Cash from Refinance - Taxable?

Guest

is the cash obtained from refinance taxable?

Jessica · Posted: Mon Aug 01, 2005 11:10 pm Post subject: RE:

Hi Sara
Welcome to MortgageFit forum.

Whether the cash obtained from refinancing is taxable or not depends on whether the refinance has occurred before or after any exchange of property. If the pre-exchange refinance is executed as a part of exchange transaction, the cash received will be treated as cash ("boot") received by disposing the relinquished property. Hence the cash is regarded as taxable income.

But if refinancing occurs after the property exchange when he has been given the title of ownership of the property, the cash obtained is not treated as taxable income.

The major difference between pre and post-exchange refinancing lies in the repayment of debts. In a pre-exchange refinancing, a tax payer is free from the obligation upon the transfer of the relinquished property. But in a post-exchange refinancing, the tax payer is required to pay off the debt.

Hope you will be benefited from this information.

Please feel free to write back with further queries.

Regards,
Jessica.

Guest

will I get any tax benefit if go for cash out refinance?

Jessica · Posted: Wed Aug 03, 2005 11:20 pm Post subject: RE:

Hi Jackson

When you opt for a cash-out refinance, you avail more cash than your unpaid mortgage balance. This additional amount is considered as taxable income and you are likely to pay taxes for it. With this amount you can pay off other debts on which the interest is not deductible.

Generally an individual is allowed to borrow up to $100,000 from their primary residence along with the first mortgage and then deduct the interest charged before it is repaid. The Internal Revenue Service provides you with more information on this subject through IRS Publication 936 Home Mortgage Deduction.

Wish to receive your feedback.

Regards,
Jessica.

Guest

I am currently considering refinancing my $240,000 mortgage for a $180,000 mortgage. The gentleman who is helping me with my refinance told me that we may be able to get my current lender to accept a settlement amount of $180,000 on my $240,000 mortgage. My payment history with them is excellent, I am only trying to lower my interest rate. My question is this...what effect does the $60,000 "written off" by my current lender have on my taxes? Will it be considered as income for me? I don't want to do this deal if it's going to mean owing the IRS next April.

gmakerley · Posted: Thu Apr 30, 2009 10:19 am Post subject:

traci, the lender in question is probably going to issue to you a 1099 form and that $60k will appear as taxable income. you'd better speak with a tax advisor, or the irs directly, and also ask the bank its intentions as to whether they'll be issuing the 1099.

sara...i have never heard of anyone claiming proceeds from a cash-out refinance as income. that's not to say it doesn't happen, of course.

also, it looks like you were addressing 1031 exchanges in your post - now close to 4 years ago. i'm just curious if that's what you were discussing. i didn't get that reference from the original post.

Guest

I hate to ask an reoccuring question, but I need to know....I have been in my existing primary residence for approx. 7 years. I want to refinance my existing mortgage and cash out $130,000. My new mortgate would be at a lower interest rate and I am doing this with my same mortgage company. Would I need to pay taxes on the $130K cash out money? Does it matter what I would be using the $130K cash for? I appreciate your response.

Posted: Thu Oct 08, 2009 11:58 pm Post subject:

Contact a tax adviser and he would be the best person to let you know whether or not you will have to pay taxes.

gmakerley · Posted: Sun Oct 11, 2009 9:18 pm Post subject:

michael d - consulting a tax advisor is a good idea in any case, but what you are talking about is borrowed money, which you are obligated to pay back.

not only have i never heard of anyone being required to pay taxes on borrowed money, i think it would be a pretty doggone creepy way for government to fix budget issues. in my reasonably well-informed opinion, it is absolutely not taxable. keep in mind i am not a tax advisor.

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