Hi,
I know generally you can deduct mortgage points, even if the seller paid them. What if the seller, or in my case lender, paid for a 1-0 buydown? They deposited about $6K in a separate account (not escrow), and applied $500 of it each month toward my interest payment -- reducing my interest rate by 1% for the first year. I was thinking this is essentially prepaid interest so it should be deductible, but it doesn't show up anywhere on the 1098, only the mortgage closing documents.
Thank you so much for your help!
Mortgage points are tax deductible so long as they are true discount points to buy down the interest rate. Because mortgage interest is tax deductible, the mortgage points paid to lower the interest rate are like prepaying interest.
Usually, your lender will send you a Form 1098, that shows how much you paid in mortgage points and mortgage interest during the year. But if any of your points were not included on Form 1098, you can enter the additional amount you paid. It will go on line 8c, "Points not reported to you on Form 1098," of Form 1040 Schedule A.
Points you paid only to borrow money are generally deductible over the life of the loan. See Pub. 936 to figure out the amount you can deduct. Points paid for other purposes, such as for a lender's services, aren't deductible.
You can use the following steps to add your points:
Click here for "Publication 936 (2024), Home Mortgage Interest Deduction"
Thank you for this insight! Do you know if a temporary buydown is considered points? It was used to reduce our interest rate 1% for one year, and all of it was applied to our interest paid each month.
No, points permanently lower your interest rate a buy down does not offer the permanence required.
The buydown went into an escrow account to help cover your reduced interest rate.
Yes that makes sense! So can the buydown be deducted as prepaid interest (even though it was not included on the 1098), or not at all because it's not considered points?