How to Deduct Refinancing Points From Taxes

If you've recently refinanced your home and are about to do your taxes, there are some items that you may be able to take off the itemized schedule. Before you do, there are some things that you should know because how you deduct your points depends on a variety of factors.

Difficulty:

Moderate

Instructions

1. Deduct the points in the year of the loan if you purchased or financed your main home and the money was paid up front. It also must be the normal amount and practice for your area and not be paid for other items like appraisals.

2. Make certain that the points are clearly stated on the computation sheet and are a percentage of the mortgage, if you're going to take them in full on your itemization sheet.

3. Amortize the payments over the life of the loan if you're financing a second home.

4. Write the entire amount applicable for any improvements that you made on your primary home, if they're paid up front, and are a percentage and reasonable and customary.

5. Divide the points by the number of payments that you'll make if the points are added into the mortgage. Since you won't actually be paying it out of pocket, but over a long time, you can deduct the points over the years that the mortgage was held. Divide the amount by the total number of payments and multiply it by the payments made that year.

6. Take off all the points paid previously. If you're refinancing and amortized the points on the first mortgage, you may deduct the balance of the first mortgage points when you refinance.