Don’t Forget Your Mortgage This Tax Season

One of the benefits of owning your home is the tax break the interest on your loan can supply. Most home owners know about this little tax break; but most buyers don’t know that if you paid points at closing for your loan you can claim that amount on your taxes as well. This applies not only to purchases, but when you refinance or take out a home equity line of credit (HELOC) on your existing mortgage. A point is equal to 1% of your loan amount. Points are charged as a way to make profit, and usually result in a lower rate to borrowers. The more points you pay at closing, the lower your rate will be and the larger your tax break can be. The amount of points you paid at closing can be found on your 1098, which also shows how much mortgage interest you paid. The amounts should be included on line 10 of schedule A, or the interest should be input on line 12 if the points only show up on your closing documents (for more information, check the instructions on your schedule A).

Points can be paid by the buyer, seller, or split between the two on most conventional, 30 year non-insured loans. But regardless of who pays how much, the buyer is entitled to claim the whole point amount on their taxes. You can claim 100% of the point amount only if it meets nine different criteria; the amount you can claim if the loan meets only certain criteria can be calculated by a CPA. An investment property can only claim a percentage, while second homes and vacations homes have to have the points claimed amortized over the life of the loan. Borrowers should not over look the tax break if they are refinancing, either. Though 100% of points paid at closing cannot be claimed, a portion of the points can be. Usually the points have to be amortized over the life of the loan, but if the refinance or HELOC was used and claimed specifically for home improvements on the subject property, the whole point amount may be claimed.