Are Mortgage Points Tax Deductible?

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It's that time of year when people are thinking about their income taxes and many who bought a home last year are wondering what the can deduct on their income taxes.  Let me start by stating:  I am not a tax advisor;  I am a NMLS Licensed Mortgage Originator.  Please review your tax scenarios with your CPA or professional tax advisor.

A mortgage point is a percentage of the loan amount and is used to reduce the mortgage interest rate.  A mortgage priced with zero points has a higher rate than a mortgage priced with a point.  Typically, but not always, one point (1 percent of your loan amount) equates to 0.25% in interest rate.  Points are prepaid interest, and like the interest your pay on your home mortgage, are currently deductible for your primary residence.   

If you paid points to purchase the home you live in (owner occupied/primary residence), you may deduct the full point on your itemized 1040.  If you paid points for a refinance, the point must be deducted over the term of the loan.   However if your refinance was for home improvement, you may be able to deduct the full point instead of spreading over the life of the loan. 

If you purchased a second home and paid points, the points may be deducted over the life of the loan (similar to a refi that was not obtained for home improvement). 

If the seller paid for your points when you purchased your home, you may be able to deduct them as well as long as the transaction meets IRS guidelines.

For more information on what is required for points to be deductible, see IRS Publication 936: Mortgage Interest Deductions page 5.

In order to claim these deductions, you will need to itemize your tax return.  Tax Form 1098 will disclose the mortgage interest paid and the deductible points paid.  You may also want to review your HUD-1 Settlement Statement to see an itemized list of closing costs and points paid. 

Don't forget, the due date for your 2010 Federal Income Tax Returns (and requests for extensions) is on April 18, 2011 this year.

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