When refinancing a mortgage what charges are considered points for tax purposes?

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Points that you pay as part of the closing costs of your mortgage represent fees to reduce the interest rate on your home and may allow you to take claim a deduction on your income taxes. However, the expenses must meet the Internal Revenue Service (IRS) requirements for points.

Function

The loan that you are taking out must use your primary home as collateral and the proceeds from the loan were used to purchase your home.

Calculation

The points must be calculated as a percentage of your refinance. For example, most points cost 1 percent of the amount you are refinancing.

Reporting

The points must be reported by the lender on your settlement statement. At the end of the year, you will receive a Form 1098 that shows how many points were paid.

Warning

Points that are used to pay for fees that would otherwise be itemized like attorney's fees or title fees cannot be deducted on taxes.

Time Frame

When you refinance, the points you pay are deductible over the life of the loan rather than in the year you pay them like points that are paid on an original mortgage.

Source:

IRS: Topic 504 - Home Mortgage Points

Bankrate: Mortgage Points

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When refinancing a mortgage what charges are considered points for tax purposes?

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