Question on Home Equilty Interest Tax Deduction
One of my local banks is offering a home equity line of
credit at a very favorable rate. They say that the line of
credit can be used to refinance my existing loan of
$200,000, which currently stands at approximately 70% of the
current equity of the house.
My question is that if I refinance the mortgage using the
home equity line of credit, can I still deduct the interest
as I currently do?
Also, is there any downside of replacing my mortgage by the
home equity line?
-Yes, as long as the line is secured by your home (you have
not borrowed more than 100% of the equity).
Most lines of credit have variable interest rates and a
fixed life, like 5 years. A balloon mortgage with a rate
guaranteed for 5 years might be a better deal.
All freely provided advice guarantee correct or double your
money back
-This assumes the existing mortgage is the original mortgage,
making it acquisition indebtedness. As acquisition
indebtedness, the $200,000 balance you owe on your existing
mortgage will retain its character as acquisition
indebtedness when you transfer it to the new loan.
Deductible interest traceable to acquisition indebtedness is
subject to a $1 million acquisition indebtedness limit, so
your existing mortgage balance is $800,000 under the limit.
It you take out any additional debt (which you use for
purposes other than improving the residence), it will be
subject to the $100,000 equity indebtedness limit. To the
extent any of your mortgage interest expense is attributable
to equity indebtedness, that portion is treated as an
alternative minimum tax (AMT) preference.