Some General Tax Law Excerpts — To fully understand these examples, a person should realize the significance of the date October 14, 1987 (an important IRS tax date) as well as other tax issues discussed further in The Guide. Therefore, the following excerpt is only meant to demonstrate some of what The Guide has to offer... ...When you refinance your existing mortgage, the portion of your new mortgage which is used to pay off your previous mortgage will have the same tax characteristics as did your previous mortgage: Example X: Prior to October 14, 1987 [a significant tax law date] you bought a home for $200,000. In 1994, this mortgage had a remaining balance of $150,000 and 23 years left to pay on it. You then decide to refinance your home and obtain a 30 year $250,000 mortgage. $150,000 of this new mortgage will go toward paying off your previous mortgage, $70,000 will go toward home improvements, and $30,000 will go toward paying off your car loans. The final tax characteristics are as follows: $150,000 will be treated as a mortgage obtained prior to October 14, 1987 (ie. no deduction limitation for the next 23 years); $70,000 will be treated as a mortgage obtained after October 13, 1987 (ie. $1 million limitation); $30,000 will be treated as a home equity loan (ie. $100,000 limitation). Example Y: After October 13, 1987 you bought a home for $200,000. In 1994, this mortgage had a remaining balance of $150,000. You then decide to refinance your home and obtain a $250,000 mortgage. $150,000 of this new mortgage will go toward paying off your previous mortgage, $70,000 will go toward home improvements, and $30,000 will go toward paying off your car loans. The final tax characteristics are as follows: $220,000 will be treated as a mortgage obtained after October 13, 1987 (ie. $1 million deduction limitation); $30,000 will be treated as a home equity loan (ie. $100,000 limitation). Each year you should receive Form 1098 from your lender which shows how much interest you paid during the tax year....