How to Claim Your Mortgage Refinance Tax Deduction: A Simple Guide
As a mortgage wealth advisor with over 30 years of experience helping homeowners in Pittsburgh, I've seen firsthand how a mortgage refinance can save you money. One of the benefits many people overlook is the tax deduction available for mortgage interest. In this post, I’ll explain how to claim your mortgage refinance tax deduction and why you should keep it in mind if you want to maximize your mortgage refinance tax benefits.
What Can You Deduct?
The biggest deduction you can claim after refinancing is the interest on your mortgage. Just like your original loan, the interest you pay on your new loan is deductible if you itemize your deductions on your tax return. However, there are a few key details to know:
Mortgage Interest: If your refinance loan is the same amount or less than your original loan, you can deduct the interest as usual.
Cash-Out Refinance: If you took out more money than your original loan (for home improvements, for example), you may also be able to deduct the interest on that additional amount— as long as it’s used for your home.
Step 1: Itemize Your Deductions
To claim the mortgage interest deduction, you’ll need to itemize your deductions on your tax return. The standard deduction is an option, but if your mortgage interest, property taxes, and other expenses are higher, itemizing mortgage refinance deductions could save you more money.
Step 2: Keep Track of Your Documents
Make sure to save your 1098 form, which your lender sends you each year. This form shows how much interest you paid on your mortgage. If you took out extra money with a cash-out refinance, be sure to keep track of how you spent it, as the IRS will want that information.
Step 3: Get Help from a Professional
While you can handle this on your own, working with a tax professional is a smart idea, especially if your refinance is more complicated or you’re unsure about the rules. They can help you avoid mistakes and make sure you're maximizing your deductions.
A Few Extra Things to Consider
Refinance Fees: Costs like closing fees or appraisals aren’t deductible directly, but you may be able to add them to your loan's cost basis, which could reduce taxes when you sell.
Home Equity Loans: If you took out a home equity loan as part of your refinance, you can only deduct the interest if it was used for home improvements. If you used the funds for other things, like paying off debt, the interest won’t be deductible.
Final Thoughts
Refinancing can be a great way to save money, not just on your monthly payments but also through tax deductions. Keeping good records, understanding what’s deductible, and working with a professional can make the process easier and help you maximize your savings. As always, Team Jerry Pounds is here to help with all your questions about tax deductions on mortgage refinance.
If you’re thinking about refinancing and want to learn more about how to take advantage of these deductions, feel free to reach out. With over three decades of helping homeowners in Pittsburgh, I’m here to guide you every step of the way. Team Jerry Pounds is your home for Pittsburgh mortgage tax advice!
