Everyone is looking to save as much money as possible, and this can include refinancing your home mortgage for a lower interest rate if the opportunity arises. You may wonder how this will affect your income taxes, since mortgage interest may be deductible if you itemize your deductions on your tax return.
The truth is that the effect on your income taxes depends on the terms of your refinancing. If you do not increase the principal amount of the loan, the original loan amount remains the amount of the home acquisition debt. However, if you refinance for a higher amount, the additional loan amount is treated as debt and the interest may or may not be deductible. It depends on several factors that a professional can help you determine.
If you refinance for a shorter term, say a 15-year versus a 30-year mortgage, you’ll lose some of the interest deduction since you won’t be paying as much interest. If you’ve only had your loan for a short time, you likely are still paying more mortgage interest than loan principal, so refinancing in this circumstances should not have a huge effect on your income taxes. There are pros and cons to a home mortgage refinance. It pays to sit down with a tax professional and see if a refinance on your home mortgage is in your best interest.
As a homeowner, you need all the tax breaks you can get! Contact us here at Tushaus & Associates LLC to find out if a refinance is in your best interest and to find out if you are getting all the tax breaks you deserve when it comes to your home mortgage. We have been providing quality accounting and consulting services to the residents of southeastern Wisconsin since 1965.