Question:

Is mortgage prepayment penalty tax deductible?

Answer:

Yes, home mortgage prepayment penalty is fully tax deductible if you paid it on a refinance, but didn't roll it into the new loan amount. If you fully paid down the mortgage, the prepayment penalty fee can be written off in full, as well.

However, if you made the refinance and you paid less out of pocket closing costs to take the new mortgage compared to what you paid in prepayment penalty charges, you will be allowed to deduct it over the life of the new loan.

Deducting Mortgage Prepayment Penalty Charges

If you paid $4000 prepay penalty fee, you paid less than $4000 in closing costs out of pocket, and your new loan is spread over 20 years, you are allowed to deduct $200 per year.

If you refinance again, any mortgage points you paid, and any prepayment penalty charges can be written off in full.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
Was this Mortgage QnA helpful?
Not at all
  • Currently 2.9/5 Stars
  • 1
  • 2
  • 3
  • 4
  • 5
Definitely
Add to this Answer

Mortgage QnA is not a common forum. We have special rules:

  • Post no questions here. To ask a question, click the Ask a Question link
  • We will not publish answers that include any form of advertising
  • Add your answer only if it will contrubute to the quality of this Mortgage QnA and help future readers
If you have trouble reading the code, click on the code itself to generate a new random code. Verification Code Above:
Bookmark and share this QnA: