If I purchased my home in 2019 & paid points, can I select: "We paid points when we refinanced, purchased a second home, or opened a home equity loan in 2019?"

[cmhindy]

I bought a home in 2019 and refinanced this year. When inputting the 1098e form, TurboTax asked me "Did you pay points in 2019 when you took out the loan?", which I did in the form of Loan Origination Fees as stated on my closing documents. However, neither of the two answer choices seem to match my situation.

The two choices are below:
 -"We paid points when we refinanced, purchased a second home, or opened a home equity loan in 2019"
 - "We've already deducted all the points we paid in 2019, or we didn't pay any points."

This was the original home loan, so it was not a refinance, purchase of a second home, or a home equity loan. However, I paid points on the loan and did not deduct them in 2019 (I didn't understand what points were at the time). So how should I answer this question? I refinanced late in 2020 and have similar confusion on the line of questioning for that 1098e.

[DawnC · Accepted solution]

On your 2019 return, you would have the option to deduct all of the points or amortize them over the life of the loan.   If you meet all the criteria here, you can either deduct all your points in the year you paid them or deduct them in equal increments over the life of the loan. Either way, you'll need to itemize to get the deduction.   If you want to deduct all of the points, that would have to be done on an amended 2019 tax return.   Because the origination date is 2019, you should see the following 2 options regarding the points on the original loan:

• I am amortizing  (use this option if you are not going to amend your 2019 return to deduct all of the points on that return)
• I have no points to deduct  (use this option if you are going to amend the return to claim all of the points in 2019)

On a second home, points can only be deducted over the life of the loan. The same is true for refinances, except in cases where you used a portion of your refinance proceeds to improve your home. In that case, the points related to the home-improvement portion of the loan can be deducted in the year you paid them.

If you refinanced with the same lender, any undeducted points left over from the first mortgage will be deducted over the life of your new loan.  But if you refinanced with a new lender, any leftover undeducted points can be deducted in the year of the refinance.  

[cmhindy]

So, to be clear, since I didn't deduct the points from the original loan last year (2019 tax return), I can deduct the original loan's points this year since I refinanced with a different lender in 2020. But for the refinance loan, I can only deduct those points over the life of the loan.

Alternatively, I can amend my 2019 return to deduct the original loan's points on that return. But as a result, I would not be able to deduct any points from either loan for my 2020 tax return.  Since I itemized last year and will be itemizing this year as well, these options would effectively just be different routes to achieving the same outcome (deducting the original loan's points).

Did I understand that correctly?

[KrisD15]

You would choose

-"We paid points when we refinanced, purchased a second home, or opened a home equity loan in 2019"

Then you could take the remaining amortization on those points. 

You won't get the portion that you could have claimed in 2019 (the amortization portion for that one year) but yes, you can claim the rest. 

[earnandenjoy]

@KrisD15 I have got the same question, when I'm filing tax for 2021 but the home loan was taken in 2020.

Did you pay points in 2020 when you took out the loan?

So, I don't remember if I was asked this question by Turbo Tax last year, when I did the tax filing for 2020.

Nor can I find Schedule A of 1040 on the IRS Tax Return submitted through Turbo Tax.

Was it because I took the Standard Deductions which was more than the Origination Fees? Or was it simply because this is asked in the second year of the mortgage?

[ThomasM125]

You should have been asked about the points in the year you took out the mortgage loan, as they would be considered itemized deductions in whole or in part in that year. It is likely your itemized deductions were not more than your standard deduction and that is why you wouldn't see schedule A with your tax return.

@earnandenjoy

[earnandenjoy]

Thanks @ThomasM125 . That's what I'm beginning to think. So, I went ahead and try to enter again, but as expected, Turbo Tax told me that Standard Deductions is better. 

Anyway, I was just surprised why Turbo Tax should ask a question about a Home Loan taken before last year.