If you are one of the thousands who are locked into a lower home mortgage interest rate, then you’ve hit the savings jackpot!  Besides getting one of the lowest rates in decades, you may be able to deduct some of the refinancing costs when you file your annual tax return.

The “points” paid to get a home mortgage may be deductible as mortgage interest when you itemize on Form 1040’s Schedule A.  Points paid to get an original home mortgage may be fully deductible in the year paid.  However, points paid solely to refinance a home mortgage usually must be deducted over the life of the loan.

For a refinanced mortgage, you figure the interest deduction by dividing the points paid by the number of payments you will make over the life of the loan.  You may deduct points only for those payments made in the tax year.  Say you paid $2,000 in points and you will make 360 payments on a 30-year mortgage.  You could deduct $5.56 per monthly payment, or a total of $66.72 if you make 12 payments on one year.

If you used part of the refinanced mortgage money to finance improvements to your home and if you meet certain other requirements, the points associated with the home improvements may be fully deductible in the year the points were paid.  Also, if you are refinancing a mortgage for a second time, the balance of points paid for the first refinanced mortgage may be fully deductible t pay off.

Other closing costs – such as appraisal fees and other non-interest fees – generally are not deductible.  And the amount of your adjusted gross income could affect the amount of deductions you can take.

Any way you look at it, between the lower interest rates and the tax savings, that’s money you can take to the bank.

For more information on deductions related to financing, call our office.