How to: Tax-Deductible Refinancing With the HUD-1 Form
One of the major benefits of owning a home is that many of the associated expenses are tax-deductible. Home loans in particular are a terrific source of tax deductions; even if you refinance your home, many of the new loan's costs are tax-deductible. When you close your refinance deal, save the HUD-1 statement, because that's where you'll find a record of each deduction. The HUD-1 statement, also called a settlement statement, is a common form produced by the Department of Housing and Urban Development, and every home loan transaction has one.
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Instructions
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Find the deductions on your HUD-1 statement. If you paid days of interest, property taxes and points, these amounts are deductible. Days of interest and property taxes are deductible in their entirety during the year in which you refinanced.
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Amortize your points. While points paid when you originally purchased your home are deductible all at once, points you pay when you refinance are deductible over time. To calculate the deduction, divide the amount you paid in points by the number of years in the loan. The result is your deduction for the year. If you sell your home or pay the loan in full, you can deduct the remainder of the points.
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Report your deductions on your tax return. Home mortgage deductions -- the ones that appear on the HUD-1 as well as the 1099 statement that your lender will send you -- are reported on Form 1040 Schedule A.
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Tips & Warnings
Save your HUD-1 for the long term, because although many of the expenses on the form aren't tax deductible, they may help you when you sell your home. Title insurance, among other expenses, add to your cost basis and reduce your taxable gain.
References
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