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| *Ostroff, Fair and Company>>>United States Taxes |
Fed Income Tax on Refinance Proceeds? |
Do you have to pay federal income tax on the cash portion you receive from refinancing your mortgage? Does that fall under the capital gains category? Usually, what is the percentage, if any? NO, NO, & Not applicable, in that order. The cash you collect at closing of a refinance is not subject to tax, period. However, the fees associated with the refinance can be applied to the "basis" or purchase price of the property, or, can be "amortized" or "depreciated" over a certain amount of time. An example of this, is, "points". "Points" is a fee that you pay to the bank for "prepaid interest". If you refinanced a personal residence, the points you pay are fully deductible on Schedule A of Form 1040, with minor exceptions. Points you pay on a refinance for a rental property, get amortized over the period of the new loan, usually 30 years. The cash you collect at closing is considered "return of capital" - returns of capital are never includible as income nor are they deductible. I would highly suggest you consult a tax practitioner or CPA to review your closing documents on the refinance to make sure you obtain every deduction you are entitled to. No. Loans are not taxable as you have to pay it back. This is not taxable income it is conversion of equity to cash. No, that is simply funds advanced as part of a loan that needs to be repaid. There are no tax implications for those funds at all. Its no different from charging a pair of shoes on your credit card, No, this is not taxable income |
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