Some people who recently refinanced their mortgage may be wondering if they can get a tax break for the refinancing. Generally speaking, refinancing makes you eligible for the same tax deductions and benefits as any mortgage. Learn more about what you can deduct after refinancing so you know what to expect when you file.
Refinancing a mortgage can help homeowners get a lower interest rate, reduce monthly payments, or adjust the loan term But refinancing comes with costs like appraisal fees, attorney fees, recording fees, and points As a homeowner, you may be wondering – can I write off points on a refinance? The answer depends on when you paid the points and how you use the home.
What Are Points on a Mortgage Refinance?
Points are a part of the mortgage loan amount that is paid to the lender to lower the interest rate. They are also known as discount points or loan origination fees. One point equals 1% of the loan amount. Let’s say you refinance a $200,000 loan. One point will cost you $2,000. Lenders often charge 1 to 4 points on refinances.
If you pay points up front, your interest rate can go down, which will lower your monthly payments. Lenders may offer different rate/point combinations. You can decide if paying points makes sense for you by looking at your options side by side.
Tax Deduction Rules for Refinance Points
In most cases, you can deduct refinance points just like purchase points. The IRS allows you to fully deduct points in the year you pay them if you meet these requirements
- You use the money from the refinance to improve your main home.
- You use a cash-basis accounting method.
- The points are clearly listed on your settlement statement.
- The points are within normal rates for your area.
- You pay the points upfront (no borrowed funds).
However, points on a refinance have additional IRS rules:
Points Must Be for Your Main Home
You can only deduct points to refinance the mortgage on your main home where you live most of the time. Points paid on a second home or rental property refinance must be deducted over the loan term.
Refinance Must Be for Home Improvements
To deduct refinance points in full the same year, the money must be used to substantially improve your main home. Cosmetic upgrades like painting or new carpeting don’t count.
But points are fully deductible if the refinance money is used for remodeling, additions, installing a new roof or heating system, and similar major improvements that increase the value of your home.
No Cash-Out Refinance
If you don’t take any cash out of the deal, you can only deduct the points in full in the same year. In other words, you can’t take money out of the home when you refinance. The new loan amount can’t be more than what’s still owed on the old mortgage.
How to Deduct Refinance Points on Your Taxes
Deducting refinance points is easy when you know where to claim them. Points are deducted on Schedule A, Itemized Deductions. Follow these steps:
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Get your closing disclosure statement showing the points paid.
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On Schedule A, enter points on line 8a if they are listed on Form 1098 from your lender.
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Add any points not included on Form 1098 on Schedule A, line 8c.
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Total your points paid and enter the amount on Schedule A, line 8.
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Submit Schedule A with your Form 1040.
Most tax software can walk you through deducting points correctly. TurboTax even searches for over 350 tax deductions and credits to get you your maximum refund.
What If You Can’t Deduct Points in Full?
If your refinance doesn’t meet the IRS rules for fully deducting points in one year, you’re not entirely out of luck. You can deduct the points over the life of the loan.
Each year, take the total points paid and divide by the number of monthly payments. Deduct that portion each year along with your mortgage interest.
This amortized deduction allows you to spread the tax benefit of the points over the loan term. It’s not as much tax savings in the year you pay them, but it’s better than nothing.
Should You Pay Points on a Refinance?
It can be painful to pay points up front, even if you get a tax break. But sometimes points can pay off because they save you money on interest. Consider these factors when deciding if points make sense:
How Long You’ll Stay in the Home – The longer you keep the loan, the more time you have to recoup points costs through lower monthly interest. Generally, plan to stay at least 3 years to benefit from refinance points.
Interest Rate Reduction – Calculate how much your new interest rate drops per point paid. A larger rate reduction can yield more savings and faster payoff of the points.
Upfront Cash – Closing costs like points require cash at closing. Make sure you have funds available rather than rolling points into the loan amount. The interest costs on financed points can outweigh savings.
Your Tax Bracket – If you claim the standard deduction, you get no tax benefit from points. Itemizing lets you deduct points to reduce your tax bill. The higher your bracket, the more points save you.
Crunching the numbers can reveal whether paying points to get a lower rate on your refinance makes good financial sense. Deducting points on your taxes takes some of the sting out of closing costs.
Key Takeaways
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You may deduct refinance points in full in the year paid if the loan is for home improvements and certain IRS rules are met.
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Otherwise, refinance points must be amortized over the loan term to get a tax deduction.
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Carefully compare interest rate/point combinations to see if paying points will pay off long-term.
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Work the math to determine if the interest savings outweigh the upfront costs of points.
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Make sure you have funds on hand to pay points at closing rather than financing them.
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Itemizing lets you deduct points on your taxes to reduce your tax bill.
Paying points allows you to lower your mortgage interest rate, reducing long-term costs. Understanding the rules for deducting refinance points can help you maximize tax savings. Crunch the numbers thoughtfully when deciding if points fit your financial situation.
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Mortgage interest tax deduction
With any mortgage—original or refinanced—the biggest tax deduction is usually the interest you pay on the loan. Generally, mortgage interest is tax deductible, meaning you can subtract it from your income, if the following applies:
- The loan is for your primary residence or a second home that you do not rent out
- The loan is secured by your home. This means your home serves as collateral for the loan; if you fail to make your payments, the lender can foreclose on the home
- You “itemize” deductions on your tax return, meaning you list all of your deductible expenses, add them up, and then deduct the total amount from your income. The alternative to itemizing is to take the Standard Deduction, which is a set amount you can claim regardless of your actual expenses. (Learn more about itemizing with “What Are Itemized Tax Deductions?”)
When you use TurboTax, it helps you decide which option—itemizing or the Standard Deduction—will save you more money. At years end, your mortgage lender sends you a statement, called Form 1098, explaining how much you paid in interest during the year.
If you paid “points” when you refinanced your mortgage, you may be able to deduct them. Points are prepaid interest; you pay them upfront to get a lower interest rate during the period when youre repaying the loan. One point equals 1% of the loan amount, so if you paid 2 points on a $100,000 loan, for example, you would have paid $2,000. Points sometimes go by other names, including:
- loan origination fee
- maximum loan charge
- discount points
- loan discount
Points paid as part of a mortgage refinance usually must be deducted over the life of the loan. If you refinanced to a 15-year mortgage, for example, then youd deduct a portion of the points each year for 15 years. This is different from points paid when you first bought the home; points on an original purchase can often be deducted in full in the year theyre paid.
Can You Deduct Refinance Points? – CountyOffice.org
FAQ
Can I deduct mortgage points if I refinance?
However, you might not be able to do this if you refinance your mortgage. When you pay off the loan, you can deduct the mortgage points you still owe if you refinance with a new lender. If you refinance with the same lender, though, you’ll have to pay off the points over the life of the new loan.
What if I paid points to refinance a home?
You paid points to refinance a home mortgage — also known as a re-fi. The points are for a second home you bought. You can fully deduct the part of the mortgage points for an improvement. If you pay them off with your own money and then use some of the money from the new mortgage to fix up your main home, you can do this in the same year.
Can you deduct mortgage points if you pay off a loan early?
The loan amount is $250,000 or less. You paid no more than four points for a loan of 15 years or less. You paid no more than six points for a loan longer than 15 years. You might deduct mortgage points over the loan’s life and pay the mortgage off early. If so, you can deduct the remaining mortgage points the year you pay off the mortgage.
Are refinance points tax deductible?
And the answer is yes and no. Yes, refinance points are tax deductible. But no, they are not deductible in full for the year paid. You will need to remember to spread the deduction over the life of the loan. Accountants call this process “amortization.” Let’s use the above $200,000 mortgage with $4,000 in points as an example.
Can you deduct mortgage points over the life of a loan?
You meet the first six points under Deducting mortgage points in the year paid (above). You can deduct the rest of the mortgage points over the life of the loan. Usually, you must amortize mortgage points deducted over the life of the loan using the original issue discount (OID) rules. Since OID rules are complex, you can use a simplified method.
Can you deduct points on a 30-year mortgage loan?
He paid three points ($3,000) to get a 30-year $100,000 mortgage, and he made his first mortgage payment on Jan. 1, 2019. For 2018, his itemized deductions — including points paid — total only $3,700. This is less than his standard deduction. Since his standard deduction is more, he can deduct his points over the life of the mortgage loan.
Can you write off points on a refinance?
You can also deduct discount points on both regular and cash-out refinances. There are exceptions, but points aren’t usually fully deductible in the year you pay for them. Rather, they typically have to be deducted in equal amounts over the life of the loan.
Can refinancing costs be tax-deductible?
Settlement fees and closing costs for refinancing your primary residence usually aren’t deductible.Jun 9, 2025
Are points on a home equity loan tax-deductible?
Discount points paid to secure a lower interest rate on your home equity loan may also be deductible.Mar 13, 2025
Can you deduct points paid at closing?
The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. The seller cannot deduct these fees as interest.