cash-out refinance,interest decuct

[dd2008]

What is the name of your state? CA
I did a cash-out refinance couple years ago, and I didn't know that if the cash-out exceeds 100k limit, the interest is not deductable. But I did put all the cash-out proceeds to mutual fund and stock investment. And on the tax return I claimed all the home mortgage interest as deductable interest. Now I just realized that if the cash-out exceeds 100k, I can't deduct the interest that I payed on those mortgage which exceeds the limit. But I may be able to claim those interest as the investment expense. I roughly rerun the previous return, it actually gave me the same result(claim as mortgage, or claim as investment int expense). My question here is, will I get audit? The refinance was done several years ago. Thanks.

 

[LdiJ]

What is the name of your state? CA
I did a cash-out refinance couple years ago, and I didn't know that if the cash-out exceeds 100k limit, the interest is not deductable. But I did put all the cash-out proceeds to mutual fund and stock investment. And on the tax return I claimed all the home mortgage interest as deductable interest. Now I just realized that if the cash-out exceeds 100k, I can't deduct the interest that I payed on those mortgage which exceeds the limit. But I may be able to claim those interest as the investment expense. I roughly rerun the previous return, it actually gave me the same result(claim as mortgage, or claim as investment int expense). My question here is, will I get audit? The refinance was done several years ago. Thanks.

That was a very unusual investment choice. I certainly hope that your stock and mutual fund returns were greater than the interest you paid for cashing out part of your equity.

Investment interest expense is subject to the 2% limitation for a schedule A deduction, and mortgage interest is not, therefore there would be some variation depending on your AGI.

However, that is not one of those things that generally raises an audit flag. The IRS has reinstituted random audits, so there is a chance that you could get hit there.