What Can You Write Off When Refinancing Your Home?

Taking a deduction for discount points is the only cost from refinancing your home that the Internal Revenue Service permits. Discount points reduce the interest rate on the loan in exchange for an upfront payment of 1 percent of the loan.

Function

You can deduct the discount points only if you itemize your deductions using Schedule A. When you itemize, you must forgo the standard deduction and file your taxes using form 1040.

Time Frame

Unlike discount points paid when you first take out a mortgage, you must deduct the points paid over the life of the refinance. For example, if you do a 20-year refinance and pay $4,500 in discount points, you would divide $4,500 by 20 to find you could deduct $225 each year.

Considerations

If you have previously refinanced your home but have not finished deducting the prior refinance's discount points, you can deduct any remaining points in the year you refinance. For example, if you had previously paid $2,000 in discount points but had only been able to deduct $1,000 before you refinanced again, you would be allowed to deduct the remaining $1,000 in the year you refinanced again.

References

• IRS: Publication 936
• Mortgage Loan: Mortgage Refinance Tax Deductions and Points