Deducting Mortgage Points on Your Taxes: What You Need to Know When you’re buying a home, you may be offered the option to pay “points” to lower your mortgage rate. But did you know that you can also deduct those points on your taxes? In this blog post, we’ll explore what mortgage points are, and how you can deduct them on your taxes. Verify my mortgage eligibility (Oct 3rd, 2023) What are Mortgage Points? Mortgage points, also known as discount points, are fees that you pay to your lender at closing to lower your mortgage rate. One point is equal to 1% of the loan amount, so if you’re borrowing $200,000, one point would cost $2,000. The more points you pay, the lower your mortgage rate will be. When Can You Deduct Mortgage Points? In order to deduct mortgage points on your taxes, the points must be “properly allocable” to the loan. This means that the points must be used to buy or build your primary residence, and that they must be paid in the same year as the loan. Additionally, the points must be calculated as a percentage of the loan amount, and they must be disclosed on the settlement statement. How Do You Deduct Mortgage Points? When you file your taxes, you’ll need to fill out Form 1098, Mortgage Interest Statement, which you’ll receive from your lender. This form will show the total amount of mortgage interest you paid during the year, as well as any points you paid. You’ll then need to enter that information on Schedule A, Itemized Deductions. Verify my mortgage eligibility (Oct 3rd, 2023) Note that, you can either deduct the points you paid in the year you paid them or amortize them over the life of the loan, which means you can deduct a portion of the points each year. How much you can deduct depends on your income level, and whether you itemize or take the standard deduction. If you itemize, the mortgage points will be part of your total itemized deductions. However, these deductions are subject to limits and can be limited or phased out if your income exceeds certain thresholds. In conclusion, Mortgage points, also known as discount points, are fees that you pay to your lender at closing to lower your mortgage rate. If these points meet certain criteria, they may be tax-deductible. However, it’s always a good idea to consult with a tax professional to understand the tax implications of paying points, and whether it makes sense for you. Show me today's rates (Oct 3rd, 2023) GTG Financial, Inc Click to Call or Text: (707) 546-0440 This entry has 0 replies Comments are closed.