Refinace Mortgage

[erchess]

Taxpayer has a mortgage of which 500K is acquisition and 50K is Home Equity. So far everything is deductible. He refinances and borrows another 500K.in addition to paying off his 550K of debt.

Of his new debt it's clear to me that the part that went to pay off the old debt still has the same character. So no matter what he does with the balance he continues to have 500K of acquisition debt and 50K of Home Equity Debt. It's also clear from TTB that the new debt can be home equity debt of which some would not be deductible. Forgive me in advance for being thick but i he uses some or all of the debt to improve (not repair or maintain) the home can he increase his acquisition debt?

[JG EA]

Taxpayer has a mortgage of which 500K is acquisition and 50K is Home Equity. So far everything is deductible. He refinances and borrows another 500K.in addition to paying off his 550K of debt.

Of his new debt it's clear to me that the part that went to pay off the old debt still has the same character. So no matter what he does with the balance he continues to have 500K of acquisition debt and 50K of Home Equity Debt. It's also clear from TTB that the new debt can be home equity debt of which some would not be deductible. Forgive me in advance for being thick but i he uses some or all of the debt to improve (not repair or maintain) the home can he increase his acquisition debt?

From Pub 936

Refinanced home acquisition debt. Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. Any additional debt not used to buy, build, or substantially improve a qualified home is not home acquisition debt, but may qualify as home equity debt (discussed later).

So, 500K is home acquisition, 50K can be viewed as equity debt because it is secured by the home, any additional monies received can be counted if used to build, improve.

However, the equity part has to be added back for AMT.

Also, closing costs - if covered by the principal - need to be figured as a personal loan if over the 100K equity limit. If it is under that limit you could count it as an equity loan.