Amortize Points refinance with same lender

[GoneSailin74]

I have a loan that was refinanced with a new lender in 2020, and $4000 worth of points were paid. I refinanced with the same lender in 2022 and $5000 in points were paid. How do I keep track of the $4000 worth of points that were amortized over 30 years in conjunction with the refinanced loan? My understanding is I can't deduct them all in Tax Year 2022 because it was a refinance with the same lender.

[PatriciaV]

While you generally may not deduct in full points for a refinance, if you use part of the proceeds to improve your main home and meet other tests, you can fully deduct the part of the points relating to the funds used for the improvement. See IRS Pub 936 under Deduction Allowed in Year Paid.

If you can't deduct the refinance points in the first year, enter the amount with the new mortgage and TurboTax will track the amortization of points on the Home Mortgage Interest Worksheet, Line 10c (one worksheet for each mortgage). Total points for the year are the sum of all amortization costs for all eligible mortgages, as shown on the Deductible Home Mortgage Worksheet, Line 25.

[GoneSailin74]

The problem isn’t a lack of knowledge on my end, it’s that TT isn’t handling the deductions correctly. 

[DianeW777]

If a mortgage loan is refinanced with the same lender, any remaining points must be added to the points on the new loan, then divided by the loan term to determine the monthly amount you can deduct.  If there is a full year of mortgage payments then it would be 12 months deduction as points. For the first year it would be the number of months remaining in the year beginning with the first month payments begin and ending in December of that year.  

You should add the points together that remain from the old loan with the points paid in 2022 for the same lender. When you reach the screen asking for information about the points enter the mortgage starting date and the total points paid (and remaining from loan one), include  the term of the loan. This should provide the desired result once you complete this section for both 1098s.

Please update if you have more questions.

[Opus 17]

@GoneSailin74 

I don’t know how TurboTax is supposed to track points in this situation, but the mortgage interview does not always work the way it’s  expected to work. If I were you, I would document your situation in writing, and keep track of the points yourself, using a spreadsheet or other workbook.

if you had $4000 of points spread out over 360 months, that is $11.11 per month. Add up how many payments you made on the prior loan and determine the amount of points remaining.  Then add the $5000 of new points, divide by the length of the new loan, and figure out your monthly points amount.  When it comes to filing your tax return, there is an entry for quote points not reported on form 1098“ and you would enter the monthly figure multiplied by the number of months that you made payments.  If you refinance again, with a different company in the future, you can roll up the remaining points at that time.  

But I really think you should keep track yourself, and not rely on TurboTax being available to you for the next 10 or 20 or 30 years.

[GoneSailin74]

Yeah, you'd think Turbo Tax would ask me if I had a previous mortgage with points that were not completely deducted from previous year returns. It could then ask the origination date, term, and total points, and do the calculation. Oh, wait, it doesn't do that.

[GoneSailin74]

Why doesn't TurboTax ask me to do this, or guide me through it?