Did you refinance a home mortgage last year to take advantage of low interest rates? Well, if you paid points on the loan, you need to know how the tax law treats that cost of refinancing.
Refinancing points are not treated the same way points paid when purchasing a home. When a purchase of a principal residence is involved, points are fully deductible in the year paid. Because each point equals 1% of the loan amount, paying two points on a $250,000 mortgage costs $5,000 and translates to an immediate $5,000 deduction.
When you refinance, though, the rules aren't so generous. Instead, you deduct the points over the life of the loan. That means 1/30th a year in the case of a 30-year loan -- just $166 a year in the case of that $250,000, two-point deal. (And, of course, you don't get a full year's deduction for the first year, unless you happened to settle on New Year's Day, which means you have to prorate the write-off.)
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But what happens if the loan you refinanced in 2007 was one you had refinanced earlier? Well, the general rule is that any points not-yet-deducted on the first refinancing can be deducted in the year the loan is paid off with the second refinancing. That's a real money saver for serial refinancers -- and I know there are a lot of you out there.
But notice I said that's the "general rule." There's an exception that might deny you that big write-off.
The IRS says that if you refinanced the loan with the same lender -- as homeowners often do to hold down costs -- then the points from the first refinancing are not suddenly deductible. Instead they are to be added to the points charged on the second refinancing and deducted over the life of that loan.
Why the discrimination against homeowners who refinance with the same lender? I don't know. Maybe you should ask your representatives in Congress who make the law.
-
The Most Popular Apps for Retirement Planning in 2025A J.D. Power survey ranks retirement planning apps based on customer service and satisfaction. Does your financial app make the cut?
-
Don't Disinherit Your Grandchildren: The Hidden Risks of Retirement Account Beneficiary FormsStandard retirement account beneficiary forms may not be flexible enough to ensure your money passes to family members according to your wishes. Naming a trust as the contingent beneficiary can help avoid these issues. Here's how.
-
Cruise Lines Sue to Block Hawaii’s New Climate Tourism TaxState Tax Your vacation to the Aloha State could come at a higher price tag next year. Here’s why.
-
21 Last-Minute Gifts for Grandparents Day 2025 to Give Right NowHoliday Tips Last-minute gifting is never easy. But here are some ideas to celebrate Grandparents Day.
-
The Fall Garden Tax? What to Plant and How to PrepareTax Tips Fall gardening could increase your taxes this season. Here’s what to know while planting in 2025.
-
Texas Sales Tax-Free Weekend 2025Tax Holiday Here's what you needed to know about the Texas sales tax holiday.
-
Money for Your Kids? Three Ways Trump's ‘Big Beautiful Bill’ Impacts Your Child's FinancesTax Tips The Trump tax bill could help your child with future education and homebuying costs. Here’s how.
-
Alabama Tax-Free Weekend 2025Tax Holiday Here’s everything you need to know about the 2025 back-to-school Alabama sales tax holiday.
-
Key 2025 Tax Changes for Parents in Trump's MegabillTax Changes Are you a parent? The so-called ‘One Big Beautiful Bill’ (OBBB) impacts several key tax incentives that can affect your family this year and beyond.
-
‘I Play Pickleball in Retirement.’ Is It HSA-Eligible?Retirement Tax Staying active after you retire may be easier with these HSA expenses. But there’s a big catch.
