Home Mortgage Points
The term "points" is used to describe certain charges paid to obtain a home mortgage.
Points may be deductible as home mortgage interest, if you itemize deductions on
Form 1040, Schedule AA (PDF). If you
can deduct all of the interest on your mortgages, you may be able to deduct all
of the points paid on the mortgage. For information on deducting interest, refer
You can deduct the points in full in the year they are paid, if all the following
requirements are met:
- Your loan is secured by your main home (your main home is the one you live in most
of the time).
- Paying points is an established business practice in your area.
- The points paid were not more than the amount generally charged in that area.
- You use the cash method of accounting. This means you report income in the year
you receive it and deduct expenses in the year you pay them.
- The points were not paid for items that usually are separately stated on the settlement
sheet such as appraisal fees, inspection fees, title fees, attorney fees, or property
- You provided funds at or before closing, that were at least as much as the points
charged, not counting points paid by the seller. You cannot have borrowed the funds
from your lender or mortgage broker in order to pay the points.
- You use your loan to buy or build your main home.
- The points were computed as a percentage of the principal amount of the mortgage,
- The amount is clearly shown on your settlement statement.
Points that do not meet these requirements may be deductible over the life of the
loan. Points paid for refinancing generally can only be deducted over the life of
the new mortgage. However, if you use part of the refinanced mortgage proceeds to
improve your main home and you meet the first six requirements stated previously,
you can fully deduct the part of the points related to the improvement in the year
you paid them with your own funds. Points charged for specific services, such as
preparation costs for a mortgage note, appraisal fees or notary fees are not interest
and cannot be deducted. Points paid by the seller of a home cannot be deducted as
interest on the seller's return, they are a selling expense which will reduce the
amount of gain realized. Points paid by the seller may be deducted by the buyer
provided the buyer subtracts the amount from the basis, or cost, of the residence.
Points you pay on loans secured by your second home, can be deducted only over the
life of the loan. You may be subject to a limit on some of your itemized deductions,
including points, for more information on the adjusted gross income limitations
please refer to the Form 1040 Instructions.
For more information on points, refer to
Publication 936, Home Mortgage Interest Deduction.