How to Deduct Home Refinance Points Charges From Your Taxes
The Internal Revenue Service permits homeowners to deduct a variety of expenses from their taxes, including points paid to lower the interest rate on a mortgage or refinance. Points are defined as pre-paid interest on the loan. While the IRS allows you deduct all the points at one time on a first mortgage, points paid in a refinance must be deducted over the life of the loan. In addition, the deduction is an itemized deduction, so you have to give up the standard deduction to claim it.
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Instructions
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Check your form 1098 that you will receive from your lender at the end of the year to determine the amount you paid in refinance points. The points will be listed in box 2.
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Divide the value of the points you paid by the number of years your refinanced loan is scheduled to last. For example, if you refinance your mortgage for an additional 15 years, you would divide the amount you paid by 15. This is the amount you can deduct per year over the life of the loan.
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Add the amount of points you can deduct per year to any deductible mortgage interest that you paid. The amount of mortgage interest paid will be listed in box 1 of form 1098.
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Report the amount of points and mortgage interest you are deducting on line 10 of your federal Schedule A. This amount will be added to any other itemized deductions that you claim and the total will reduce your taxable income.
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Continue to claim the annual deduction for the home refinance points in future years. Each year that you have the refinanced mortgage you can deduct the same amount of points as in the first year.
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Tips & Warnings
If you decide to refinance again, or if you sell your house, the IRS allows you to write off all of the unclaimed points when you file your next tax return.
If your total of itemized deductions, including your home refinance points deduction, does not exceed your standard deduction, you are better off claiming the standard deduction instead of itemizing.
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