When it comes to refinancing your mortgage, you may be wondering if any of the costs associated with the process are tax deductible. The answer is that it depends on the type of costs you are incurring. Generally speaking, closing costs such as title insurance and appraisals are not tax-deductible, but mortgage interest and real estate taxes are. If you are refinancing a rental property, the money earned is considered taxable income and the closing costs can be deducted.
It is important to note that in order to take advantage of any tax deductions associated with refinancing, you must itemize your deductions. Additionally, the profits from a cash-out refinance are not taxable as they are considered a loan taken out from the equity of your home. The proceeds from a HELOC loan, home equity loan, cash-out refinance, or other types of loans are not considered income. Under the Tax Cuts and Jobs Act (TCJA), the standard deduction amounts have been increased, which means that it is less likely that you will be able to itemize deductions and save taxes by refinancing mortgage interest or refinancing points.
If you are considering refinancing your mortgage, it is important to ask a few questions before beginning the process so that you can be sure you have all the necessary information.
