SPENDING WISELY
BEST VALUES IN CARS, TECH, TRAVEL & ENTERTAINMENT
- Stock Watch - How Investors Can Bet on Rising Natural-Gas Prices
- Fund Watch - Going Abroad for Dividends
- Starting Out - Four Financial Rookie Mistakes
- Value Added - Buy Stocks Now -- and Hold Them
- Cash in Hand - Treasuries Are Still Worth Buying
- Money Smart Kids - Best Age for a Cell Phone
- Drive Time - The Payback on Diesels
- On the Job - Casting Your Lot With China
- Tax Tips - Tax Breaks for Heroes
- More

With interest rates falling, I am looking into refinancing my mortgage. What portion of the refinancing fees is tax deductible?
The rules for deducting your points are different for refinancing than they are for buying.
When you buy your principal residence, you can deduct all of the points you pay for the loan in the year you pay them. For example, if you paid two points (each point equals 1% of the loan amount) for a $100,000 mortgage, you can deduct $2,000 in the year you buy the house.
But when you refinance, the points you pay for the new mortgage must generally be deducted over the life of the loan. Using the above example, your deduction would be $67 ($2,000/30) per year for 30 years.
There is one exception: If you use some of the new loan for home improvements, you can deduct a proportional amount of points in the year you refinance. For example, say you refinance your $100,000 mortgage for $120,000 and pay two points (or $2,400). You then spend the extra $20,000 to build a sun room onto your house. Since one-sixth of the loan paid for home improvements, you can deduct one-sixth of the points (or $400) in the year you refinance. You would then deduct 1/30 of the remaining $2,000 in subsequent tax years.
If you sell the house before the term of the new mortgage is up, you can deduct whatever's left that tax year.
Also, some lenders may charge a penalty for paying off your original mortgage early. This fee is deductible the year you refinance.
For more information about refinancing your mortgage, see Refinance the Right Way, or IRS Publication 936 Home Mortgage Interest Deduction.



BUZZ UP
DIGG THIS
Reprint Article











