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Are Points Tax Deductible?

Points are generally not fully tax deductible in the tax year paid but must be spread over the life of the loan or mortgage. There is an exception. Points are fully tax deductible in the year you pay them only if all of the following conditions apply.

  • Your loan is secured by your main home
  • Paying points is an established business practice in the area where the loan was made
  • The points paid were not more than the points generally charged in that area
  • You use the cash method of accounting
  • The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and 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 use your loan to buy or build your main home
  • The points were computed as a percentage of the principal amount of the mortgage
  • the amount is clearly shown on the settlement statement as points charged for the mortgage. The points may be shown as paid from either your or the sellers funds

If you meet all of the tests above, then you can choose to fully deduct the points in the year paid or deduct them over the life of the loan or mortgage.



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