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posted Feb 28, 2021 11:26:19 PM

I refinanced and have "Origination Charges" with points, processing fees, underwriting fees etc. line itemed. Can I deduct the whole section or only the points line item?

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1 Best answer
Level 15
Mar 1, 2021 5:34:45 AM

Certain of your closing costs can be added to the cost basis of the home, and may reduce your capital gains when you sell. There is a list in publication 523.

https://www.irs.gov/publications/p523

On a refinance, the points must be deducted over the life of the loan. For example, if this is a 30 year or 360 month loan, and you refinanced in July, you could deduct 5/360th of the points on your 2020 tax return.  If you used part of the proceeds to substantially remodel your home, then that portion of the points may be deducted at once and the rest spread out over the loan term.

 

If you were spreading out the points deduction for your previous mortgage over the term of that mortgage, and you refinanced with a different lender, you can deduct the remaining points from the first mortgage as of the date the first mortgage is paid off. If you refinanced with the same lender, the remaining points on the old mortgage plus the points on the new mortgage are added together and deducted over the new term.

 

You may have paid daily interest on the closing statement, to go from the closing date to the end of that month.  That interest is deductible, and is not always included in your 1098. If you can determine from looking at your mortgage statement and your 1098 that the daily interest was not included in the 1098, then you can include it separately.

 

Anything that I have not mentioned and that is not listed in publication 523 is not deductible and is not an adjustment to your home‘s cost basis.

2 Replies
Level 15
Feb 28, 2021 11:33:16 PM

the Internal Revenue Code states that taxpayers who refinance the mortgage on their home must amortize the points paid over the life of the new loan.  however, if a portion of the refi was used to substantially improve the home that portion is deductible.  the other loan closing costs are not deductible but add to the basis of the home 

Level 15
Mar 1, 2021 5:34:45 AM

Certain of your closing costs can be added to the cost basis of the home, and may reduce your capital gains when you sell. There is a list in publication 523.

https://www.irs.gov/publications/p523

On a refinance, the points must be deducted over the life of the loan. For example, if this is a 30 year or 360 month loan, and you refinanced in July, you could deduct 5/360th of the points on your 2020 tax return.  If you used part of the proceeds to substantially remodel your home, then that portion of the points may be deducted at once and the rest spread out over the loan term.

 

If you were spreading out the points deduction for your previous mortgage over the term of that mortgage, and you refinanced with a different lender, you can deduct the remaining points from the first mortgage as of the date the first mortgage is paid off. If you refinanced with the same lender, the remaining points on the old mortgage plus the points on the new mortgage are added together and deducted over the new term.

 

You may have paid daily interest on the closing statement, to go from the closing date to the end of that month.  That interest is deductible, and is not always included in your 1098. If you can determine from looking at your mortgage statement and your 1098 that the daily interest was not included in the 1098, then you can include it separately.

 

Anything that I have not mentioned and that is not listed in publication 523 is not deductible and is not an adjustment to your home‘s cost basis.