Advertisement
taxes

Don't overlook tax break of mortgage points

Serial refinancing

Amortizing also comes into play for serial refinancers -- homeowners who take repeated advantage of low mortgage rates to get better and better home loans. This was a common practice at the housing boom's height, but some borrowers still redo their loans more than once to get better interest rates or a different type of loan product. The good news for most homeowners is that they don't lose that portion of the first refi's points that they've been amortizing.

The IRS says you can deduct any remaining balance of the points in the year the mortgage ends, either due to a prepayment, refinancing, foreclosure or similar event. Say, for example, our hypothetical refinancer got his loan three years ago. It was a 30-year loan, so he deducted $50 in points on his last three tax returns. Now he decides to refinance again because rates are even lower. Since the first refi is paid off via the second refi, he probably can deduct the remaining $1,350 in points on his next tax return.

But, this immediate, and often large, points tax break doesn't apply in every case. If, for instance, the second refinancing is with the same lender, the IRS says you cannot immediately deduct any remaining balance of your first refi's points. Instead, the remaining points balance from the first refi is added to your new refinance amount. You then continue to deduct them, along with any points from the second refi, for the life of your new loan.

So while points paid on refinanced loans usually don't provide immediate tax breaks, even when amortized they can save you some tax dollars.

If you want the technical scoop straight from Uncle Sam, check out Internal Revenue Service Publication 530, Tax Information for Homeowners, and Publication 936, Home Mortgage Interest Deduction.

advertisement

Show Bankrate's community sharing policy
          Connect with us
REFINANCE HOME EQUITY AUTO CDs CREDIT CARDS
Product Rate Change Last week
30 year fixed refi 4.08%  0.04 4.12%
15 year fixed refi 3.18%  0.03 3.21%
10 year fixed refi 3.21%  0.04 3.25%
 
View Rates in your area Next
Product Rate Change Last week
30K FICO-based HELOC 4.30%  0.03 4.27%
50K FICO-based HELOC 3.96%  0.01 3.97%
100K FICO-based HELOC 3.81%  0.01 3.82%
 
View Rates in your area Next
Product Rate Change Last week
60 month used car loan 2.75%  0.10 2.85%
48 month used car loan 2.99%  0.07 3.06%
60 month new car loan 3.20%  0.05 3.25%
 
View Rates in your area Next
Product Rate Change Last week
1 Year CD 0.99%  0.01 0.98%
2 Year CD 1.22%  0.02 1.20%
5 Year CD 1.87%  0.04 1.83%
 
View Rates in your area Next
Product Rate Change Last week
Balance Transfer Cards 15.76%  0.01 15.77%
Cash Back Cards 16.44%  0.04 16.48%
Low Interest Cards 11.04% --0.00 11.04%
 
Next
advertisement
WEEKLY TAX TIP NEWSLETTER

Our tax expert Kay Bell provides resourceful tips and advice to help you stay prepared for filing.

advertisement

Connect with us