The points you pay on a mortgage are deductible the year you make the purchase. You can deduct any points you paid if you meet the following criteria:
- The loan is secured by your primary residence and the loan was used to buy, improve or build the home;
- The points are computed as a percentage of the loan principal;
- The points are clearly delineated on the buyer’s settlement statement; and
- You put cash into your home purchase in an amount at least equal to the points you were charged.
You may also deduct points that a seller paid for you at closing. When a seller pays points for the buyer (or in other words, buys the mortgage rate down) the buyer gets a lower mortgage rate and can claim the point’s deduction on their return.
Although you may deduct points paid on an original mortgage the year in which they are paid, you also have the option to deduct them ratably over the life of the loan. Keep this in mind if you don’t have enough deductions to fully utilize itemizing your points all in one year.
The following white paper outlines a series of tax laws in regards to homeownership: http://www.dh-cpa.com/client_media/files/pdf/2015RefNL_TaxTipsHomeowner.pdf
Need help analyzing what tax breaks you may be eligible for? Davis and Hodgdon Associates CPAs has been assiting nonprofits, individuals and businesses with tax and accounting services in the Burlington Vermont Metro area for more than 20 years. If you have any questions or concerns please feel free to call 802.878.1963 or email [email protected].