The term points is used to describe certain charges paid by a borrower to obtain a home mortgage. Points may be deductible as home mortgage interest.

Points are fully deductible in the year they are paid, if they meet all the following requirements:

1.They must be clearly shown on your settlement statement.

2.They must be computed as a percentage of the mortgage amount borrowed.

3.Paying points must be an established business practice in your area, and the points paid must not be more than the amount generally charged in that area.

4.The points must be paid to buy or build your main home and must be secured by your main home.

5.The funds you provided at or before closing plus any points the seller paid, were at least as much as the points charged. You can not have borrowed the funds from your lender or mortgage broker, and

6.You use the cash method of accounting.

Points that do not meet all these tests may be deductible over the life of the loan. 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 for refinancing generally can only be deducted over the term of the new mortgage. Points paid by the seller of a home cannot be deducted as interest on the sellers return but can be claimed as a selling expense which will reduce the amount realized. Points you pay on loans secured by your second home, can be deducted only over the life of the loan. For more information on points, refer to Publication 936, Home Mortgage Interest Deduction.

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