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June 4, 2019
Question

I used my current home equity for home improvements. If I move it to a different lender that is cheaper do I still get a deduction? This is for 2018.

  • June 4, 2019
  • 2 replies
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    2 replies

    Carl11_2
    Employee
    June 4, 2019
    Assuming you will be refinancing for an entirely new mortgage that will pay off both the existing mortgage as the HELOC, that will leave you with one single mortgage on your house. So if my assumptions are correct, the answer to your question is YES.
    Employee
    June 4, 2019

    For 2018, you can only deduct interest on acquisition debt.  Acquisition debt is debt used to buy, build, or make substantial improvements to your home.  The exact form of the debt doesn't matter (first mortgage, line of credit, fixed equity loan) so long as it is registered as a mortgage and lien against the home with the county records office. 

    Refinancing with another lender will not change your acquisition debt, provided the two events (pay off old loan and close on new loan) are close together in time.  There is a 90 day limit however—if you pay off loan 1 first, and wait more than 90 days to take out loan 2, then the IRS will view that you have paid off your acquisition debt with loan 1, and loan 2 is all new equity debt, unless you make new improvements with loan 2 after taking out loan 2.