Question:

Are home loan financing points tax deductible?

Answer:

Full tax deduction usually applies to the home loan financing points you bought in the following cases:

  • You paid mortgage financing points when purchasing real estate to use as primary residence. If you took a home rehab loan, home loan financing points are again fully tax deductible for the current year.;
  • If you paid $4000 in discount points, to deduct them in full you should have paid at least $4000 in other closing costs. If you only paid $3000, you can deduct only $3000 of your home loan financing points for the same year. The remaining $1000 will be deducted throughout the life of the loan, or until you refinance;
  • If seller paid the mortgage financing points, they are still tax deductible to the borrower.

Home loan financing points include discount and origination only to be deductible.

Forget about tax deduction if your lender included other loan items cost in the discount and origination points. No document preparation, loan processing, etc fees can be included in the discount and origination points for the loan, if you want the mortgage financing points to be tax deductible.

The only exception is prepayment penalties. If you had to pay a percentage of the loan for the right to prepay the balance or refinance it, this is paid home loan financing points fully tax deductible to the borrower.

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