Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. This is true even if the new mortgage is secured by your main home. However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the six tests below, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. You can deduct the rest of the points over the life of the loan.
- Your loan is secured by your main home. (Your main home is the one you ordinarily live in most of the time.)
- Paying points is an established business practice in the area where the loan was made.
- The points paid were not more than the points generally charged in that area.
- You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them. Most individuals use this method.
- The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes.
- The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. The funds you provided do not have to have been applied to the points. They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. You cannot have borrowed these funds from your lender or mortgage broker.
See IRS Publication 936 Home Mortgage Interest Deduction page 7 for examples.
To enter mortgage interest information, including points:
- From within your TaxAct® return (Online or Desktop) click Federal. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal.
- Click Itemized or Standard Deductions in the Federal Quick Q&A Topics menu to expand the category, then click Interest expenses
- Click Yes to enter information from Form 1098 and the program will proceed with the interview questions. If you paid points that were not reported on Form 1098, click No and then click Yes on the screen titled Did you pay any points not reported on Form 1098?.