You can deduct the
full amount of points in the year paid if you meet all the following tests.
- Your loan is secured by your
main home. (Generally, 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 were not more
than the points 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. Most individuals use this
method.
- The points were not paid in
place of amounts that ordinarily are stated separately on the settlement
statement, such as appraisal fees, inspection fees, title fees, attorney
fees, and property taxes.
- The funds you provided at or
before closing, plus any points the seller paid, were at least as much as
the points charged. The funds you provided are not required to have been
applied to the points. They can include a down payment, an escrow deposit,
earnest money, and other funds you paid at or before closing for any
purpose. You cannot have borrowed these funds.
- 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.
- The amount is clearly shown
on the settlement statement (such as the Uniform Settlement Statement,
Form HUD-1) as points charged for the mortgage. The points may be shown as
paid from either your funds or the seller's.
If you meet all of
the tests listed above and you itemize your deductions in the year you get the
loan, you can either deduct the full amount of points in the year paid or
deduct them over the life of the loan, beginning in the year you get the loan.
If you do not itemize your deductions in the year you get the loan, you can
spread the points over the life of the loan and deduct the appropriate amount
in each future year, if any, when you do itemize your deductions.
To enter the points (loan origination fees) into Turbo
Tax, follow these steps...
Log
into your tax return. Use the search box in the upper right hand corner of your
screen. Type in "points, home financing/refinancing". This will cause
the "Jump to points, home financing/refinancing" link to come
up...click that link. Enter the name of the lender. On the next screen make
sure you check the first two boxes (see 1st screenshot below). From here, Turbo
Tax will guide you through a couple of screens dealing with your mortgage
interest. You will given the option to enter your origination fees (see 2nd screenshot below).
*Note-screenshots were taken from a different Turbo Tax Version but they are applicable to this specific question also.
