Refinanced Your Home Claim A Tax Deduction For Points

Refinanced Your Home Claim A Tax Deduction For Points

Refinanced Your Home – Claim a​ Tax Deduction For Points
The mortgage refinance market has cooled off dramatically with recent rate increases .​
Many people,​ however,​ refinanced during 2018 and can claim tax deductions .​
Refinanced Your Home – Claim a​ Tax Deduction For Points
Mortgage rates have been shockingly low over the​ last few years .​
This is​ hardly news to​ anyone that owns a​ home .​
The nominal rates,​ however,​ did result in​ a​ major boom for the​ mortgage industry .​
As rates jostled up and down,​ millions refinanced to​ save just the​ fraction more on​ their home loans .​
Heck,​ many people refinanced multiple times! Alas,​ this rapid refinance craze has come to​ an​ end with the​ rise in​ mortgage interest rates.
If you​ refinanced this past year to​ get lower rates,​ I​ have some good news .​
Not only did you​ get lower rates,​ but you​ probably built up some additional tax deductions you​ can use to​ cut your tax bill .​
To obtain a​ mortgage,​ whether new or​ a​ refinance,​ homeowners often have to​ pay points .​
These nasty little charges represent a​ percentage of​ the​ loan and are typically an​ upfront charge .​
Fortunately,​ points are deductible .​
Generally,​ you​ will claim a​ deduction for points as​ part of​ the​ mortgage interest deduction that makes our real estate industry so attractive .​
The type of​ loan,​ however,​ impacts how the​ points are deducted .​
If you​ obtained a​ new home loan for a​ residence,​ you​ can deduct the​ full amount of​ the​ points .​
To do so,​ however,​ you​ must itemize on​ your tax return .​
Since you​ should be deducting the​ interest paid on​ the​ mortgage as​ well,​ this is​ a​ no brainer .​
If you​ refinanced an​ existing home loan for a​ residence,​ however,​ things are a​ bit different .​
Yes,​ you​ can deduct the​ points paid on​ the​ refinance .​
Unfortunately,​ you​ have to​ deduct them over the​ life of​ the​ loan .​
In practical terms,​ you​ cannot deduct the​ full $3,​000 you​ paid in​ points when you​ refinanced in​ August of​ last year .​
Instead,​ you​ can deduct a​ percentage of​ the​ $3,​000 .​
The percentage is​ the​ value of​ the​ points divided by the​ number of​ months of​ the​ loan .​
There are two ways around this tax handicap .​
If you​ refinanced twice in​ 2018,​ and some of​ you​ did,​ you​ can deduct the​ full amount of​ the​ points on​ the​ first refinance .​
Why? you​ can do this because the​ life of​ the​ first refinance was less than a​ year,​ which all occurred in​ 2018.
In certain cases,​ points may also be immediately deductible if​ you​ used a​ refinance for home improvements .​
It is​ a​ bit technical and beyond the​ scope of​ this article .​
If you​ actually used a​ refinance to​ improve the​ home,​ and you​ can prove it​ with receipts,​ speak with a​ tax professional to​ write off all your points immediately.

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