Refinancing costs and mortgage interest payments are generally tax deductible. Also, points on your home loan may be tax deductible over the life of the loan. However, there are restrictions associated with this.

Deducting Refinanced Mortgage Points

When you initially get a home mortgage, you can deduct any points paid the year you took out the loan on the home. With refinancing though, you deduct the points throughout the length of the loan. So basically you can take the amount of of money you paid in interest points and deduct 12 months worth per year on your taxes. Also, in some situations, if you have taken out some equity from your home in cash you can still deduct a full years worth of interest payments. Things such as home improvements or repairs meet the requirements from the IRS to do this. If you happen to pay off your mortgage early, you are able to subtract any points remaining from this years taxes.

Some things to you should look out for when deducting refinancing costs.
With most any IRS or government program, there are some restrictions and requirements when deducting any home loan refinancing costs. As an example, depending on how much income you take in, there are limits to the amount you are able to refinance. Also, other closing costs and fees are not to be deducted from taxes such as, notary fees, mortgage insurance, lawyer fees, and other costs. If the seller happens to be paying points, those are also not eligible to be deducted from taxes.

Sometimes having to pay points on a refinance is not wise.
Although points are pretty common in todays home loans do not think about tacking on extra points in order to be able to write them off in the future. Typically, points are paid out to reduce even further the interest rate amount on a mortgage. Paying off a lot of points is a good thing to do if you are going to be living in your home for awhile, however if you are planning on selling in a few years you will not typically be saving any money by paying off loan interest points ahead of time. The best thing you can do is take action and find the best loan yourself. Refinancing the right way will save you money. Get quotes from a variety of potential mortgage lenders and banks to see the best rates, terms, and conditions from each one. Doing this will give you a huge advantage over the typical refinance customer and help you save thousands of dollars. Then, try to do the math and see if paying off more points is really that beneficial. Always remember the total amount of the tax deduction, although still a lot of money, is only going to be for a few cents on the dollar.

-M Petrone

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