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Debt Relief – Insolvency – Bankruptcy Information » Student Loan Help » Do I need to report the equity “cash out” from mortgage refinance as income?

Do I need to report the equity “cash out” from mortgage refinance as income?

I do my own taxes every year, but this year I have a question. I refinanced my mortgage in the spring. Had a significant amount of equity and decided to “cash out” some of my equity to help pay off some outstanding debts (car, student loan, credit card balance) and kept some to keep in saving (so it’s accessible, if needed). I know the government tries to take a piece of everything, but this is MY money. It’s not “wages” — does that make a difference?

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3 Responses to "Do I need to report the equity “cash out” from mortgage refinance as income?"

  1. M H says:
    No.

    You report equity on your home when you sell it. Then, you subtract your total costs from your home from the selling price to figure your profit on the sale. If you are single and have owned your home for two years or more, the first $250,000 is not taxable income. If you are married, the first $500,000 of profit is not. Any amount above and beyond that amount or if you have not lived in your home as your primary residence for more than two years, all profit is deductible.

  2. bostonianinmo says:
    No, it’s just a loan. Loans that you take out are not considered income.
  3. Cogito ergo sum says:
    It isn’t “your” money. You didn’t sell your house, or an interest in your house, to the lender. Instead, you borrowed additional money from the lender on the security of your house, most likely because of a combination of factors that resulted in increasing your equity in the house: first, an increase in the market value of the house, as shown by an updated appraisal, and second, a decrease in the outstanding debt secured by a mortgage on the house because you’ve been paying down the principal of the original loan. Those two factors, or others having the same effect, would result in an increase in the loan value of your house — that is, an increase in the amount a lender would be willing to lend on the strength of a mortgage on the house.

    The bottom line is that the money you received in the refinancing is additional borrowed money that was lent to you on the security of the original mortgage on your house. Taxable income does not include borrowed money except in the rare case when the debt is forgiven by the lender.

    If you still really believe that the money you received in the refinancing is your money, and not borrowed money, try not paying it back to the lender and see what happens.

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