Will refinancing my home impact my income tax?
A home refinance may or may not have an impact on your income taxes. Whether or not it does will depend on a variety of factors.
One factor is your mortgage. If it is relatively new, meaning, you have only had the mortgage contract for a few years, you are probably still making payments that are going toward the interest of the mortgage loan instead of the balance of the mortgage itself. Any payments that are made to pay off interest are tax-deductible and thus will impact your income tax return. Later in the loan's life, the payments will be going toward the balance of the mortgage loan, or at least part of them will, and the portion of the payment that goes toward the balance is not tax-deductible on your income tax return.
Keep in mind that this only applies if you itemize deductions on your income tax return. Itemizing deductions is what makes your interest payments on your home mortgage loan tax-deductible. Therefore, if you apply for a home refinance and get a lower interest rate, you will be paying less interest on the home mortgage loan, which will equal out to less tax-deductible value on your income tax return when it comes time to do your taxes.
However, if you are already in the later stages of your home mortgage loan and you refinance into a new, longer mortgage, then, again, more of your payments might start going to interest. With more interest paid, you could potentially have a larger mortgage interest tax-deduction available to you.
Because it can be tricky to assess which is the best financial decision: deducting less in favor of lower interest, or paying more interest in favor of greater deductions, your best bet is to speak to a real estate attorney before you apply for a home refinance. Your lawyer can also explain to you how much of an impact on your income tax your decision will make.