Short answer: the cash you receive from a cash-out refinance is not taxable income, because it's a loan you have to repay. Whether the interest is deductible depends on what you do with the money.
Is the cash taxable?
No. The IRS doesn't count borrowed money as income when you have a real obligation to repay it. Tax issues can come up later only if a lender forgives or cancels part of the debt.
Is the interest deductible?
Under IRS Publication 936, mortgage interest is deductible as home mortgage interest (if you itemize) only on debt used to buy, build or substantially improve the home that secures the loan.
| How you use the cash | Deductible as home mortgage interest? |
|---|---|
| Pay off your existing mortgage balance | Yes, the refinanced balance keeps its original treatment |
| Substantially improve the same home (addition, new roof, remodel) | Generally yes |
| Pay off credit cards, car loans or student loans | No |
| Tuition, vacations, other personal spending | No |
| Business or investment use | Not as home mortgage interest; other interest rules may apply |
If you use the cash for more than one purpose, the interest is split by how the money was used.
The $750,000 limit
Qualifying home-acquisition debt — on your main home and a second home combined — is capped at $750,000 ($375,000 if married filing separately). Older qualifying debt taken out before December 16, 2017 can keep the earlier $1,000,000 limit ($500,000 married filing separately).
Points on a refinance
Points paid to refinance are generally deducted over the life of the loan, not all in the year you pay them. The part of the points tied to improving your main home may be deductible in the year paid if IRS tests are met and you paid them with your own funds. Lender service fees aren't deductible as points.
Rental properties
For a DSCR or investment property cash-out, the rules are different: interest tied to the rental may be a rental expense, and how you use the cash matters. Ask your tax preparer how to track it.
Practical tips
- Keep receipts showing how improvement money was spent.
- If you're using part of the cash to pay off debt and part to renovate, track each separately.
- Get your annual Form 1098 from the servicer and give it to your tax preparer.
This page summarizes IRS Publication 936 (2025 edition) and IRS guidance on cancellation of debt. It isn't tax advice — talk to a CPA about your own situation.
Related: Cash-out for home improvements · Cash-out to pay off debt · Cash-out refinance guide
Frequently asked questions
Do you pay taxes on a cash-out refinance?+
No. The cash is borrowed money you must repay, so the IRS doesn't treat it as income.
Is cash-out refinance interest tax deductible?+
Only the part used to buy, build or substantially improve the home securing the loan, and only if you itemize, within the $750,000 acquisition-debt limit. Interest on cash used for credit cards or personal spending isn't deductible as mortgage interest.
Can I deduct points on a cash-out refinance?+
Generally over the life of the loan. The portion tied to improving your main home may be deductible in the year paid if the IRS tests are met.