The last time I converted a property from personal to rental use was back in 2003. So it's been awhile and quite a few of the tax laws have changed since that time.
Your original loan was a standard home mortgage, whereas the refi was an investment property mortgage - assuming you were honest with the lender of course.
For the original loan, your points were fully deductible in the tax year you obtained the loan, as a SCH A itemized deduction. Per IRS Tax Topic 504 at https://www.irs.gov/taxtopics/tc504 :
You can deduct the points in full in the year you pay them, if you meet all the following requirements:
- Your main home secures your loan (your main home is the one you live in most of the time).
- Paying points is an established business practice in the area where the loan was made.
- The points paid weren't more than the amount generally charged in that area.
- 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.
- 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.
- 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.
- You use your loan to buy or build your main home.
- The points were computed as a percentage of the principal amount of the mortgage, and
- The amount shows clearly as points on your settlement statement.
If you satisfied the above 9 items when you took out the original loan, the points were fully deductible in the tax year you got that loan. If you do not meet all the above 9 items, then your points "may" have been deductible over the life of the loan. So if you don't meet all 9 items above, you'll have to check publication 936 at https://www.irs.gov/pub/irs-pdf/p936.pdf to confirm you qualified to deduct them ratably.
While I can't find anything addressing the issue directly in IRS Pub 936 at https://www.irs.gov/pub/irs-pdf/p936.pdf, my understanding (which I am not betting my first born on) is that if you qualified, but did not claim/deduct them in the tax year the loan originated, you can't deduct them now either in full or ratably. If my understanding is wrong, I'm confident someone else will jump into this thread and point us both to the relevant publication or statute.
