| Internal Revenue Service (IRS) allows the deduction of | | | | refinances his home with a lower interest rate on a 25 |
| the discount points on your income tax return. Discount | | | | year mortgage. The closing statement shows $3000 |
| points which are one of the most important tax | | | | discount points. Joe claims $120 per year ($3,000 / 25 |
| deductions to homebuyers are paid upfront to reduce | | | | year mortgage). |
| the mortgage payment. | | | | Discount Points on refinance with home improvement |
| Calculate the Discount Points | | | | The discount points which are paid to improve the |
| Each point equals one percent of the principal. For | | | | home is fully tax deductible on the year paid. The rest |
| example, a 2 discount points on $150,000 mortgage | | | | are claim over the life of the loan. For example, Joe |
| comes to $3,000 ($150,000 x 0.02). The Closing | | | | refinances his home to add a swimming pool on a 25 |
| Statements shows how much is your discount points. | | | | year mortgage. He paid $20,000 to add a swimming |
| If you do not see discount points, have no fear. | | | | pool. The total mortgage comes to $150,000. The |
| Discount points are also called Loan Origination Fees, | | | | closing statement states $3,000 discount points. Joe |
| Maximum Loan Charges, or Loan Discount. | | | | claims $400 ($20,000 swimming pool / $150,000 |
| First Time Homebuyer Discount Points | | | | principal x $3,000) + $104 per year ([$3,000 discount |
| For a first time buyer, IRS allows to claim the full | | | | points - $400 discount points of swimming pool] / 25 |
| amount of discount points on the year paid. For | | | | year mortgage). |
| example, Joe bought his first home on 2005. In his | | | | If the homeowner has an outstanding discount points |
| closing statement, the discount points come to $3,000. | | | | to claim, the homeowner claims the outstanding |
| Joe claims the full amount on Schedule A of his | | | | discount points on the year of refinance. For example, |
| income tax return. | | | | Joe has $2,000 discount points which are not claimed |
| Discount Points on refinance without home | | | | yet. Joe claims a total of $2,504 ($2,000 outstanding |
| improvement | | | | discount points + $400 swimming pool discount points |
| The homeowners claim the full amount of discount | | | | + $104 per year discount points). |
| points, when the homeowners refinance towards the | | | | IRS yearly update |
| improvement of the home. Without the home | | | | This article may or not contain the most current tax |
| improvement, the homeowners claim the discount | | | | regulations, and laws. You may want to consider |
| points over the life of the mortgage. For example, Joe | | | | checking with your trusted Tax Advisor or IRS. |