If you want a better loan rate than your mortgage lender is offering, you might be able to buy it down via points. Each point is one percent of the mortgage amount and points are offered on both original home loans and refinancings. And in both case, the points are tax deductible. However, the precise method of deducting them does differ.
On your first mortgage, you can deduct the points in full on your tax return for the year the points are paid. But with a refi loan, rather than deducting the full amount of refi points in the tax year in which you paid them, you must amortize them over the life of the loan.
So instead of deducting, for example, $1,500 in full refi points on a 15-year loan, you deduct $100 worth of points on each tax filing for 15 years — or until you pay it off, at which time you can claim the remaining points on the return for that tax year. And remember, the other home-related tax breaks that you’re used to taking are the same for your newly refinanced loan.
JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.