Tax advantages of cash-out refinancing
What are the tax implications of getting cash out when refinancing?
Cashing out of your main home is a great tax strategy if you're using the proceeds
to pay off other debt on which the interest is not deductible.
An individual is allowed to take out up to $100,000 from their
principal residence in addition to the original debt used to buy the home, and
deduct the interest charged before it is repaid.
This strategy is a winner since it allows the homeowner to possibly
refinance other debt that may be at a higher interest rate than rates available
on a second mortgage. This strategy also allows the homeowner to receive a tax
benefit by deducting the interest on the loan, which in effect let's the government
pick up part of the tab on the loan repayment, and lastly, it allows the homeowner
to remain in his current home, which he may feel he would have to otherwise
sell to cash out.
-- Posted: Jan. 9, 2003