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My wife and I are preparing a significant remodel to our home

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this year. We've talked...
My wife and I are preparing a significant remodel to our home this year. We've talked to our mortgage broker about financing a portion of the cost (we've been saving to cover the rest), but our loan-to-value is about 75% and the our broker doesn't believe we'd be able to get any cash out with the market still trending down in our area. We believe we could come up with the cash by other means (liquidating a few investments, borrowing from our folks, etc.) to get the work done and then re-finance after the work is completed to pay back our investment portfolio and/or other sources. The question is, for the purposes of AMT calculation, would the cash out that we use to pay back those sources qualify as being for "home improvement" (and therefore allowable under AMT), even though it didn't go to directly pay a contractor? Are there any special paper trails we need to keep to prove that this was our intent all along in case we get audited? Thanks in advance!
Submitted: 7 years ago.Category: Tax
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Answered in 15 hours by:
1/4/2011
Tax Professional: Lindie-mod,
 replied 7 years ago
Lindie-mod
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Tax Professional: CGCPA, CPA replied 7 years ago
CGCPA
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Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

 

If you can connect the refinance cash out to the improvement project by way of timing of receipts and repayment of loans you can claim it as home improvement financing and be safe as to the AMT.

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Customer reply replied 7 years ago
Thank you for your response. I'm not sure I fully understand what you mean by "timing of receipts". In our situation, the receipts for the work would be dated prior to the refinance, so I'm not clear about the timing could connect them. Or do you simply mean that as long as we do the refinance as soon as possible upon completion of the project and then use the cash out to immediately pay back our investments and / or loans, that it will be clear to the IRS that our intent was to use the cash out to fund the project in the first place?

Thanks again for the clarification.
Tax Professional: CGCPA, CPA replied 7 years ago
If you do the refinance asap after the renovation is completed you can satisfy the requirements. If possible have any money borrowed from others indicate that the loan is to be used to renovate the home and will be repayable by the refinance.
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