Washington (Oct. 30, 2002) -- The Internal Revenue Service reminded the thousands of people refinancing their home mortgages that they may be able to deduct some costs associated with their loans.
Points paid to obtain an original home mortgage are generally fully deductible in the year paid. However, points paid solely to refinance a home mortgage usually must be deducted over the life of the loan.
For a refinanced mortgage, the interest deduction for points is determined by dividing the points paid by the number of payments to be made over the life of the loan. Taxpayers may deduct points only for those payments made in the tax year. For example, a homeowner who paid $2,000 in points and who would make 360 payments on a 30-year mortgage could deduct $5.56 per monthly payment, or a total of $66.72 if he or she made 12 payments in one year.
However, if part of the refinanced mortgage money was used to finance improvements to the home, the points associated with the home improvements may be fully deductible in the year the points were paid. Also, if a homeowner is refinancing a mortgage for a second time, the balance of points paid for the first refinanced mortgage may be fully deductible at pay off.
-- Electronic Accountant Newswire staff
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access