What this line means
Mortgage points (also called loan origination fees or discount points) you paid that were not included on your Form 1098. Points paid on a purchase mortgage are generally deductible in full in the year paid. Points paid on a refinance must be amortized (spread) over the life of the loan. Each point equals 1% of the loan amount.
Does this apply to you?
- You paid points when purchasing your home and the lender did not include them in Box 6 of Form 1098
- You refinanced your mortgage and are deducting the amortized portion of the points you paid
- You paid points to a seller-financed lender who does not issue Form 1098
Easy to overlook
Refinance points are deducted over the life of the loan If you paid $3,000 in points on a 30-year refinance, you deduct $100 per year ($3,000 / 30 years). But if you refinance again or pay off the loan early, you can deduct the entire remaining unamortized balance in the year the loan ends. Many filers forget to claim the lump-sum deduction when they refinance a second time. 1 General filing pattern — refinance points amortization
Seller-paid points are deductible by the buyer If the seller paid points on your behalf as part of the purchase agreement, you can still deduct those points. You reduce your cost basis in the home by the amount of seller-paid points, but you get the immediate deduction. Check your closing disclosure for seller-paid points. 2 IRS Schedule A instructions — Line 8c
Watch out for this
Deducting refinance points in full in the year of refinancing. Unlike purchase points, refinance points must be spread over the loan term. Only the annual amortized portion is deductible each year. Deducting the full amount in year one results in an overstatement that the IRS can challenge.
Footnotes
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IRS Schedule A (Form 1040) Instructions. See also IRS Publication 17, Your Federal Income Tax. https://www.irs.gov/pub/irs-pdf/p17.pdf ↩
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IRS Schedule A (Form 1040) Instructions, Line 8c. https://www.irs.gov/instructions/i1040sca ↩