Monday, February 8, 2010

Refinance with Points?

I just got a tax question from a friend so I thought I'd post the question and answer here, too.


Hey, my tax guru -

Quick question - We refinanced our home this year. Are only the origination fee/points deductible, or are all the fees associated with the refinance (i.e. administration fees, closing fees, etc.) also deductible. I know the amount is spread out for the next upteen years, but just was wondering if how much I get to deduct. I've found conflicting/confusing info on the internet, so I thought I'd just ask an expert!



You can only take a deduction for the points. Other costs related to "lender services" are not deductible. And yes, you can only take 1/30th of the cost of the points each year, assuming a 30 year loan.

On the plus side, if you paid points on your last mortgage you can deduct all of those points that haven't yet been deducted. For example, if you got a mortgage in 2006 and paid points you have taken 1/30th of the cost of those points for 3 years (2006, 2007, 2008). In 2009 you refinanced which is in effect paying off the old mortgage and getting a new one. Since the old mortgage was paid off in 2009 you can deduct the remaining 27/30ths of points that haven't been deducted yet. The new mortgage starts over with 1/30th of the new points again.


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