Yes, mortgage points are generally tax deductible in the year you buy them, provided they meet IRS requirements. The points must be directly related to the loan, computed as a percentage of the loan amount, and paid from your own funds. Lender credits are also deductible but treated as negative points. Always consult a tax professional for your specific situation.
IRS Requirements for Deducting Points
The IRS allows you to deduct points if they meet these tests: the loan is for your primary residence, paying points is an established business practice in your area, the points are computed as a percentage of the loan amount, the points are shown on your Closing Disclosure, and you actually paid them from your own funds. Points paid by the seller are also deductible but treated as paid by the buyer.
How to Deduct Points
Deduct points on Schedule A (Itemized Deductions) of your tax return. You deduct the full amount in the year you purchase the home. If you refinance, points must be deducted over the life of the loan (amortized). When you refinance again or sell, any undeducted points can be deducted in full that year.
Documentation Needed
Keep your Closing Disclosure (CD) which shows the points paid. Your lender will also send Form 1098 showing mortgage interest and points paid. The IRS uses Form 1098 to verify your deduction. If points are not shown on Form 1098, you can still deduct them by providing your CD and a written statement from your lender.
Lender Credits and Taxes
Lender credits are treated as negative points. If you accept a higher rate and receive lender credits, the credit is reported as negative points on your tax return. This effectively reduces your deductible mortgage interest. Your lender will report this on Form 1098.
Year of Deduction
Points paid on a purchase mortgage are deductible in the year you close. Points paid on a refinance must be amortized over the life of the loan. However, if you refinance again, you can deduct the remaining unamortized points in the year of the new refinance.
