Cash Out Refinance & Mortgage Interest

[GraceNY]

TP had an existing mortgage of 75k on a home valued at 250k.  In October of 2018, did a cash out refinance of 185k.

If I understand the new rules, the interest on the 75k portion is still deductible.  The 110k balance of the loan, which was NOT used to improve residence,  is considered "home equity debt" and is no longer deductible? 

Also, OLD rules would have allowed the interest on 100k of the 110k to be deducted?  (I am asking as I am in a state that is not following 2018 federal changes).

Thanks in advance for your feedback.

Grace

 

[grandmabee]

Yes and remember  to keep track of the principal payments they go to the non deductible loan first and once that is paid off then you are back to 100% interest deductible.

I have had several where refinance in 2015 to take out equity and by 2018 it is already paid off in full so 100% still deductible.

 

[Pacun]

Based of the information and the status of your client, nothing might be deductible. Most married people paying interest on 200K, don't make it even close to use Sch A.  So with the new rules, he will deduct the interest on the 75K which might not qualify him to use any of it.  For the state it might help.