Question:

Are mortgage discount points tax deductible?

Answer:

Yes, they are.

Mortgage discount points are tax deductible - especially when they are paid on a home loan in a real estate purchase transaction. Most lenders come up with rates with and without discount points. The more discount points you pay, the lower the rate will be. Buying 1 mortgage discount point may bring your rate down by 0.125% to 0.375% depending on the type and term of the loan.

When are mortgage discount points tax deductible?

If the borrower paid for mortgage discount points they will be tax deductible only if no other loan costs were included in this amount. Points paid for the origination and lender/broker fees can also be tax deductible but if they included any other loan costs, such as underwriting fee, document processing fee, etc. those points will not be tax deductible in this case.

You will need professional advice from a tax specialist to explain how mortgage discount points will be tax deductible in your case, as other rules also apply. For example, what you paid to buy points usually cannot exceed the other closing costs of the loan to be deductible. Also, different tax rules apply if you are buying a rental or a second home, compared to buying a primary residence.

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