ABA Family Legal Guide

Home Ownership

The Financial Side of Home Ownership

Refinancing and Home Loans

Can I deduct the points I paid to refinance my mortgage on my federal tax return?

With one exception, points paid on a refinancing must be amortized over the life of the loan, while points paid to obtain an initial mortgage may be deducted in the year the home was purchased. For example, if you paid two points to refinance a new thirty-year mortgage, you would be allowed to deduct one-thirtieth of the points paid each year over the next thirty years. If you pay off the loan before it is due, however, you may deduct any remaining amount in the year the loan was paid in full.

The exception to this rule is if you pay the points yourself and use part of the proceeds of the refinancing to pay for home improvements. Then you are allowed to deduct a portion of the points in the year of the refinancing. For example, if you paid $2,000, or two points, to refinance a $100,000, fifteen-year mortgage and you used $25,000 to renovate your kitchen, you would be able to deduct 25 percent of the $2,000, or $500, in the year that you refinanced; the other $1,500 would have to be divided over fifteen years, allowing a $100 annual deduction.