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Sunday, February 01, 2015

Deducting Mortgage Points For My 2015 Tax Return

My 2015 Tax Return
Real Estate Agent
Gina B. Gonzales

You may be faced with fees in terms of mortgage points as part of owning a home.

You can often deduct points on your taxes by paying mortgage points. Sometimes this makes good financial sense. You have decided to buy a new home, the largest debt you'll ever take on is most commonly a mortgage. 

FAQ: Mortgage Points - What are they?

One percent of your loan amount on the mortgage is equal to a point. One point of a $100,000 home loan is equal to $1,000. Two types of points are used in the home mortgage industry, origination points and discount points. Origination points are typically equal to the income of the loan originator, discount points are a type of prepaid interest and are often fully deductible.

Citing from the TurboTax Website for your 2015 Tax Return:

"Qualifying for a Deduction

Generally, the Internal Revenue Service (IRS) allows you to deduct the full amount of your points in the year you pay them. If the amount you borrow to buy your home exceeds $1 million, you are generally limited on the amount of points that you can deduct. The same is true if your home equity debt exceeds $100,000. The IRS also imposes the following requirements to deduct mortgage points:
• The mortgage must be used to buy or build your primary residence
• The points must be a percentage of your mortgage amount
• The use of points must be a normal business practice in your area
• The amount of points paid must not be excessive for your area
• You must use cash accounting on your taxes
• The points must not be used for items that are typically stand-alone fees, such as property taxes
• You cannot have borrowed the funds to pay for the points from the mortgage lender or broker
• The amount you pay must be clearly itemized as points on your statement

If you aren't able to deduct your points in the year you pay them, you may still qualify to deduct them over the life of the loan.

How to Deduct Points

As far as filing taxes goes, claiming a tax deduction for mortgage points is a fairly straightforward process. Mortgage points are considered an itemized deduction and are claimed on Schedule A of Form 1040. Here are the specifics:
• Usually, your lender will send you Form 1098, showing how much you paid in mortgage points and mortgage interest
• Transfer this amount to line 10 of Form 1040 Schedule A
• If any of your points were not included on Form 1098, enter the additional amount you paid on line 12 of Form 1040 Schedule A"
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