Taxpayers who seek a loan for the purchase of a home are likely aware of the tax savings that come with points deductibility. However, refinancing may afford you the same tax breaks.

Typically, refinancing requires the homeowner to subtract loan points over the loan’s term. If any portion of the money received from refinancing is attributed to home improvement, those points are able to be deducted in a tax return for the year in which they were paid. Points for the remaining portion of the refinanced balance are not eligible to be deducted immediately, and instead have to be repaid over the term of the loan. Home equity credit lines and loans are also subject to the same rules regarding points-deductibilty.

You are still able to deduct points if the refinanced money is used as extra cash for college expenses or automobile purchases. However, you can’t instantly deduct them in one lump sum. Instead they must be spread out over the course of the equity loan.

In order to calculate the annual deduction, you need to divide the points you paid by the number of payments you’ll make over the term of the loan. You lender can provide you with all the resources you need to determine your deduction. For instance, a taxpayer who has paid $3000 in points on a loan that he refinanced for 30 years, is able to deduct $100 each tax year for the loan.