Deducting Points On Home Refinances

Deduction of Refinance Points

Any points that you pay in the refinancing of your residence are tax deductible over the length of the loan in question. The deduction is allowable only if the residence is your primary home and the new mortgage replaces a previous one and/or is used to improve the residence. To the extent that money is taken out to pay off credit cards and non-residence costs, the points may not be used as a tax deduction.

Big Deductions By Refinancing Twice

If you refinanced your primary residence twice during 2004, you may be in for a very nice surprise. A significant tax deduction can be created when you refinance twice in one year. If you refinance a mortgage, you accelerate the deductible amount of points from the first mortgage and may claim the points from the first mortgage all at once.

As an example, assume that I refinanced my home in January 2004 and paid $3,000 in points. Interest rates continued to drop through 2004 and I then decided to refinance again in August. Because I paid off the original loan with the refinance, I am able to accelerate the value of the points of the January loan.

So, what tax deductions have I created for my 2004 filing period? Initially, I am going to deduct a percentage of the points off of my latest refinance. The deduction will amount to the total amount of points paid divided by the total months of the loan. This will not be a big deduction, but every little bit helps.

In addition to this amount, however, I will also deduct the full $3,000 in points that I paid on my January 2004 refinance! I am able to claim this deduction because I "accelerated" the deductibility of the points by paying of January mortgage with the August refinance.

By refinancing twice, I get a lower interest rate and a healthy tax deduction. Ah, the value of owning a home.

Richard Chapo is CEO of http://www.businesstaxrecovery.com - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review.

In The News:


Marriage or Divorce ? Check Your Social Security Number

Newlyweds and the recently divorced should make sure that names... Read More

The Internet Tax Man Cometh

Q: I was contacted by the city tax collector to... Read More

Tax Trap #1 -- Waiting to Incorporate: What A Difference A Date Can Make

NOTE: This is the first in a series of 5... Read More

The Tax Man Cometh... To Search

You're at your office, or home, and the doorbell rings... Read More

How to Check the Status of Your Tax Refund Online

So, you were pleasantly surprised to learn that you are... Read More

What You Need To Know About Taxes If You?re Getting Married

It may not be high on the list of wedding... Read More

Tax Strategy - Let Washington Pay for Your Corvette, Porsche, or Air Plane

Deducting Your Auto ExpensesAuto deductions are a very complex topic.... Read More

Getting A Second Extension to File 2004 Taxes

Millions of people file tax return extensions every year. The... Read More

Tax Trap #2 -- Double Taxation: Isnt Once Enough?

Have you been thinking about incorporating your small business or... Read More

Navigating The Internet Sales Tax Laws

QUESTION: I have been contacted by my local city... Read More

Insider Guides to IRS Audits!

Ever wish that, as a business owner, you knew exactly... Read More

How to Donate Your Car to Charity and Get Tax Deduction

Donating your used car to charity is a win-win situation;... Read More

Small Businesses Filing Amended Federal Tax Returns to Recover Money

Small Businesses Filing Amended Federal Tax Returns to... Read More

Electronic Commerce Taxation and Pakistan

Assume a buyer in Pakistan downloads software from the Internet... Read More

History Of The Federal Income Tax

The powers of Congress, and the limitations set upon those... Read More

Are You Overpaying Taxes If You Use Tax Preparation Software?

For many business owners the answer to this quandary is... Read More

Small Business Tax Issues for Self-Employed Individuals

The United States is a nation of entrepreneurs. There are... Read More

Highlights of IRS List of 2005 Tax Scams

Each year, the IRS lists various scams taxpayers get caught... Read More

Gambling Income and Expenses - Tax Requirements

Hit a big one? With more and more gambling establishments,... Read More

How To Get An Instant Pay Raise

As a gentleman was leaving my class recently, he wanted... Read More

IRS Statute of Limitations: Do Taxes Ever Expire?

Many Americans believe that an IRS debt is a debt... Read More

Tax Reform, My Way

We need real tax reform and we need it now.... Read More

Need a Copy of Your Tax Return Information?

Taxpayers have two easy and convenient options for getting copies... Read More

Uncle Sam is Ready...Are You? Organizing Tips for Tax Time

Anyone who is closely related to an accountant knows that... Read More

Anticipating Your IRS Refund Can Cost You Plenty

While accountants are reaching for aspirin, millions of Americans are... Read More