CONFESSIONS OF A DOUBLE D LOVER

Honestly, who does not love a good Double D? Delightful Debt in housing is such a terrifying process to someone who is new to the process; however, it can be very exciting once you get the hang of it. I have assisted about half of my home buyers into this process and they always thank me for the insight. What am I talking about specifically? Well, it is utilizing the equity in your home for future investments instead of selling your home to obtain the equity. Sure, it will put you more into debt, it might increase your monthly payments, but the debt is delightful because it allows you more opportunities and the tax benefits associated with it. Remember, I maybe Retired from the U.S. Army with a Master’s in Psychology but I am not a CPA, so always consult with a tax expert before making this decision to determine what is best and legal as everything changes with a swipe of a pen!

1. MORTGAGE INTEREST DEDUCTION: One of the most significant tax benefits of refinancing is the ability to deduct mortgage interest on your federal income taxes. If you refinance and the new mortgage is for the same purpose as the original mortgage (for example, to buy, build, or improve your home), the interest on this new loan is generally deductible, just as it was for the original mortgage. This deduction can substantially reduce your taxable income, leading to significant tax savings.

2. NO TAX ON BORROWED MONEY: When you refinance and take cash out from your home equity, the money you receive is not considered income and, therefore, is not taxable. This is a stark contrast to selling your home, where profits above certain thresholds may be subject to capital gains tax. This means you can access the equity in your home for renovations, debt consolidation, or other needs without worrying about immediate tax implications.

3. POINTS DEDUCTION: If you pay points to get a lower interest rate on your refinanced mortgage, these points are deductible. The deduction can be taken in the year you pay the points if the loan is used to buy, build, or improve your main home. However, if the loan is for other purposes (like debt consolidation or buying a second home), the points deduction may be spread over the life of the loan.

4. AVOIDANCE OF CAPITAL GAINS TAX: Unlike selling your home, where you might be liable for capital gains tax if your home’s value has appreciated significantly, refinancing allows you to tap into your home’s equity without incurring this tax.

5. CONTINUED APPRECIATION IN YOUR ASSET (HOME): I am sure there will be a time when the market may have a dip, but based on historical data, homes just go up in value. When you refinance, you keep that home as an asset and able to enjoy the future appreciation.