If you get a mortgage loan in order to buy a home, you may be able to deduct any points you spend in order to accrue some significant tax savings. The same is true for homeowners who chose to refinance.
In most cases, refinancing forces the homeowner to take away loan points over the course of the term. If you chose to refinance in order to improve or upgrade your home, the points you subtracted may be deductible for the tax year in which you paid them. The remaining points then have to be deducted over the term of the loan. The same is true for home equity lines of credit and loans, as they adhere to the general guidelines for deducting mortgage points.
You can deduct points if the purpose of refinancing is used for either college expenses or automobile purchases, although you can’t deduct them instantly as one large sum. You’ll have to spread the deduction over the loan term.
To determine the deduction, you should divide the number of points you paid by the number of payments you are required to make to satisfy the loan. You may need to seek information specifically from your lender, though the calculation is relatively simple. An Example: $3000 paid in points can be deducted as $100 annually, provided the loan was refinanced for 30 years.
