What Do Mortgage Points Mean on Taxes?
One of the fees associated with closing on a mortgage are mortgage points. Each point is a fee equal to one percent of the mortgage value. There are two types of mortgage points: origination points and discount points.
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Origination Points
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Origination points are charged to cover the costs of creating the loan. The are not deductible if they are used for expenses like inspection expenses or notary charges that would otherwise be itemized.
Discount Points
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Discount points are paid to lower the rate of interest on the mortgage. These points are deductible.
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When to Take the Deduction
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The deduction is taken using the cash accounting method, meaning they are deductible in the same year that the expenses are paid.
How to Take the Deduction
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In order to deduct mortgage points, itemize your deduction instead of taking the standard deduction. Mortgage points paid are added to the interest you paid on the loan to calculate your total mortgage tax deduction.
Qualifying Points
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The points must be paid on a mortgage for your main home, they must be reasonable for your area and you must use the funds from the mortgage to pay for buying, constructing or fixing your house. If the seller pays the points, you still get to deduct the cost of the points from your taxes.
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