Some questions about the mortgage interest deduction:
Scenario 1:
Purchased my home for $250,000. Over time put in $200,000 of improvements. Currently owe $130,000 on the primary mortgage, and $160,000 on a HELOC, $70K of which was used to purchase and improve a rental property. This year I deducted interest from $90,000 of the HELOC on schedule A, and $70,000 on schedule E.
I'm considering refinancing for $500,000 and using the $210,000 I cash out to buy a single-premium life insurance policy (this is for financial aid for college reasons).
How much of this interest on the $500,000 mortgage is now deductible?
Scenario 2:
Purchased a rental property for $150,000. Over time have done around $75,000 in improvements. Current mortgage balance is around $90,000.
If I refinance this property for $175,000, how much of the interest of this is deductible? Does it depend on what I use the proceeds for?
In general, if the mortgage amount is smaller than the purchase price
- improvements, is it deductible?
Thanks for any help.