Form 1098 Mortgage / Refinance

Your lender will send you a Form 1098. Look in Box 2 to find the points paid for your loan. If you don't get a Form 1098, look on the settlement disclosure you received at closing. The points will show up on that form in the sections detailing your costs or the sellers' costs, depending on who paid the points.

Points are allowed to be deducted ratably over the life of the loan or in the year that they were paid. You can deduct the points in full in the year you pay them, if you meet all the following requirements:

1. Your main home secures your loan (your main home is the one you live in most of the time).
2. Paying points is an established business practice in the area where the loan was made.
3. The points paid weren't more than the amount generally charged in that area.
4. You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them.
5. The points paid weren't for items that are usually listed separately on the settlement sheet such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes.
6. The funds you provided at or before closing, including any points the seller paid, were at least as much as the points charged. You can't have borrowed the funds from your lender or mortgage broker in order to pay the points.
7. You use your loan to buy or build your main home.
8. The points were computed as a percentage of the principal amount of the mortgage, and
9. The amount shows clearly as points on your settlement statement.

You can also fully deduct (in the year paid) points paid on a loan to improve your main home if you meet tests one through six above.

Points that don't meet these requirements may be deducted ratably over the life of the loan. You can deduct points paid for refinancing generally only over the life of the new mortgage. However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first six requirements stated above, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. You can deduct the rest of the points over the life of the loan.

IRS Tax Topic 504 - Home Mortgage Points

"Points" are money you pay up front to buy down your interest rate.  A point is 1% of the mortgage amount.  For example, you might be offered 4% APR with no points, or 3.75% APR with 2 points.  You pay extra closing costs up front to get a lower interest rate over time.  Points are just pre-paid mortgage interest by a different name. 

Not all mortgages include points.  They would be listed on your loan commitment and closing statement if you paid them.  For a new purchase, you can often deduct the points all at once in the year you close, if you meet the conditions listed.  For a new purchase if you don't meet the conditions listed, or for any refinance you must spread the points out over the life of the loan (1/360th the amount per month for a 30 year loan, for example.)

Points may be listed on your 1098 in box 6.  However, if your loan was transferred to a finance company that issued the 1098, they probably won't include the points since the points were paid to the closing bank and not the finance company that is ultimately handling the mortgage.  You can still deduct them if you can prove you paid them on your closing statement. 

Only you know if you paid points.