Free Tax Course

Mortgage Points Tax Deduction 

What are points?

Points are certain up front charges paid by a borrower and/or a seller to a lender to secure a loan or a mortgage. Points are also referred to as:

  • loan origination fees (including VA and FHA loan origination fees),
  • maximum loan charges
  • premium charges loan discount
  • discount points

What are points equivalent to?

Each point paid is equivalent to 1% of the mortgage amount financed.

What mortgage points are tax deductible?

Points specifically paid for the use of money are considered prepaid interest. You generally cannot deduct the full amount of mortgage points in the year they are paid. This interest must be spread over the life of the mortgage. (Any fees charged for services involving the loan preparation and execution are not deductible as interest.)

Points paid by the seller

Points paid by the seller are deductible as interest by the buyer. This reduces the buyer's basis in the property. Points paid to refinance a mortgage are generally not deductible in full the year you pay them (unless they are paid in connection with home improvements). They can be deducted over the life of the mortgage. Points paid in excess of those generally charged in the area can also be deducted over the life of the mortgage.

Loan points, which line to put on tax return?

If points are repot on Form 1098, enter them online 10 of Schedule A. As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. If points are not reported on the form 1098 enter them on line 12 of Schedule A.

Example of points and how to deduct on a tax return

A couple bought a house that cost $200,000 in the tax year. They paid 2 points to the lender and the seller paid 1 point to the lender. The couple can deduct $200,000 x 2% = $4,000 + $200,000 x 1% = $2,000 or $6,000 on their tax return. The basis of their home is reduced by $2,000 to $198,000.



Looking for more IRS Deductions?