- Are Mortgage Refinancing Fees Tax Deductible?
- Can Borrowers Still Deduct Their FHA Mortgage Insurance on Their Tax Returns?
- How to Claim Closing Cost Deduction on Income Tax Return
- Is Interest Paid on a Second Home Deductible From Federal Income Tax?
- How to Deduct Mortgage Insurance After Refinancing
- Tax Implications of a Mortgage Refinance
Refinancing your home mortgage at a lower interest rate can save you a significant amount of money each month. However, you can also save some money on your taxes by deducting some of the costs you incur during the refinance. Deductible costs include mortgage interest, points and property taxes paid at closing.
When you refinance your home mortgage on a first or second home, you can continue deducting your mortgage interest just as you did with your previous loan. You can deduct all mortgage interest you paid on the first $1 million of your home loan. You can also deduct interest paid on home equity or home improvement loans of up to $100,000.
The Internal Revenue Service allows you to deduct any points you pay to lower your mortgage interest rate from your taxable income. However, when you refinance, you cannot deduct the full amount of the points in the year of the transaction. Instead, you must divide the points evenly over the loan's term. For example, if you paid $1,500 toward points on a 15-year loan, you can deduct $100 every year following the refinance.
If you refinanced close to your property tax due date, you may have paid money toward property taxes at the closing of the loan. If so, you can deduct the amount you paid on your income tax return. However, you can only deduct property tax payments that you or the mortgage company actually made during the year. You cannot deduct money you paid into escrow for future property tax liability.
In most cases, you must also pay other miscellaneous closing costs when you refinance your home. These costs may include title fees, attorney fees, appraisal fees and other administrative expenses. You cannot deduct these fees from your taxable income. However, if your refinance included mortgage insurance, you can deduct the cost of the premiums. You can typically deduct mortgage insurance premiums paid at the closing of your refinance, as well as those you pay monthly.