Feature Articles: Taxes
Deducting Costs of Refinancing Your Home
Reviewed and used with special permission from the IRS by: Suzi McGarvey, Consumer and Family Economics, College of Human Environmental Sciences, University of Missouri Extension
Taxpayers who refinanced their homes may be eligible to deduct some costs associated with their loans.
The term "points" is used to describe certain charges
paid to obtain a home mortgage.
Here are some things to remember when deducting points:
- Generally, for taxpayers who itemize, the “points” paid to obtain a home mortgage may be deductible as mortgage interest
- Depending on circumstances, points can be fully deductible in the year paid
- Points paid solely to refinance a home mortgage
usually must be deducted over the life of the loan
For a refinanced mortgage, the interest deduction for
points is determined by dividing the points paid by the
number of payments to be made over the life of the loan.
This information is usually available from lenders.
Taxpayers may deduct points only for those payments made
in the tax year.
However, if part of the refinanced mortgage money was used to finance improvements to the home and if the taxpayer meets certain other requirements, the points associated with the home improvements may be fully deductible in the year the points were paid. Also, if a homeowner is refinancing a mortgage for a second time,
the balance of points paid for the first refinanced
mortgage may be fully deductible at pay off.
Other closing costs – such as appraisal fees and other
non-interest fees – generally are not deductible.
Additionally, the amount of Adjusted Gross Income can
affect the amount of deductions that can be taken.
For more information on deductions related to refinancing, visit IRS.gov for Tax Topics 504, Home Mortgage Points, and 505, Interest Expenses. You may also review IRS Publication 936, Home Mortgage Interest Deduction, available at IRS.gov or by calling
Source: IRS Tax Tip 2006-55
Last update: Tuesday, May 05, 2009