IRS TAX TIP 2003-32
REFINANCING YOUR HOME
Taxpayers who refinanced their homes may be eligible to deduct some costs
associated with their loans, according to the IRS.
Generally, for taxpayers who itemize, the “points” paid to obtain a home
mortgage may be deductible as mortgage interest. Points paid to obtain an original
home mortgage can be, depending on circumstances, fully deductible in the year paid.
However, points paid solely to refinance a home mortgage usually must be deducted
over the life of the loan.
For a refinanced mortgage, the interest deduction for points is determined by
dividing the points paid by the number of payments to be made over the life of the
loan. This information is usually available from lenders. Taxpayers may deduct points
only for those payments made in the tax year. For example, a homeowner who paid
$2,000 in points and who would make 360 payments on a 30-year mortgage could
deduct $5.56 per monthly payment, or a total of $66.72 if he or she made 12
payments in one year.
However, if part of the refinanced mortgage money was used to finance
improvements to the home and if the taxpayer meets certain other requirements, the
points associated with the home improvements may be fully deductible in the year the
points were paid. Also, if a homeowner is refinancing a mortgage for a second time,
the balance of points paid for the first refinanced mortgage may be fully deductible at
pay off.
Other closing costs – such as appraisal fees and other non-interest fees –
generally are not deductible. Additionally, the amount of Adjusted Gross Income can
affect the amount of deductions that can be taken.
For more information on deductions related to refinancing, visit IRS.gov,
“Frequently Asked Questions” (keyword: refinancing fees) or Tax Topics 504, “Home
Mortgage Points,” and 505, “Interest Expenses.”
Other tax information on residential real estate can be found in IRS
Publications 936, “Home Mortgage Interest Deduction,” 523, “Selling Your Home,”
527, “Residential Rental Property,” and 530, “Tax Information for First-Time
Homeowners.” All publications are available on the IRS Web site or by calling 1-800-
TAX FORM (1-800-829-3676).
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