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Contemplating Refinancing Your Home Mortgage? Things You Should Consider
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Article Highlights: Is It Appropriate to Refinance Your Home Loan? Refinance Costs Interest Rates Credit Score Borrowing Additional Cash Mortgage Limit Loan Term State Treatment Itemizing Deductions With home mortgage rates at historic lows, it may be appropriate for you to consider refinancing your current mortgage. However, refinancing may not always be the greatest idea, even though mortgage rates are low, and even when your friends, relatives, and coworkers are bragging about the low interest rates they got with their refinance. This is because a number of issues must be considered when refinancing. Cost to Refinance – Refinancing can be costly, considering you might have to pay for title insurance, points, and other closing costs that easily can lessen the benefits of a lower interest rate and generally aren’t tax-deductible. However, many lenders are offering no-cost refinancing, so you need to compare lenders carefully. Some may be offering no-cost loans, but the interest rate may be higher, or vice versa. Interest Rates – One of the primary reasons to refinance is to secure a lower interest rate for your home loan. Whether refinancing is a good idea depends on how much you can reduce your interest rate and resulting mortgage payments. Some recommend reducing your interest rate by at least two percentage points, while others contend that as little as a one-point savings is enough of an incentive to refinance. However, you must also consider the costs of refinancing and the tax implications discussed later. Credit Score – Some homeowners are concerned that refinancing will affect their credit rating adversely. Of course, all lenders will check your credit score, and adding new debt naturally will cause your credit score to dip. But because refinancing replaces an existing loan with another of roughly the same amount, its impact on your credit score is minimal. However, increasing the amount of the loan will have a negative impact on your credit score. Additionally, taking out cash and increasing the loan amount will have negative tax effects, as discussed later. Borrowing Additional Cash – Some lenders are even hyping taking out additional cash when refinancing. They suggest vacations, retail purchases, and other discretionary uses. Many borrowers have already forgotten the hard lessons of 2004 through 2008, when home prices took a severe drop in value and those who treated their home equity like a piggy bank found themselves owing more on their home than it was worth. Sound financial planning dictates paying off one’s home as quickly as possible and resisting borrowing against its equity. If you are tempted to take out additional cash, you should also be aware that interest on equity debt is not tax-deductible. This means if the replacement loan is greater than the amortized balance of your original loan, then the interest attributable to the equity debt (the cash out) will not be deductible. Example: Your original debt to purchase your home (the acquisition debt) some years ago was $300,000. You’ve paid off $100,000 of the original debt, leaving a loan balance of $200,000. You refinance it for $300,000, taking $100,000 in cash out. So, the new loan is 2/3 acquisition debt and 1/3 equity debt. Thus, any interest paid on the refinanced loan will be only 66.67% deductible since the loan is 1/3 equity debt. However, if the $100,000 in the example was used to make substantial home improvements, then the additional $100,000 of debt would be treated as acquisition debt, and the interest on the entire loan would be deductible, subject to the loan-term limits discussed next later.Mortgage Limit - As modified in 2018 the tax law currently only allows an interest deduction on home acquisition loans up to $750,000. But the law does grandfather prior loans (those taken out before December 16, 2017) based on prior law which allowed home acquisition debt of up to $1 million. So, if you are refinancing your home loan to pay for a substantial home improvement, then $750,000 becomes the limit.
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Tax and Financial Insights
by NR CPAs & Business Advisors
2026 IRS Mileage Rates: Key Updates and Insights
The IRS has rolled out the inflation-adjusted mileage rates for 2026, offering taxpayers an efficient way to claim deductions for vehicle-related expenses incurred for business, charity, medical, or moving purposes. These adjustments reflect the continued economic shifts impacting car operation costs.
Effective January 1, 2026, the new standard mileage rates are established as follows:
- Business Travel: Increased to 72.5 cents per mile, inclusive of a 35-cent-per-mile depreciation allocation. This marks a rise from the 70 cents per mile rate set for 2025
- Medical/Moving Purposes: Reduced slightly to 20.5 cents per mile, down from 21 cents in the previous year, reflecting the variable cost considerations.
- Charitable Contributions: Consistent at 14 cents per mile, a fixed rate unchanged for over a quarter-century.
As is typical, the business mileage rate considers the integral fixed and variable costs of automobile operation. Meanwhile, the medical and moving rates remain contingent on variable expenses as determined by the IRS study.
It is critical to note that the One Big Beautiful Bill Act (OBBBA) held firm on disallowing moving expense deductions except for specific cases within the Armed Forces and intelligence community, marking a substantial shift since 2017.
When engaging in charitable work, taxpayers might opt for a direct expense deduction over the per-mile method, covering gas and oil costs. However, comprehensive upkeep and insurance costs are non-deductible expenses.
Business Vehicle Use Considerations: Taxpayers can alternatively compute vehicle expenses using actual costs, which might benefit from shifting depreciation rules, particularly through bonuses and first-year advantages. Keep in mind, however, reverting from actual cost calculations to standard rates in subsequent years is restricted, particularly per vehicle protocol and when exceeding four vehicles in concurrent use.
Additionally, parking, tolls, and property taxes attributable to business can be deducted independently of the general rate, an often-overlooked advantage by many business owners.
Tax Strategies for Employers and Employees: Reimbursements based on the standard mileage framework, providing the right documentation is in place, remain tax-free for employees. Meanwhile, the elimination and continued prohibition of unreimbursed employee deductions continue, with particular exceptions offered to qualified personnel across specific occupations.
Opportunities for Self-employed Individuals: Entrepreneurs remain eligible for deductions on business-related vehicle use via Schedule C, with potential to account for business-use interest on auto loans.
Heavy SUVs and Deduction Advantages: Heavier vehicles exceeding 6,000 pounds but under 14,000 pounds open opportunities for substantial tax deductions through Section 179 and bonus depreciation avenues. The lifecycle of such a vehicle bears implications on recapturing initially claimed deductions, urging cautious tax planning.
For professional guidance on optimizing your vehicle-related tax deductions and understanding their implications on tax strategies, contact our office in Coral Gables, Florida, where expert advice and strategic insights are just a call away.
Educator's Deduction Reform: Key Changes Under OBBBA
The One Big Beautiful Bill Act (OBBBA) introduces significant enhancements for educators' tax deductions starting in 2026, offering both strategic opportunities and planning considerations for educators who qualify. With the reinstated itemized deduction for qualified unreimbursed expenses, educators have a broader spectrum of financial relief. This is complemented by the retention of the $350 above-the-line deduction, allowing educators to maximize their tax benefits by selectively allocating expenses between these avenues.
Understanding the nuances of these changes is crucial for educators and financial advisors alike. The dual-option deduction strategy can potentially enhance tax efficiency, thereby aligning with broader financial planning goals.
At NR CPAs & Business Advisors, based in Coral Gables, Florida, our expertise in tax preparation and planning provides invaluable support to educators navigating these changes. Our comprehensive approach, combined with personalized advice from our experienced team, ensures compliance and optimization in line with the latest tax legislations.
Given these updates, it is imperative to engage with seasoned professionals to fully leverage your deduction strategies. Contact us today to streamline your tax planning under OBBBA's new guidelines and maximize your deductions for upcoming tax years.
