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Bay Area Properties
3088 Claremont Ave. @ The Uplands
Berkeley, CA 94705
CA BRE 01034286
NOTE: This is for information only. This broker and agents are not accounting professionals. Any and all information provided should be reviewed with a CPA.
New Home Loan
At this time of the year, the IRS publishes reminders on how personal income tax should be computed. Since the deduction of "points" on a new home loan and a refinanced loan are so different, we'll pass on IRS' reminder.
Points for Refinanced Loan
You may have refinanced your home in 2002. If you did, there were probably loan origination fees or "points" paid in the transaction. Now, how much of this can be taken off of your income tax?
The points paid on a new purchase are deductible in the year they were paid. Simple. When you refinance that loan IRS rules make things a little more complicated.
With thousands of homeowners refinancing mortgages to take advantage of low interest rates, the IRS has reminded taxpayers that points paid on refinancing are deductible over the life of the loan rather than fully deductible in the year paid. For example, if you paid $2,000 in points in 2002 when refinancing a 30-year mortgage (360 payments), a deduction of $5.56($2,000 / 360) per month is allowed.
An additional deduction may be claimed in the year that the points are paid if part of the loan is used to make improvements to a pricipal residence. The points allocable to the improvements are deductible as well as the ratable monthly portion of the points being spread over the life of the loan.
What if you already refinanced the loan on this home before? That means you have already been deducting just a portion of the points each year, leaving a balance you have not deducted. What happens to the balance?
This depends on your choice of lender for the next transaction. If you are ratably deducting points on a refinanced mortgage and you refinance with a different lender, the IRS allows the balance of the points to be fully deducted in the year that the original mortgage ends. If the refinancing is with the same lender, the remainding points are deductible over the term of the new loan.