How do I Deduct Refinancing Mortgage Points From Taxes?
One of the most widely utilized tax breaks in the U.S. is the home mortgage interest deduction. Some consumers receive a huge amount of tax relief from this deduction. This is not a credit, but rather a deduction. However, if you paid a considerable amount in mortgage interest, this deduction could significantly reduce your total tax liability. Many mortgages come with "points," or mortgage fees charged simply for obtaining the loan. If you paid points on refinancing your mortgage, these are tax deductible, too. But you have to take the deduction over the life of the mortgage, not all in one tax year.
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Things You'll Need
- Home mortgage closing documents (mortgage note and HUD1-A)
- 1098 interest statement
Instructions
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Pull out the mortgage paperwork you received when you refinanced your loan. You will specifically need the HUD1-A, also called the Settlement Statement. This document lists the entire cost of the refinance, as well as all of the payments made from the proceeds, such as cash out or bill consolidation.
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Look at rows 801 and 802 on the HUD1-A. These are the origination and discount fees charged on the refinance. Both of these are tax deductible.
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Check your mortgage note. In order to deduct these points, the fees must have been rolled into the refinance, not paid up-front. To check whether these fees were financed, look at the Amount Financed and the Principal Balance. If the Principal Balance is greater than the Amount Financed by the sum of all origination and discount fees, they were financed.
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Contact your lender after the first of the year. Lenders are required to send out the 1098 Home Mortgage Interest form by January 31st of each year. This will show the amount in mortgage interest and mortgage points you paid on your refinance over the last year.
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Obtain a 1040 tax form. Fill out the 1040 as you normally would. Obtain a blank Schedule A. This will be used to itemize your deductions--including the interest and points paid on your refinance from the previous year. Take the total amount paid in fees and points (from the 1098 form) and enter this figure on Line 10 on the Schedule A under "Interest You Paid."
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Go over the 1040 and Schedule A with your accountant. It's important to review this information with a professional before you file your tax forms.
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Tips & Warnings
Do not deduct mortgage points that you have yet to pay. If you financed your points, you will not pay the entire balance in one year. Rather, you will only be paying a percentage of them. The points are financed over the entire course of the mortgage.
References
Resources
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