Mortgage Points
Home mortgage points are certain charges you pay to obtain a
home mortgage. Points are usually charged based on a percentage of
the loan amount. In some cases home mortgage points are deductible
in the year you paid them, as an itemized deduction.
Deduction Guidelines
All of the following conditions must be met for your home
mortgage points to be fully deductible in the year you paid
them:
- Your loan must be secured by your main home.
- Paying points must be an established practice in your
area.
- The points you paid were not more than what is generally paid
for points in your area.
- You use the cash method of accounting; that is, you report
income and deductions in the year they occurred.
- The points were not paid for items generally separated on the
settlement sheet.
- You must have paid the points at or before closing with funds
not from your lender or mortgage broker.
- You must have obtained a loan to buy or build your main
home.
- The points were computed as a percentage of the mortgage
principal.
- The points amount is shown on your settlement statement.
If you cannot meet all of the guidelines for points to be
deductible in full, you may be able to deduct the points over the
lifetime of your mortgage. Second home mortgage points are
deductible over the lifetime of the loan, instead of only the year
they were paid.
Refinancing Points
Points paid to refinance an existing mortgage are usually
deducted over the life of refinance loan. However, if part of the
refinanced mortgage is used to make improvements to your main home,
and you meet the first six requirements in the deduction
guidelines, you can fully deduct the part of the points related to
the improvements in the year you paid the points.
Non-Deductible Points
- Points charged for specific services such as appraisal,
inspection, title and attorney fees, and property taxes
- Points paid if you were the seller of the home
- Points paid to obtain a mortgage for a second home
For more information see IRS
Tax Topic 504 - Home Mortgage Points and Publication 936.