Points from a refinancing loan

[MB232]

I'm helping my son with his taxes.  He refinanced his loan on his house in 2024.  He paid over $10,000 in points on the new loan.  The 1098 he received does not show any points.  He did get the loan for more than the original balance on the previous mortgage to renovate his kitchen.  He did include a little more to pay off his truck to free up cash for the renovation.  I have the details on his closing statement.  How do I enter this in Turbo Tax?  It's only allowing me to enter what was on the 1098 even though it states that some points are deductible from the closing statement.  I would appreciate any help with figuring this out.  Many thanks!

[Vanessa A]

As you walk through the entry of the 1098, you will be asked was it all used to buy build, or substantially improve the home.  You will answer no, I used some of it for other things to that question.  You will be asked how much was used for other things, here you will enter the amount that was used to pay off the truck.  The part used for the kitchen renovation would 

To enter points, you will need to check the box that says I'm spreading the points over the life of my loan.  

[MB232]

The sentence where you began to talk about the kitchen renovation got cut off.  Could you please repost this part?  Many thanks!

[Vanessa A]

The kitchen renovation would be included with the part of the loan that is used to buy, build or substantially improve the home.  The interest on this part of the loan would also be deductible itemized interest.  

[MB232]

Would the small amount of interest for the truck payoff be included in the interest paid on the 1098?  Do I need to calculate that?  Assuming that part wouldn't be deductible?

[CatinaT1]

No. That would not be included on a 1098 form and this is not deductible.

[Opus 17]

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@MB232 wrote:

Would the small amount of interest for the truck payoff be included in the interest paid on the 1098?  Do I need to calculate that?  Assuming that part wouldn't be deductible?

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I can't help with how Turbotax calculates the interest, but I can tell you what should happen (and what your son will be audited on).

If, for example, 95% of the principal was used to "buy, build, or substantially remodel" the house, and 5% was used for something else, then 95% of the mortgage interest is deductible.  (Or whatever the percentage is.)  The entire old balance can be considered to be to "buy, build, or substantially remodel" the house, assuming it was the original purchase mortgage and was only used to buy the house.  But if the former mortgage included other funds, you have to include that fact in your calculations. 

Points are considered deductible interest (if they are real "points", see discussion later) but on a refinance, they must be spread out over the life of the loan.  And you have to apply the same percentage.  So if 95% of the interest is deductible, then 95% of the points would be deductible, spread out over the life of the loan.  For a 30 year loan, that's 360 months, so you figure out how much in points can be deducted based on how many payments he made in 2024 (about $26 a month if we assume $10,000 and 95%).  He will need to keep track, and manually add this to his tax return each year, because it will not be included on the 1098.  

Note that whenever this loan is paid off (by selling the house or refinancing again), he can deduct the remaining points then, so keep track.  (Unless he refinances with the same bank, in which case he adds the old unused points to the new points and restarts the clock based on the length of the new loan.)

Points are considered mortgage interest if they are based on the amount of the loan and not designed for anything else.  For example, if there is a "loan origination fee" which is a flat $1000, that is not deductible points.  Fees for bank attorneys, title search, and other fees are not points.  Only a fee that is a percentage of the loan and not used for any other purpose.