Points
Menu Path: Deductions/Credits > Itemized Deductions > Homeowner Expenses (1098)
Points are upfront fees that lower the interest rate on a home loan. One point is equal to 1% of the loan amount. So if you received a $100,000 loan and paid one point, the points charge would be $1,000. Points are also called loan origination fees, premium fees, or loan discounts.
Points paid to acquire or improve your principal residence are fully deductible in the year paid. However, points paid to refinance your mortgage for a better interest rate, acquire a second residence, or to obtain a home equity loan are deductible over the life of the loan.
For example, if you paid two points on a $100,000 loan to purchase a home, you can deduct the full $2,000 paid in points on your current year tax return as mortgage interest. But if the $100,000 loan was to refinance your home, then you can only deduct the points over the life of the loan. If the loan is for 10 years and you paid $2,000 in points, you would deduct $200 in points on your tax return for the next ten years. If you sell your home or refinance again, you can deduct the remaining balance of points on your tax return. For example, if you refinanced your home again 4 years after refinancing the first time and you have deducted $800 of the $2,000 paid in points on your last four tax returns, then you can deduct the remaining balance of $1,200 on your current tax return.
Buyers are always the ones who get to deduct the points, even if you do a deal where the seller pays for the points. Points paid by the seller are considered to be a reduction in the sales price of the home but are still deductible by the buyer.
Points are upfront fees that lower the interest rate on a home loan. One point is equal to 1% of the loan amount. So if you received a $100,000 loan and paid one point, the points charge would be $1,000. Points are also called loan origination fees, premium fees, or loan discounts.
Points paid to acquire or improve your principal residence are fully deductible in the year paid. However, points paid to refinance your mortgage for a better interest rate, acquire a second residence, or to obtain a home equity loan are deductible over the life of the loan.
For example, if you paid two points on a $100,000 loan to purchase a home, you can deduct the full $2,000 paid in points on your current year tax return as mortgage interest. But if the $100,000 loan was to refinance your home, then you can only deduct the points over the life of the loan. If the loan is for 10 years and you paid $2,000 in points, you would deduct $200 in points on your tax return for the next ten years. If you sell your home or refinance again, you can deduct the remaining balance of points on your tax return. For example, if you refinanced your home again 4 years after refinancing the first time and you have deducted $800 of the $2,000 paid in points on your last four tax returns, then you can deduct the remaining balance of $1,200 on your current tax return.
Buyers are always the ones who get to deduct the points, even if you do a deal where the seller pays for the points. Points paid by the seller are considered to be a reduction in the sales price of the home but are still deductible by the buyer.
