In general, points are deductible in the year paid IF you use your loan to "buy or build your main home." There are several "tests" that your loan has to meet in order to be able to deduct the points in the year paid:
- 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.
The rules differ for a refinance. If you use part of the refinanced mortgage proceeds to improve your main home and you meet the requirements listed in IRS Topic Number 504 - Home Mortgage Points, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds.
If you refinanced for some other reason (better interest rate, cash out, etc.) you have to spread the points over the life of the loan.
To return to the mortgage interest section please follow these steps:
- Click on Federal > Deductions & Credits.
- In the Your Home section, click on the Start/Revisit box next to Mortgage Interest, Refinancing, and Insurance.
- If you haven't entered any mortgage information yet, just proceed through the screens, entering the requested information on your mortgage.
- If you've already entered information on your mortgage, you will see the Mortgage Deduction summary screen. Click Edit next to your lender.
- On the screen, Did you pay points in 2019 when you took out the loan? mark the first radio button If you took out the loan to purchase the home or refinanced to improve your main home.
- If you refinanced your mortgage and did not improve the property, mark the second radio button.
- On the next screen, enter the amount of points reported to you.
- Proceed through the screens, entering the requested information.
For more information, see IRS Publication 936 - Home Mortgage Interest Deduction
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