Deducting the Cost of Your Mortgage Refinance
by Brandon Cornett
Did you know that many people who refinance a mortgage are eligible to deduct some of the costs associated with their mortgage refinance loan? It's true, but it's not something a lot of homeowners even realize. That's the purpose of this article -- to educate on the process of deducting costs associated with your refinance.
Deducting Points When Refinancing a Mortgage
The term "points" refers to one percent of a loan's total amount. Points are sometimes paid on a mortgage loan during the closing process. People pay points in order to lower their interest rate, which in turn lowers the overall mortgage amount they pay each month.
When refinancing a mortgage loan, homeowners are often allowed a tax deduction for the points they paid on the new loan. Here is what the IRS has to say on the subject:
"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." -Source
Calculating Your Refinance Deductions
On a mortgage refinance, the tax deduction for points paid is usually calculated by diving the points paid by the number of payments to be made during the remaining life of the mortgage loan.
In most cases, other closing costs associated with a mortgage refinance are not considered deductible. But the points paid on the loan usually are deductible.
Learn More
If you plan to refinance your mortgage in the near future, you should learn all you can about the tax deductions you may qualify for. If you want the straight scoop from the IRS themselves, use the links provided below.
Tax Topic 504 - Home Mortgage Points | Tax Topic 505 - Interest Expenses