Tax Time and Home Mortgage Points

Filed under: Market Comentary

tax timeLike it or not, it’s tax time again. And, in order to make sure things go as planned, if you purchased or refinanced a home in 2013 you should get a copy of your HUD to your CPA.¬† (If you closed your loan with me I can help you with this if needed.)

One of the itemized deductions when it comes to taxes is Home Mortgage Points. The term “points” is used to describe¬†certain charges paid to obtain a home mortgage. Points are prepaid interest and might possibly be deductible as home mortgage insurance, if you are going to itemize deductions on your Form 1040, Schedule A.

If you are able to deduct all of the interest on your mortgage, you might be able to deduct all of the points paid on the mortgage. However, if your acquisition debt exceeds $1 million or your home equity debt exceeds $100,000, you cannot deduct all the interest on your mortgage and you cannot deduct all your points.

According to the IRS, you can deduct the points in full in the year they are paid, if all of the following requirements are met:

  • Your loan is secured by your main home
  • Paying points is an established business practice in your area
  • The points paid were not more than the amount generally charged in that area
  • You use the cash method of accounting
  • The points were not paid for items that usually are separately stated on the settlement sheet such as appraisal fees, inspection fees, title fees, attorney fees, or 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 as points on your settlement statement

It is also good to know that you can also fully deduct, in the year paid, points paid on a loan to improve your main home, if the above tests one-six are met. In addition, points that do not meet these requirements ay be deductible over the life of the loan.

Finally, points paid for refinancing generally can only be deducted over the life of the new mortgage.

Remember to get all of your home tax information to your CPA as soon as you can, and if you have any questions, please feel free to give me a call.

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