Are Mortgage Points Tax Deductible?
Mortgage points may be fully tax-deductible the year they were paid, but a homeowner has to meet the right set of criteria.
Written by Melanie Mergen
Reviewed by Melanie Reiff
Table of Contents
- What are mortgage points?
- Can you deduct mortgage points from your taxes?
- How to deduct mortgage points from your taxes
- Finding affordable home insurance
- FAQ
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Your mortgage points may be fully tax-deductible the year you paid them if the right set of criteria is met. Otherwise, you may be able to deduct your mortgage points over the life of your loan.
Mortgage points may mean higher upfront costs when paying for a home, but the interest rate reduction that usually follows can mean bigger savings on monthly mortgage payments. When buying a home comes with so many expenses, it’s nice to know that some of them, like mortgage points, are tax-deductible.
Before you try to claim mortgage points on your taxes, however, there are certain requirements you should know about first. That’s why
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What are mortgage points?
Mortgage points are prepaid interest on your home loan in order to get a reduced interest rate. That reduced rate can mean a good amount of savings on a monthly payment, and potentially on the total interest paid over the life of the loan.
A single mortgage point is equal to 1% of your mortgage amount. On a $100,000 home loan, one mortgage point would be worth $1,000.
There are two types of mortgage points: origination points and discount points.
Origination points are basically what they sound like: fees paid to the lender for originating and processing the loan.
Discount points are the prepaid interest that can potentially be deducted from your taxes.
Can you deduct mortgage points from your taxes?
On your taxes, you have the option of filing for a standard deduction, which anyone can take, or itemizing your deductions. The one you should opt for is essentially the one that will end up saving you more money on your taxes.
- $12,550 for single and married filing separately
- $18,800 for heads of households
- $25,100 for married filing jointly
To be able to deduct discount mortgage points, you would need to itemize.
How to deduct mortgage points from your taxes
If you’re itemizing your tax deductions, you can claim mortgage points on Schedule A of Form 1040. You’ll usually get a 1098 form from your lender that will verify how much you paid in loan interest and mortgage points.
You’ll either be able to fully deduct the mortgage points the year you paid them, or you might have to deduct them over the life of the mortgage, depending on the circumstances.
If you’re not sure whether you qualify, you can check the requirements on the
IRS website
or consult an accountant.Deducting mortgage points during the year paid
If you meet these criteria, you might be able to fully deduct your mortgage points the year you paid them:
- The mortgage points were used for your primary residence
- Charging mortgage points is considered an established practice in your area, and not excessive compared to local standards
- Your settlement statement clearly identifies the number of mortgage points paid at closing
- The mortgage points are identified as a percentage of the mortgage amount
- Mortgage points were not used toward services or other fees, like property taxes or appraisal fees; these would typically be listed separately in your settlement statement
- The funds that paid your mortgage points were directly from you, not borrowed
Deducting mortgage points over the life of the loan
If you paid points on a mortgage refinance or for a second home, or if you otherwise don’t meet the previous criteria, you’ll have to deduct the mortgage points over the life of the home loan.
You may be able to deduct mortgage points over the life of the loan if the following apply to you:
- The loan is secured by a home
- You use cash accounting
- The loan term is 30 years or less; terms over 10 years must be comparable to others offered locally
- Either the loan amount is $250,000 or less, or:
- For loans of 15 years or less, no more than four points were paidFor loans of 16 years or more, no more than six points were paid
What if I pay off my mortgage early?
If you end up paying off your mortgage early, you may be able to deduct the remaining mortgage points during that tax year.
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FAQ
What are deductible mortgage points?
Deductible mortgage points are prepaid interest on a home loan that can be tax-deductible. Homebuyers usually pay mortgage points at closing in order to receive a reduced interest on their home loan.
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