Refinance Tax Impact Calculator
Refinancing changes your mortgage interest deduction and points must be amortized over the loan term. See the true after-tax break-even before you refi.
This calculator models a straightforward rate-and-term refinance — the new loan replaces the same balance, with no cash taken out. Deductible interest is capped at the first $750,000 of acquisition debt ($375,000 if married filing separately, per IRC §163(h)(3)). Cash-out refinances follow different rules: interest on any amount borrowed beyond the original acquisition debt is only deductible if those funds are used to buy, build, or substantially improve the home — see the HELOC deduction calculator for how the IRS traces cash-out proceeds.
Want the payment side first — new payment, monthly savings, and the exact break-even month before taxes? See the Refinance Calculator.
Current Pmt
$2,026New Pmt
$1,703Monthly Savings
$323Break-Even
10 mo| Item | Current | New |
|---|---|---|
| Y1 Interest | $19,354 | $16,399 |
| Points Deduction Y1 | $0 | $0 |
| Total Tax Deduction Y1 | $19,354 | $16,399 |
| Total Closing Costs | — | $3,000 |
Refinance tax FAQs
How are points on a mortgage refinance deducted?
Refinance points are generally deducted ratably over the new loan's term rather than entirely in the year paid. Special rules can apply to the portion attributable to qualifying improvements and when the loan is later paid off.
What happens to unamortized points from the old mortgage?
When an old mortgage is paid off, remaining points may generally be deductible in that year. If the refinance is with the same lender, IRS Publication 936 generally requires the remaining old points to continue being deducted over the term of the new loan.
How should taxes change a refinance break-even calculation?
A lower interest payment can also reduce the mortgage interest deduction. The after-tax monthly savings should compare the deductible interest and points under both loans, then divide net closing costs by those savings.
Are cash-out refinance proceeds automatically acquisition debt?
No. Interest on the cash-out portion generally qualifies only when the proceeds are used to buy, build, or substantially improve the qualified home securing the loan. Personal spending is not converted into deductible debt by using home equity.
Sources
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