This seems like an easy question, but after searching out the answer, I'm more confused than when I started. Client plans to make "substantial improvements" to her home in the spring. Rates are low, she decides to to do the refinance now and places the cash out portion earmarked for future improvements into a savings account. My understanding is the interest prior to construction of the improvements would be investment interest. Once used for improvements (on the same primary residence refinanced), can this be treated as deductible mortgage interest on Schedule A?
Does the 90 day rule apply in this circumstance? If the funds remain segregated and can clearly be shown in the spring for those improvements, does that work?