Is mortgage interest deductible on primary home when cash-out refi was used to buy second home?

The key factor here is how the IRS views the loan secured by your primary residence. When you do a cash-out refinance and use the funds to buy another home, the interest may still be deductible, but with some important conditions. Since the loan is secured by your primary residence, and the funds were used to buy another residence, this falls under home acquisition debt rather than home equity debt. Under current tax law, you can deduct interest on up to $750,000 of qualified residence debt ($375,000 if married filing separately). However, for the second property to qualify as a "qualified residence," it needs to be either your main home or your second home. Since your son lives there full-time and you only visit occasionally, you'll need to ensure it meets the requirements of a second home. Generally, you need to use the property for personal purposes for more than 14 days or 10% of the days it's rented at fair market value (whichever is greater). Since it's not rented at all and you use it personally, it likely qualifies.

I went through almost the exact same situation last year and was completely confused by all the tax jargon. I found this amazing tool called taxr.ai (https://taxr.ai) that helped me figure out my mortgage interest deduction situation. I uploaded my mortgage documents and tax info, and it analyzed everything and gave me a clear answer about what was deductible. The tool specifically looked at my cash-out refi situation and explained exactly how much of my interest was deductible and why. It even created documentation to back up my deduction in case of an audit. Super helpful when dealing with confusing situations like this that aren't straightforward in IRS publications.

I was really doubtful about what that person said about taxr.ai, but I gave it a try after struggling with my own mortgage interest deduction questions for weeks. I'm actually shocked at how well it worked! I uploaded my closing documents from my cash-out refi and answered questions about how I used the money. The tool broke down exactly which portion of my interest was deductible and why, citing the specific tax code sections. It confirmed that using the funds to purchase another residence maintained the deductibility of the interest, with clear explanation of the acquisition debt rules. It saved me from making a $4,500 mistake on my taxes. Definitely worth checking out if you're confused about mortgage interest deductions.

If you're still confused after trying to figure this out yourself, you might want to call the IRS directly. I know that sounds like a nightmare, but I used this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 15 minutes instead of waiting on hold for hours. There's a video showing how it works here: https://youtu.be/_kiP6q8DX5c I had a similar question about mortgage interest deductibility last year and was getting conflicting information online. The IRS agent I spoke with gave me clear guidance specific to my situation and even referenced the exact section of the tax code that applied. It gave me confidence that I was filing correctly and wouldn't face issues later.

I have to eat my words about Claimyr from my earlier comment. After struggling with this exact mortgage deduction issue and getting nowhere with online research, I finally tried it out of desperation. I seriously couldn't believe it when I got a call back in 20 minutes with an actual IRS representative on the line. The agent walked me through Publication 936 and explained exactly how my situation (very similar to yours with a cash-out refi used to buy another property) would be treated for tax purposes. They confirmed that the interest was deductible since the loan was used to acquire a qualified residence, even though the loan was secured by my primary home. Saved me hours of research and gave me official documentation of the call in case of an audit. I'm shocked at how well this worked.

One thing to consider - if your son is using the property as his primary residence while in school, make sure you're not also claiming it as your second home for other tax benefits that might conflict. The mortgage interest deduction should work based on what others have said, but be careful about things like property tax deductions or other residence-based benefits. It's worth a conversation with a tax professional to make sure you're maximizing all potential deductions.

Has anyone considered whether the timing of the cash-out refi matters? I did something similar in 2019 and my accountant said the tax law changes from the Tax Cuts and Jobs Act affected how this is treated.

Based on what I've read through all these responses, it sounds like you're likely in good shape for deducting the mortgage interest. Since you did the cash-out refi in 2022 and used the funds to purchase another residence, this should qualify as acquisition debt under the current tax rules. The key points that work in your favor: 1) The loan proceeds were used to acquire a qualified residence, 2) Your son living there as your dependent doesn't disqualify it as your second home, 3) You have personal use of the property through your visits, and 4) The property isn't being rented out. Just make sure you stay under the $750,000 limit for qualified residence debt and keep good records of your personal use of the second property. It might be worth documenting your visits throughout the year in case the IRS ever questions whether it truly qualifies as your second home. The fact that it's used by immediate family (your dependent son) should actually support your position that it's a personal residence rather than an investment property.

I'm dealing with a very similar situation and have been researching this extensively. From what I've gathered, your mortgage interest should indeed be deductible since the cash-out refi proceeds were used to acquire another qualified residence. The IRS treats this as acquisition debt rather than home equity debt, which is crucial post-TCJA. Since your son is your dependent and you maintain personal use through your visits, the second property should qualify as your second home for tax purposes. Family use by dependents actually counts toward your personal use requirements. One thing I'd recommend is making sure your total qualified residence debt doesn't exceed $750,000 (the current limit). Also, consider keeping a simple calendar noting your visits to the property throughout the year - it helps establish the personal use pattern that supports the second home classification. Given that this deduction would push you into itemizing, it's definitely worth pursuing. The tax savings could be substantial, and based on the facts you've shared, you appear to meet all the requirements under current tax law.

I dealt with this exact scenario two years ago and went through the same confusion with Publication 936. After consulting with my tax advisor and doing extensive research, I can confirm that your mortgage interest should be deductible. The key is that you used the cash-out refi proceeds to purchase another residence, which makes this acquisition debt rather than home equity debt. Under current tax law (post-TCJA), this type of debt maintains its deductibility as long as you stay under the $750,000 qualified residence debt limit. Your son living there full-time as your dependent actually strengthens your case rather than weakening it. The IRS considers use by dependents as personal use by you, and since you're not renting it out, it clearly qualifies as your second home. Your occasional visits throughout the year further support this classification. One practical tip: start keeping a simple log of your visits to the property. Just dates and brief notes about the purpose (family time, maintenance, etc.). This creates a paper trail showing consistent personal use that supports your second home designation. Given that this deduction would move you from standard to itemized deduction, the tax savings could be quite significant. Based on your situation, you appear to meet all the requirements under current tax law.

I've been following this discussion closely as someone who works in tax preparation, and I want to emphasize a few critical points that haven't been fully addressed. First, while everyone is correct that using cash-out refi proceeds to purchase another residence can qualify as acquisition debt, there's an important nuance: the IRS requires that the debt be secured by the property being acquired OR by your main/second home. In your case, since the loan is secured by your primary residence and used to buy what qualifies as your second home, you should be in good shape. However, I'd strongly recommend getting professional verification before filing. The interaction between cash-out refinancing rules and second home acquisition debt can be tricky, especially with the TCJA changes. Some tax professionals interpret these rules differently, and you don't want to face penalties later. One thing I haven't seen mentioned: make sure you can actually prove the funds from the cash-out refi went directly to purchasing the second home. The IRS may want to see a clear money trail from the refinance to the property purchase. Keep your closing statements from both transactions. Also, regarding the $750,000 limit - this applies to the total of ALL qualified residence debt, not per property. So if you have any remaining mortgage on your primary residence, that counts toward the limit too. Given the significant tax impact you mentioned, this is definitely worth getting right. Consider a consultation with a tax professional who specializes in real estate transactions to ensure you're maximizing your deduction while staying compliant.

I've been dealing with a very similar situation and wanted to share what I learned after going through this process. Like you, I did a cash-out refi on my paid-off primary home and used the proceeds to purchase a second property that my college-age daughter uses while attending school. After extensive research and consultation with a tax professional, I can confirm that your mortgage interest should indeed be deductible. The key factors working in your favor are: 1) The loan proceeds were used to acquire a qualified residence, 2) The debt is secured by your primary home, 3) Your son's use as your dependent counts as personal use by you, and 4) Your regular visits establish it as your genuine second home. What really helped me was organizing all my documentation upfront - closing statements from both the refinance and the second home purchase showing the direct flow of funds, plus a simple calendar tracking my personal use of the property. The IRS wants to see that clear money trail and evidence of personal use. One important note: make sure your total qualified residence debt stays under the $750,000 limit. Since you paid off your primary before the refi, you're likely well under this threshold. Given that this deduction pushes you into itemizing, the tax savings could be substantial. Just make sure to keep detailed records and consider a consultation with a tax professional who specializes in real estate transactions for added peace of mind. The rules can be complex, but your situation appears to fit squarely within the allowable parameters.

I went through a similar situation last year and the confusion around Publication 936 is totally understandable - it's written in such dense tax language! Based on everything I researched and confirmed with my tax preparer, you should be able to deduct that mortgage interest. The key thing that works in your favor is that you used the cash-out refi proceeds specifically to purchase another residence, which keeps it classified as acquisition debt rather than home equity debt under the Tax Cuts and Jobs Act rules. Since the second property qualifies as your second home (your son living there as your dependent actually supports this, plus your personal use through visits), the interest should be fully deductible as long as you're under the $750,000 qualified residence debt limit. I'd definitely recommend keeping a simple log of your visits to the second property - just dates and brief notes like "family weekend" or "maintenance visit." This creates documentation showing consistent personal use if the IRS ever has questions. Also make sure you have clear records showing how the refinance proceeds went directly to purchasing the second home. Since this deduction would push you into itemizing and make a significant difference in your tax situation, it's probably worth a consultation with a tax professional who handles real estate transactions just to double-check everything. But based on your description, this seems like a straightforward case where the interest should be deductible.