What Refinancing Fees Are Tax Deductible?


Many people wonder what refinancing fees are tax deductible, so they do not break the rules writing off costs that are not eligible for a discount. In general, many refinancing charges can be written off when you file your taxes, but there are rules you must follow when you list them.

There are higher restrictions on deductions you can make on your primary residence versus other properties that you may own a title for. Be sure to look up the rules and requirements for the specific type of mortgage holding you have, as these will vary from residence to residence. You must also recalculate your deductions each year to ensure that you are not writing off deductions multiple years in a row.

Deducting “Points”

In general, taxpayers are welcome to deduct the “points” that must be paid to obtain their home mortgage.

  1. Points associated with home purchase or major home improvements may be tax deductible
  2. Points on a refinanced loan will need to be deducted over the life of the loan
  3. When refinancing a mortgage a second time or paying off a loan early a taxpayer can deduct all points that were not yet paid

The points that you may deduct are directly associated with how much value is left in your loan. You may only deduct points based on how much you have already paid so you are not counting multiple deductions on your taxes.

Deductions for Your Principle Residence

When you are looking into your tax deductions for your principle residence there are requirements you must meet.

  • Only points paid to the lender of the loan may be considered for deduction
  • Any processing, underwriting or loan management fees are not deductible
  • Points on an existing mortgage may not be deducted immediately, but will be applied as you finance your new loan

Before you refinance you will need to work with your lender, to determine how your previous loan points will be associated with your new loan. This will help you determine which points are no longer tax deductible and which are still eligible to earn deductions.

 

Additional Rules

Tax deduction rules change when applied to second homes, vacation properties, rentals or business properties.

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– Points paid for substantial improvement to a second or vacation home are usually deductible throughout the life of the loan
– Refinancing related costs are determined to be tax deductible based on the taxing limits for the home
– Rental or business properties can list refinancing costs on line 18 of form 1040 for a deduction

In general, whether or not you can deduct refinancing fees will depend on what taxing limits are set for the property in question. You will need to determine if you can get a larger tax deduction by writing of your refinancing costs or by focusing on your improvement costs and other deductions. If you need specifics regarding what refinancing fees are tax deductible you will need to talk with your tax specialist, regarding the nature of your loan and the property in question.