Home Mortgage Points

Question:
Are paid home mortgage points deductible on my income tax return?

Answer:
Generally the answer is “yes”… but not always.  It the home-buyer pays “points” to secure a loan that is used to acquire a principal residence or make improvements to a principal residence, then those points are generally deductible.  The loan must be secured by the taxpayer’s principal residence.  “Points” paid to buy a second home, a vacation home or to secure a home-equity line of credit are not deductible.

“Points” are deductible by the home-owner in the year paid.  The payment may be made from an escrow deposit, a down payment or an escrow deposit.  But if the points are paid from the proceeds of the loan, the points are not currently deductible.  In addition, to be deductible, the payment of points must be an established practice in the area where the home is located and not exceed the amounts generally charged as points in the area.

Deductible points may be labeled as “points,” “loan origination fees,” “discount points” or “loan origination fees” on the loan closing statement and must be calculated as a percentage of the loan amount.

Points paid to refinance a home loan are not current deductible, but must be amortized, or spread, over the term of the loan.  If a part of the refinancing is used to make improvements to the home, the points that relate to that portion of the new loan used to improve the home are currently deductible.

A home owner may make an election to amortize the “points” over the term of the loan rather than deduct the points in the year paid if the taxpayer receives no tax benefit in the year in which the points are paid.  That could occur if the taxpayer’s standard deduction is greater in the year in which the points are paid than the taxpayer’s itemized deductions in that year even including the points.  That situation could occur if the taxpayer, a first time homeowner, were to acquire a home near the end of the tax year.