Can I take a tax deduction for points on my tax return?
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| In addition to the interest rate on a mortgage
lenders usually charge points. The points
are paid up front at closing. The stated interest rate for the loan is usually lower when
points are paid up front. Whether
a charge is called a loan origination fee or
points does not affect its tax deductibility. They are tax deductible on
your tax return if they are charged for the
use of money.
Points are fully tax deductible
on your tax return in the tax year they are paid, if they meet all the following
requirements:
 | Your loan is secured by your main home (your main home is the one you live in most of
the time); |
| Paying points is an established business practice in your area; |
| The points paid were not more than the amount generally charged in your area; |
| You use the cash method of accounting. This means you report income in the
tax year you
receive it and deduct expenses on your tax return in the tax year you pay them; |
| The points were paid for the use of money and were not paid for items such as appraisal
fees, inspection fees, title fees, attorney fees, and property tax; |
| You use your loan to buy or build your main home; |
| The points were computed as a percentage of the principal amount of the mortgage; |
| The amount is clearly shown on your settlement statement; and |
| The funds you provided at or before closing, plus any points the seller paid, were at
least as much as the points charged. You cannot have borrowed the funds from your lender
or mortgage broker. |
Points that do not meet these tests may be
tax deductible on your tax return over the life of the loan.
Points paid for a second home or a vacation home must be
deducted on your tax return over the life of the
loan.
Points paid solely to refinance your home mortgage cannot be deducted
on your tax return in the tax year paid.
Instead, they must be deducted on your tax return over the life of the loan.
If your mortgage ends early and you are deducting points
on your tax return over the life of the loan you
can deduct the balance of the points on your tax return in the tax year the mortgage ends.
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Related tax
information about points |
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Interest Tax Deductions
Itemized Tax Deductions Directory |
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IRS publications about points:
For more details refer to IRS Publication
530, Tax Information for First-Time Homeowners and
IRS Publication 936, Home Mortgage
Interest Deduction. Also see IRS Publication
17, Your Federal Income Tax. |
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Ask Julian Block your IRS and tax questions! |
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If you can't find the answer to your IRS or tax question in our
web you can call former IRS Special Agent and one of the country's foremost tax attorneys, nationally syndicated columnist ("The Tax
Adviser") Julian Block. Julian is also the tax Editor of Mutual Funds Magazine, America's premier investment magazine. To
call Julian for a tax consultation click
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