1098 Mortgage interest refi

[diz]

What is the name of your state? CA We refinanced, paying original home amount & equity line which we used to buy a car & took out some cash putting some $ into a savings account to do some home improvements & to pay for unexpeced monthly bill. I'm doing our taxes with Turbo Tax and they come up with a ATM (I think that's what they called it) difference that explains that the entire amount on our 1098's may not be wholely claimed because some of the $ was used for other purposes than soley refi and home improvements. Some of the $ has been used too to pay for credit charges at Home Depot (haven't kept track of what amount).

Since we still have some of that $ in the bank (most of it) how do I handle this?

I came up with 73% of the new loan being home amount & home improvements done (fencing). Do I claim 73% of the interest paid?

What if we use the remaining money for more home improvements? Do I have to recalculate each year?

Thank you for any help that can be provided.

 

[seniorjudge]

What is the name of your state? CA We refinanced, paying original home amount & equity line which we used to buy a car & took out some cash putting some $ into a savings account to do some home improvements & to pay for unexpeced monthly bill. I'm doing our taxes with Turbo Tax and they come up with a ATM (I think that's what they called it) difference that explains that the entire amount on our 1098's may not be wholely claimed because some of the $ was used for other purposes than soley refi and home improvements. Some of the $ has been used too to pay for credit charges at Home Depot (haven't kept track of what amount).

Since we still have some of that $ in the bank (most of it) how do I handle this?

I came up with 73% of the new loan being home amount & home improvements done (fencing). Do I claim 73% of the interest paid?

What if we use the remaining money for more home improvements? Do I have to recalculate each year?

Thank you for any help that can be provided.

Either no one here knows the answer or it is too complicated to try to answer on a free internet chat room.

Obviously this is way beyond your software's capability.

Get professional advice.

 

[dallas702]

You don't pay taxes on the money you borrowed for your home (mortgage, HELOC, or otherwise). It is not income, it is debt. You get the deduction for whatever INTEREST you paid (and whatever interest you gained on the investment of any of that cash).

When you sell the house the amount you spent for improvements might be a consideration. Between now and then how would anyone possibly know what you spent on your improvements?

 

[LdiJ]

You don't pay taxes on the money you borrowed for your home (mortgage, HELOC, or otherwise). It is not income, it is debt. You get the deduction for whatever INTEREST you paid (and whatever interest you gained on the investment of any of that cash).

When you sell the house the amount you spent for improvements might be a consideration. Between now and then how would anyone possibly know what you spent on your improvements?

That isn't entirely correct. Technically, interest paid on a HELOC would not be deductible if the money was used for purposes other than home improvement/repair.

 

[dallas702]

I always wondered if the IRS had a team of building inspectors that went around neighborhoods to verify that home improvements were being done. How do they actually "audit" the use of HELOC dollars??

 

[LdiJ]

I always wondered if the IRS had a team of building inspectors that went around neighborhoods to verify that home improvements were being done. How do they actually "audit" the use of HELOC dollars??

If they happen to audit someone's return that claims a schedule A HELOC interest deduction then they would make the effort to verify how the funds were used. Otherwise no, they aren't "tracking" anything.

 

[dallas702]

If they happen to audit someone's return that claims a schedule A HELOC interest deduction then they would make the effort to verify how the funds were used. Otherwise no, they aren't "tracking" anything.

Interesting. I've never heard of anyone having that happen. I'll bet that over 90% of people who have used HELOCs in the last 5+ years have not spent it all on home improvements. With all the advertising by lenders for homeowners to use the money any way they want you'd think a disclaimer or warning would be legally required. I have done 4 HELOCs and not one person ever mentioned any tax implications. Very interesting indeed. I wonder if we'll be seeing some flak on this in the news.

 

[dallas702]

For further clarification (or confusion) go here:

http://www.irs.gov/publications/p936/ar02.html#d0e2083

No wonder my head hurts this time of year.

OMG! I just spent as much time as my one good eye could stand reading through this tortuous novel. This is a prime example of how the government...and only the government...will make a simple process so long and convoluted that no one can be sure if they are right or wrong when they are finished. I'm not sure you can tell if or when you are actually finished. Aaauuuuuugh!

HOWEVER.....it looks like the HELOC interest is fully deductible until you reach the (whatever reason , who knows) limits. So, OP...unless your "improvement" loan is more than $100K, or over the amount of your equity the IRS has burped up to confuse you even more, you can deduct it all (no matter where it was spent or misspent).