Are Mortgage Points Tax Deductible?

Are mortgage points tax deductible?

Mortgage points paid to lower your mortgage interest rate are typically tax deductible. However, the type of home you’re purchasing matters when deducting your mortgage points.

If it’s your primary home, you can take the deduction for the full points paid when you file your tax return. However, if the home is a vacation home, you must take a partial deduction over the life of the loan, as if you paid the interest as part of the normal mortgage payment rather than prepaying it.

Points paid as upfront interest are deductible as mortgage interest. If the points are not for prepaid interest, then they may not be deductible. For example, if the points are for property taxes, then they would not qualify as a mortgage interest deduction.

Two important rules to remember are that you must itemize to qualify for the deduction and that loans issued after Dec. 15, 2017, must be less than $750,000 to qualify.

Here’s a high-level overview of tax deduction eligibility based on property type:

Mortgage points deduction eligibility checklist

To deduct your mortgage interest on your primary home, you must itemize your tax return instead of taking the standard deduction. If you take the standard deduction, you are not allowed to also deduct mortgage interest, including mortgage points.

Here’s a list of conditions that apply:

• Confirm that the points paid were considered prepaid mortgage interest.
• The loan must be less than $750,000 if it originated after Dec. 15, 2017.
• The points paid must be standard for the amount and business practice for your area.
• You did not borrow funds to pay the points from the mortgage lender.
• Points must be clearly listed as prepaid interest on your loan disclosures.

If the points were used to pay other expenses, such as property taxes, they will not count as a mortgage interest deduction.

It’s also important to understand the time frame for deductions. If the home is your primary residence, you can deduct the full amount paid in for the year that you closed. However, if it’s an investment property or second home, the points are amortized over the life of the loan.

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Types of mortgage points: Discount, origination and seller-paid

You may encounter three types of mortgage points: discount, origination and seller paid. Points associated with a discounted rate are listed on your loan estimate and closing disclosure.

Discount points are fees paid upfront to lower your mortgage interest rate. One point is equal to 1% of the loan and will reduce the interest rate by around 0.25%, but this can vary among lenders. These are typically tax deductible as mortgage interest.

Origination points are fees used to cover other costs, such as loan processing. These are not typically tax deductible. On an investment property, these fees add to your basis on the property and are deducted as the property depreciates.

Sometimes, a seller will pay points towards a buyer’s mortgage. This makes the loan more affordable for the buyer and can help facilitate a sale.

The amount paid in points is deductible by the buyer and not the seller. Instead, the seller reduces their profit from the sale in their own records. Also, the amount of points paid increases the seller's basis. If the seller pays the discount points as part of the sales agreement, this is typically deductible by the buyer, not the seller.

IRS rules for deducting mortgage points

If you meet the following criteria, you can likely deduct your mortgage points.

• Mortgage must be less than $750,000 if it originated after Dec. 15th, 2017.
• Points were used to reduce the mortgage interest rate.
• The mortgage was used to buy, build or improve your primary residence.
• Paying points is common practice in your area.
• Amount paid for points is the standard amount in your area.
• Points are calculated as a percentage of the loan amount.
• You did not borrow the money used to pay the points from your lender.
• The points are clearly stated on your loan documents.
• If the home is your primary residence, you must itemize deductions.

You will fill out line 8c on Schedule A of a 1040 to itemize, and you can include mortgage points on this form.

Deducting points on a home equity loan

If you are using a home equity loan to make improvements on your home, then you may be able to deduct the points. If you are only using a percentage of the loan for home improvements, then you can deduct the corresponding percentage of the points.

For example, if you have a $100,000 home equity loan and use $75,000 to upgrade your home and $25,000 to purchase a car, you can deduct 75% of the points paid. You must keep records showing the funds were used to improve the home.

“The points paid on a home equity loan are deductible; points paid for a HELOC are not,” explained Omer Reiner of FL Cash Home Buyers.

“If you plan to deduct points paid on a home equity loan, you’ll have another hurdle as well. Those points are only deductible if you use all of the proceeds of the loan for repairs and big upgrades to your home,” he continued. “If you use any portion of the loan to pay down other debt or to take a vacation or some other large purpose, you will not be able to take the deduction.”

How to amortize mortgage points over the loan term

If the home isn’t your primary residence, then you must amortize the points paid over the course of the loan. To figure out how much you can deduct, take the amount paid in points and divide it by the length of the loan in months. Then multiply that number by the number of payments made that year.

Amortizing mortgage points formula

(Paid points amount / Loan term) x Payments made that tax year = Deductible amount

For example, if you paid $10,000 in points and have a 30-year mortgage. You would divide $10,000 by 360. This gives you $27.77 deductible per payment. If you made seven payments in the first calendar year of owning the home, you can deduct $194.44 in mortgage interest.

If you pay off the loan early, you can deduct the remaining points that you haven’t deducted yet.

Refinancing while amortizing mortgage points

If you refinance with a new lender, the old loan is considered paid off and you can deduct any remaining points that have not yet been deducted.

However, if you refinance with the same lender, then you will add the remaining points from the old loan to the new loan and continue your amortization schedule. If you paid points on the new loan, those would be amortized as well.

» SEE NEXT: How to refinance a mortgage

Reporting deductible mortgage points on your tax return

When deducting mortgage points on your tax return, your lender will send you Form 1098, which will indicate how much mortgage interest and points you paid for that tax year. When filing your return, complete Form 1040 Schedule A, line 8a. You can confirm the amount is correct by checking your loan documents.

If you did not receive a Form 1098, and you are unable to get one from the lender, you can refer to your loan documents for the information. In this case, you would fill out line 8c on the Schedule A.

If you are amortizing your points, you won’t receive Form 1098 each year indicating the amount you can deduct. Instead, you’ll need to keep track of this information on your own. When filling out Schedule A, you will put your deduction on line 8c.

Special tax reporting: Seller-paid, amortized and early payoff points

Seller-paid points are tax deductible to the buyer and are included on the buyer’s Form 1098 received from the lender. The buyer will enter this amount on line 8a of Schedule A of Form 1040. If the points are being amortized, then the buyer can list the amortized amount on line 8c instead. You will also need to adjust your basis in the home by the amount deducted.

If you are amortizing the points and pay off the mortgage early, you can deduct any remaining points on line 8c.

However, if you refinanced the mortgage with the same lender, then you will continue to amortize the old loan’s points at the same rate, and you will add on any new point amortization from the new loan. These are also reported on line 8c.

Avoiding common mistakes when deducting mortgage points

According to Matt Schwartz, partner at VA Loan Network, common mistakes when deducting mortgage points are deducting refi points incorrectly, failing to reduce basis, treating other fees as points and failing to refer to limits of refinances with the lender.

If you’re planning to deduct points and the home isn’t your primary residence, you may want to consider using an accountant. You will be responsible for keeping track of how much you can deduct each year and how much you have deducted over time. You are also responsible for keeping track of your basis in the home, which is even more important for properties that are not your primary residence.

If you are unclear whether the points you paid count as mortgage interest, then check with your real estate agent or mortgage officer to confirm. You can’t deduct points that were not considered prepaid interest.

IRS red flags and recent tax law changes for mortgage points

The Tax Cuts and Job Act (TCJA), passed in 2017, made it so that only interest paid to purchase or improve a property could be deducted. Prior to that law, any interest paid on a mortgage or home equity loan could be deducted, provided the taxpayer itemized their return.

Another change from the TCJA was lowering the maximum loan size for qualifying mortgages to $750,000, down from $1,000,000.

Both of these changes were set to revert to the previous rules in 2025, but the One Big Beautiful Bill Act (OBBA) made them permanent.