|Tax Topic #504
||2008 Tax Year
Topic 504 - Home Mortgage Points
The term "points" is used to describe certain charges paid to obtain a
home mortgage. Points may be deductible as home mortgage interest, if you
itemize deductions on Form 1040, Schedule A (PDF).
If you can deduct all of the interest on your mortgages, you may be able to
deduct all of the points paid on the mortgage. For more information on deducting
interest, refer to Topic 505.
You can deduct the points in full in the year they are paid, if all the
following requirements are met:
- Your loan is secured by your main home (your main home is the one you
live in most of the time).
- Paying points is an established business practice in your area.
- The points paid were not more than the amount generally charged in that
- You use the cash method of accounting. This means you report income in
the year you receive it and deduct expenses in the year you pay them.
- The points were not paid for items that usually are separately stated
on the settlement sheet such as appraisal fees, inspection fees, title fees,
attorney fees, or property taxes.
- The funds you provided at or before closing, plus any points the seller
paid, were at least as much as the points charged. You cannot have borrowed
the funds from your lender or mortgage broker in order to pay the points.
- You use your loan to buy or build your main home.
- The points were computed as a percentage of the principal amount of the
- The amount is clearly shown on your settlement statement.
Points that do not meet these requirements may be deductible over the life
of the loan. Points paid for refinancing generally can only be deducted over
the life of the new mortgage. However, if you use part of the refinanced mortgage
proceeds to improve your main home and you meet the first six requirements
stated previously, you can fully deduct the part of the points related to
the improvement in the year you paid them with your own funds. Points charged
for specific services, such as preparation costs for a mortgage note, appraisal
fees or notary fees are not interest and cannot be deducted. Points paid by
the seller of a home cannot be deducted as interest on the seller's return,
but they are a selling expense which will reduce the amount of gain realized.
Points paid by the seller may be deducted by the buyer provided the buyer
subtracts the amount from the basis, or cost, of the residence. Points you
pay on loans secured by your second home can be deducted only over the life
of the loan.
You may be subject to a limit on some of your itemized deductions, including
points; for more information on the adjusted gross income limitations please
refer to the Form 1040 Instructions.
For more information on points, refer to Publication 936, Home
Mortgage Interest Deduction.
Page Last Reviewed or Updated: December 22, 2008
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