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@hgtc wrote:

Clients added $5,000 closing costs to a new loan when they refinanced their home mortgage.  Do we need to reduce their 1098 loan interests for the additional of $5k to original loan?

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Sort of.  Here's my approach:  To the extent the closing costs are associated with the loan costs of refinancing (such as loan origination, loan commitment, abstract, and recording fees), they keep their "home acquisition debt" character.  But closing costs such as prepaid interest, insurance, real estate taxes and escrow deposits are not home acquisition debt since those loan proceeds were specifically used to pay other expenses.

In reality, consider a de minimis amount.  If this is $5K of closing costs on a $500K mortgage refinanced in October we're talking 1% of $3K of interest, or maybe $10 in tax.  Yes, I could spend the time and bill the client to figure this out down to the penny, but remember the repayments are taxpayer friendly and home acquisition debt is paid off last.  So by the middle of next year the loan proceeds will be 100% acquisition debt and nobody will care anymore.