Deducting Points On Home Refinances

Deduction of Refinance Points

Any points that you pay in the refinancing of your abode are tax deductible over the length of the loan in question. The tax deduction is allowable lone if the abode is your primary home and the new mortgage replaces a former 1 and/or is used to better the residence. To the extent that money is taken out to pay off credit cards and non-residence costs, the points may not be used as a tax deduction.

Big Deductions By Refinancing Twice

If you refinanced your primary abode twice during 2004, you may be in for a very nice surprise. A important tax tax deduction can be created when you refinance twice in one year. If you refinance a mortgage, you accelerate the deductible amount of points from the first mortgage and may claim the points from the first mortgage all at once.

As an example, presume that I refinanced my home in January 2004 and paid $3,000 in points. Interest rates continued to drop through 2004 and I then decided to refinance again in August. Because I paid off the original loan with the refinance, I am able to accelerate the value of the points of the January loan.

So, what tax tax deductions have got I created for my 2004 filing period? Initially, I am going to subtract a percentage of the points off of my up-to-the-minute refinance. The tax deduction will amount to the sum amount of points paid divided by the sum calendar months of the loan. This volition not be a large deduction, but every small spot helps.

In improver to this amount, however, I will also subtract the full $3,000 in points that I paid on my January 2004 refinance! I am able to claim this tax tax deduction because I "accelerated" the deductibility of the points by paying of January mortgage with the August refinance.

By refinancing twice, I get a lower interest rate and a healthy tax deduction. Ah, the value of owning a home.