also qualify. It would be wise to consult a tax professional regarding whether these deductions apply as their eligibility can change from year-to-year.

Refinancing costs must also be associated with “capital home improvements,” which refers to permanent additions or renovations that increase the value of your property, from adding a swimming pool or remodeling your kitchen, to creating an office at home. Repairs or minor design changes such as painting a room do not qualify as capital improvements.

If you are uncertain which expenses qualify, start by gathering the expenses your lender charges at closing and then compare this list against the IRS’s list of eligible expenses to ensure you have everything on record and can determine whether it makes sense to itemize and claim your refinance costs.

Be mindful that while meeting these qualifications for a cash-out refinance loan is necessary; taking care should also be exercised when undertaking such an endeavor. As it counts as a new mortgage and falls under lower maximum debt limits than usual – potentially making it more challenging to use your equity for home improvements or pay down other loans such as credit card debt.

3. Mortgage Insurance

Refinancing can provide many advantages: reduced interest rate and monthly payments, shorter payoff term or cash out equity; it can even bring tax deductions! Just make sure your refinance loan meets certain criteria.

Refinancing mortgage insurance premiums may qualify for tax deductibility. They’re considered prepayment interest on your loan and you can deduct any payments exceeding 10% of its principal balance.

However, you must itemize deductions to claim this expense. To determine if itemizing makes sense for your skattefradrag, add up all of your deductible expenses and compare them with the standard deduction available to your filing status. If the total of itemized deductions surpasses this figure then taking only the standard deduction might be better for you.

Also keep in mind that cash-out refinancing costs may only be deducted if they are used for major home improvements. According to the IRS definition of major renovations – anything which adds value or adapts it to changing needs such as adding a room or bathroom additions, replacing windows with new ones, or installing solar panels – qualifies.

At its last regular availability (for payments through 2021), the mortgage insurance deduction was only eligible for loans secured by your primary home that originated on or after Jan 1, 2007. Itemizing deductions had to surpass standard deduction amounts; if in doubt about whether or when this deduction could apply to you it can be wise to seek advice from a tax professional.

4. Property Taxes

Before filing taxes, it’s essential to know exactly which expenses can be claimed as deductions. Failure to itemize properly could leave you owing a refund and possibly missing out on deductions due to inaccurate reporting. For assistance identifying which refinance tax deductions to claim, consulting with a CPA or financial professional would likely be more useful; but here’s an overview:

When undertaking a cash-out refinancing – as explained here – on your primary residence, all property taxes paid during that year can be deducted on your tax return as expenses. Mortgage points purchased to reduce interest rates can also be deducted, provided you itemized your tax deductions and used the proceeds of refinancing to improve your home.

According to the IRS, capital improvements are any expenses that increase or extend the life of your property – this can range from renovating your bathroom or installing a deck – with any proceeds from a cash-out refinance being used for repairs or aesthetic changes like painting the room.

Deduct any expenses you pay towards maintaining your rental property, such as renter’s insurance and property taxes. Note, though, that in order to be eligible for this deduction you must possess a rental license.

Rental expenses paid on properties owned by another, such as your mother or sibling, can also be deducted. Unfortunately, property taxes paid on your own home – whether owned by yourself or otherwise – can never be deducted.