Question:

How do I manage interest and mortgage points tax deduction when I have bad credit?

Answer:

If you have bad credit you are probably stuck with a higher rate loan and are concerned with interest and mortgage points tax deduction.

Tax deductibility on subprime home loans interest and points is pretty much the same as for prime loans. That is, the interest and points you pay is usually fully tax deductible on first and second homes, unless you own a multimillion residence.

On the whole, full interest tax deduction is available for a home purchase for up to $1.1 M combined first and second mortgage interest. Mortgage points are deductible in full for a purchase - they only have to be itemized on your tax return along with your mortgage.

However, on a refinance deducting mortgage points is a little bit different.

  • You can deduct a prorated portion of the points over the months of the loan, unless you refinanced twice in the same year (in which case the mortgage points from the first refinance will be fully tax deductible);
  • Or you refinanced for home improvement purposes, in which case you should keep receipts to prove it, and use professional tax accounting services to do this for you.

When consolidating debt mortgage interest and points tax deductibility comes handy.

If you have a bad credit loan, and a lot of high interest non tax deductible debt, it pays out greatly to work with a real good debt consolidation company. They could negotiate and reduce your debt with creditors, and transfer all your obligations, secured and non-secured, to a lower rate mortgage loan. Thus, you will no longer have to pay non tax deductible high interest consumer debt, and at the same time get tax deduction for a debt consolidating mortgage refinance transaction. What is important here is that you choose the right professionals to work with.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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