This is the time of year when buyers and sellers begin to think about the tax consequences of a home purchase or home equity loan refinance. However, anytime for considering such consequences is appropriate as often with the continuing desire of taxing authorities to increase revenue while “protecting” the economy, we will continue to see changes in the rules for what is deductible and when within the tax laws.

Consider, for instance, the problem that one encounters when refinancing a home equity loan as opposed to actually refinancing the full loan on a home. The most important question for the home owner is what the purpose of the loan is and when or whether that purpose is deductible over the life of the loan. Is is possible to get this straight without the help of a tax professional?

The answer is maybe. IRS is certainly helpful with it’s examples in one of it’s many publications. For instance Publication 936 discusses the deduction rules for home equity debt in some detail. The context is that of when is a home loan refinance deduction and when is a home equity mortgage loan deductible. The rules are fairly clear but often in our anxiety to maximize the tax benefit of taking a loan, some areas can be overlooked accidentally leading to future conversations with IRS.

It seems the item most often overlooked is the original purpose of the loan. So it is with this idea in mind that Publication 936 gives simple but helpful instructions for the declaration of interest on such loans for the taxpayers instruction. (The help of a professional, would probably help though, if the home refinancer wants to be sure of the tax treatment.)