Adrian Olmstead
Broker, Licensed in Oregon
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Lake Oswego

  • Mobile 503-449-9580
  • Office 503-534-1519
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Three Things You Should Know About Pulling Cash-out For Home Improvement
There are three tax rules you should know about when you're considering a cash-out refinance to fund home improvements:

1. In order to deduct the interest on the mortgage as acquisition indebtedness, the IRS requires the project to be a "Substantial Improvement" that:
  • Adds to the value of the home
  • Prolongs the home’s useful life, or
  • Adapts the home to new uses. For example, painting a room may not qualify, but an addition or new kitchen may qualify.
2. You Have a 24-Month Look-Back Period. If you are pulling cash out to reimburse yourself for improvements already made, those improvements must have occurred within the past 24-months in order to qualify for the acquisition indebtedness deduction.
 
3. You Have a 12-Month Look-Forward Period. If you are pulling cash out in order to make future home improvements, you'll need to complete the home improvements within the next 12-months in order to qualify for the acquisition indebtedness deduction.
 
 
In all these cases, you'll need to show receipts in case of an audit. PLEASE NOTE: THIS ARTICLE AND OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 936.
Information deemed reliable, subject to change, this is not an intent to lend.

 

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