Tax Tip of the Week
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Deduct your "points"
For the week of
October 22, 2001
If you recently purchased a home or refinanced your home mortgage, you may be entitled to a tax deduction. Typically, lenders charge "points" or prepaid interest in exchange for a discounted interest rate. Points are deductible as follows:
- Write off the points this year. Points
on a home loan to purchase or improve your principal residence can be deducted in the year paid if you itemize
your deductions. To qualify, the payment of points must be an established practice in your area, and the amount
paid can't exceed what's normally charged in the area.
- Save the deduction. What if you don't
have enough deductible expenses to itemize deductions on your tax return in the year you purchase your home? The
IRS provides a way for you to deduct the points on future tax returns. By amortizing the mortgage points over the
life of the loan, you could enjoy a tax break that would otherwise be lost.
- Refinancing provides a tax break too.
When you refinance a home loan, the points can be amortized or deducted ratably over the life of the loan. For
example, $3,000 in points on a 15-year loan would amount to a $200 deduction per year.
- Take some now, some later. Perhaps your
loan was a dual purpose loan - taken to refinance your existing loan and also to tap the equity to make home improvements.
In this case, points attributable to the home improvement portion can be deducted in the year paid. The remaining
points must be deducted pro rata over the life of the loan.
- Don't forget this deduction. When you pay off your mortgage, sell your home, or refinance your home again, you may deduct the remainder of the loan points in that year.
If you've purchased a home or refinanced an existing mortgage, there may be additional
deductions you're entitled to. Give us a call for details.
Click here to view previous
tax tips.
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and current tax information.
The information contained in this site is of a general nature and should not be acted upon in your specific situation
without further details and/or professional assistance.
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