Deductions and Credits How Do I Deduct Points Paid on My Mortgage? Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by Elle Martinez Published Dec 30, 2016 2 min read For most families looking to buy a home, a mortgage is needed to finance the balance after they’ve made their down payment. Besides the financial benefits of owning property with some equity, there are many tax advantages to home ownership, including deducting points on your mortgage. Buying a Home and Points We purchased our house a few years ago and found a fantastic deal with a mortgage lender for a fixed 5% interest rate for 30 years. As we looked through the paperwork, we examined all the numbers, including points we’d have to pay to get the mortgage. In case you’re not familiar with the term, points (also known as loan origination fees or discount points) are basically an upfront payment from a borrower to get a specific rate from the lender. One point is equal to 1% of mortgage loan. In some cases, a borrower will pay more in points to get a lower interest rate over the life of the mortgage. If you buy a house and you plan on staying there for many years, then paying those points can be financially beneficial to you and your family over the life of that loan. Run the numbers to see how long it would take to break even by paying more points. If it’s longer than you intend to stay in the house, then you may be better off paying the slightly higher interest rate. When it comes to taxes, buying a house has some great benefits. For one thing, if you itemize your deductions, you can deduct the interest paid that year for your mortgage. Another bonus is generally you can deduct the points you paid in full for the purchase of your home (primary residence), provided you meet the requirements as set out by the IRS. If you purchased a home this year, you should receive a document called Form 1098 from your lender that includes the amount of mortgage interest you paid (Box 1), the points you paid (Box 2), and the mortgage insurance premiums you paid, if applicable (Box 4) all of which may be tax deductible. When I Refinance Can I Deduct the Points Upfront? Now, just two years later, we’re back looking at mortgages, this time to refinance our home because interest rates are even lower. Since we have equity in our home, refinancing has become a financially attractive option for us. When it comes to filing our taxes, it’s going to be a slightly different story. Unlike when we purchased our home and were able to deduct the points we paid upfront, with refinancing, the points we paid to refinance our mortgage are deducted over the term of the new loan. Don’t worry about knowing about knowing these tax rules. TurboTax will ask you simple questions about you and give you the tax deductions and credits you are eligible for based on your answers. Previous Post The IRS Announces 2017 Standard Mileage Rates Next Post Are Your New Year’s Resolutions Tax Deductible? Written by Elle Martinez Elle helps families at Couple Money achieve financial freedom by sharing tips for reducing debt, increase income, and building net worth. Learn how to live on one income and have fun with the second. More from Elle Martinez Visit the website of Elle Martinez. Follow Elle Martinez on Facebook. Follow Elle Martinez on Twitter. 4 responses to “How Do I Deduct Points Paid on My Mortgage?” Can I deduct the closing cost for a house I paid cash for Reply Hi Mary, You can’t deduct all of the closing costs unless it is a rental property. If it is your principal residence, you can deduct your points paid if you were getting a loan and you paid them out of your pocket, but it sounds like you didn’t get a loan so you would not have been charged points or loan origination fees. TurboTax will ask you questions about your home purchase and give you the deductions and credits you’re eligible for. Thank you, Lisa Greene-Lewis Reply Please clarify – I paid 6437.07 in origination charge – I received credit for more then that amount. So I would not claim the 6437.07. Is that correct? Reply Can these points be paid for already existing mortgage? Or only at the time of getting a new mortgage ? Any help is great! 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