Wednesday, October 17, 2007

Refinancing Mortgage Loan Costs - Are They Tax Deductible?

Not only are your mortgage interest payments tax deductible, but so are your refinancing costs. Points can be deducted over the life of your loan. However, there are some limitations with this program.

Deducting Refinanced Points

When you originally take out a mortgage, you can subtract the points paid the twelvemonth you take out the home loan. With refinancing, you have got to subtract the points over the course of study of the loan.

So return the point amount paid and watershed by the number of payments for the full loan. A 30 twelvemonth loan would have got 360 payments. For each payment you do that year, you can subtract that amount off your taxes.

If you cash out portion of your equity, you can also subtract the points in full that twelvemonth in certain cases. For example, home improvements ran into the IRS’s requirements.

When you pay off your refinanced mortgage early, you can subtract the remaining point amount from that year’s taxes.

Restrictions to Be Aware Of When Deducting Refinance Costs

As with any Internal Revenue Service program, there are limitations with deducting refinancing costs. For example, depending on your income level, there are limitations on how much you can deduct.

Closing costs, such as as attorney fees, notary public fees, and PMI, are also excluded. When the marketer pays the points, they cannot be deducted either.

Paying Points on Refinance Isn’t Always Best

Points are a typical characteristic of today’s mortgages, but don’t program on paying respective points just for the tax compose off.

Points are usually paid to additional reduce interest rates on a mortgage. If you are planning to maintain the loan for respective years, this tin save you thousands and may be deserving paying the upfront cost. However, if you be after to travel in a few old age or refinance again, you won’t see a addition from paying the points.

The best thing to make is happen the lowest costing loan first. Ask for APR quotes from respective lenders to happen the optimal rates and fees. That measure alone can salvage you thousands. Next, make up one's mind if you can come up out ahead by paying further points. Remember that the tax tax deduction will only salvage you pennies on the dollar.


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