Tax Breaks Refinancing – Are There Tax Breaks When Refiancing My Home?

There are many reasons for refinancing your home mortgage – with tax breaks being one of them. Although refinancing your mortgage for the purpose of getting tax breaks from the IRS may be a bit extreme. Rather, you can think about tax breaks from refinancing a perk rather than a purpose.

When you buy a home you can deduct points and some of your closing costs in the tax year that you buy the home. You can even deduct the money that the seller of the home paid on your behalf, if applicable, for points.

Now, once you own your home and you refinance your mortgage you can get some additional tax breaks associated with any discount points you pay – but the deduction must be spread out over the life of your loan. What this means is that if you paid $3000 for example for discount points for a 30 year mortgage then you must divide the $3000 by 30 years to give you an annual deduction of $100 per year.

In the case that you refinance again say several years later because interest rates are low you will be eligible to deduct the remainder of the discount points your paid on the original mortgage in the year that you refinance provided you refinance with a new lender.

In the case of a refinancing with a new lender you will still be able to deduct any discount points from the new mortgage. But again, you must divide the points over the term of your loan to get your annual deduction. If you refinance with the same lender you will only be able to keep filing the same annualized deduction from your original mortgage along with the new annualized deduction from your new mortgage.

As with all our news items – this article is for informational purposes only. To learn exactly how these tax break suggestions apply to you please speak directly to a tax professional.