John R. Bullis: Refinancing a home mortgage

Many folks believe home mortgage interest rates will increase in the near future. If you have an adjustable-rate mortgage or a high fixed-rate mortgage you got some years ago, maybe you should look into refinancing now.

The tax rules on deducting interest on your new home mortgage loan can be a little complicated.

The interest on the new loan generally will be deductible if the proceeds of the new loan are not more than the remaining balance of the old loan and any excess is used to substantially improve your home.

Any improvement that adds to the value of the home, prolongs its useful life, or adapts the home to new uses qualifies as substantial. Just painting the home is a repair, not an improvement, unless it is part of a renovation that improves the home.

The interest on the new home can be still deductible, even if it is not used to improve the home or the loan is not necessary to pay off the old mortgage. Interest paid on up to $100,000 of home equity debt is deductible regardless of how the proceeds are used. You can buy a new car, take a vacation or spend the money however you want if you have a home equity loan of $100,000 or less.

Interest paid on the new loan for “qualified acquisition debt” is deductible for debt of up to $1,000,000. If the loan is for more than $1,000,000, then the interest on the excess is not deductible as home mortgage interest.

If your home is partly used for business (an office in the home for example), then some allocations are required. But no allocation is required if you rented out some rooms for residential use (with some special rules, of course).

If your old mortgage debt was for a mortgage loan that you got before Oct. 13,1987, then some special good rules apply.

Why not look into the possible benefits to refinance your existing mortgage?

Did you hear? “The one thing that remains constant is change.”

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.