You generally cannot deduct the full amount of points in the year paid. Because they are prepaid interest, you generally must deduct them over the life (term) of the mortgage.
Per IRS Publication 936 Home Mortgage Interest Deduction, starting page 6:
The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points.
A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. See Points paid by the seller, later.
You generally can't deduct the full amount of points in the year paid. Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. See Deduction Allowed Ratably next. If the loan is a home equity, line of credit, or credit card loan and the proceeds from the loan are not used to buy, build, or substantially improve the home, the points are not deductible.
For exceptions to the general rule, see Deduction Allowed in Year Paid, later.
Deduction Allowed Ratably
If you don't meet the tests listed under Deduction Allowed in Year Paid, later, the loan isn't a home improvement loan, or you choose not to deduct your points in full in the year paid, you can deduct the points ratably (equally) over the life of the loan if you meet all of the following tests.
Deduction Allowed in Year Paid
You can fully deduct points in the year paid if you meet all the following tests. (You can use Figure B as a quick guide to see whether your points are fully deductible in the year paid.)
Note. If you meet all of these tests, you can choose to either fully deduct the points in the year paid, or deduct them over the life of the loan.
Home improvement loan. You can also fully deduct in the year paid points paid on a loan to substantially improve your main home if tests (1) through (6) are met.
Amounts charged for services. Amounts charged by the lender for specific services connected to the loan aren't interest. Examples of these charges are:
You can't deduct these amounts as points either in the year paid or over the life of the mortgage.
Points paid by the seller. The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer.
To enter mortgage interest information and points in the TaxAct program (if you need help accessing Form 1098, go to our Form 1098 - Entering in Program FAQ):
To enter points paid that are not on a Form 1098, go to our Form 1098 - Entering Points Not Reported FAQ.
For information about the tax treatment of these amounts and other settlement fees and closing costs, see IRS Publication 530 Tax Information for Homeowners.
Note that any link in the information above is updated each year automatically and will take you to the most recent version of the webpage or document at the time it is accessed.