How do I deduct points?
Points paid to obtain a loan, such as a mortgage, second mortgage, home equity loan, or line of credit, may be deductible. However, the rules for deducting points depend on whether you can fully deduct them in the year paid or must deduct them over the life of the loan.
When Can I Fully Deduct Points in the Year Paid?
You can fully deduct points in the year you paid them if you meet all of the following conditions:
- Your loan is secured by your main home (the home you ordinarily live in most of the time).
- Paying points is an established business practice in the area where the loan was made.
If you meet these requirements, you may deduct the full amount of points in the year paid. Otherwise, you must deduct the points over the term of the loan.
What If I Cannot Fully Deduct Points in the Year Paid?
If you do not qualify for full deduction in the year paid, or if you choose not to take the full deduction, you must deduct the points over the life of the loan. This applies to points paid for business property or loans not secured by your main home.
Important Notes
- Points are not added to the basis of the related property.
- For guidance on whether your points are fully deductible, refer to Figure A and Figure B in Publication 530.
- See Publication 936 for detailed rules on when and how much you can deduct.
Source:
Publication 530 (Tax Information for Homeowners)
Publication 936 (Mortgage Interest Deduction)
Publication 551 (Basis of Assets)
Disclaimer: Always verify details with official Federal or State Department of Revenue Forms and Instructions.