This is an article from Inman News:
“With home mortgage interest rates at historic lows, many homeowners are seeking to refinance their mortgages. If you are planning to refinance, knowing the interest deduction rules and how they apply to your property may help you maximize your tax savings.
Interest deduction
If the old mortgage is paid off, but no additional cash is received by the homeowner, all of the interest payments on the new loan are tax deductible up to a loan limit of $1 million.
The rules differ if the new mortgage is larger than the original mortgage — that is, the homeowner refinances the old loan and also obtains additional cash. That portion of the new loan that is used to replace the original loan is treated the same as the original loan — the interest paid on the amount is fully deductible.
Tax treatment of the portion of the new loan used to obtain cash depends on what the cash is used for. If the cash is used to improve or remodel the house, the interest is fully deductible.”
Story Credit:
http://www.inman.com/buyers-sellers/columnists/stephenfishman/tax-consequences-refinancing
Author: Stephen Fishman
This info not to be relied on for you final tax / refi decisions. You accountant should be consulted.