How to Deduct Refinancing Costs
Refinancing a mortgage can save you money by locking in a lower interest rate so you will save money on your monthly mortgage payments. In addition, the costs you pay for discount points can save you money on your income taxes. Discount points refer to the points that you pay to lower the interest rate on your mortgage refinance. These points must be deducted over the term of your mortgage refinance. Other mortgage refinancing costs cannot be deducted.
Other People Are Reading
Instructions
-
-
1
Consult your financial records or contact your lender to determine the amount of discount points paid. You cannot deduct other costs, such as origination points or appraisal fees.
-
2
Figure the amount you can deduct each year by dividing your total discount points paid by the length of the loan. For example, if you refinance your mortgage for an additional 20 years and you paid $4,020 in discount points, divide $4,020 by 20 to find that you are eligible to deduct $201 every year.
-
-
3
Use Form 1040 to file your income taxes and report the deduction for the mortgage points on Schedule A as points not reported to you on Form 1098 (line 12). Do this each year you have the mortgage refinance.
-
4
Report any undeducted discount points in the year you pay off the mortgage refinance or refinance that loan. For example, if you hold the mortgage refinance for 11 years before paying it off, you would have deducted only $2,211 of points. In the final year, you can deduct an additional $1,789 because that is the value of your undeducted points.
-
1
References
Resources
- Photo Credit house image by Michael Shake from Fotolia.com
