Mortgage points refer to certain fees or costs you’ve paid in order to get a home mortgage. Basically, points are a type of interest that you’ve prepaid, and may be deductible as interest if you chose to itemize your deductions when filing your tax return. If you are able to deduct all of the interest paid on your home mortgge loan, you’ll probably be able to deduct any points oyuve paid as well. You are not able to deduct interest or points if your home equity debt exceeds $100,000 or if your home acquisition debt is over $1 million.

Points can be deducted within the tax year they are paid provided the following rules are followed:

• Your primary home, the one you live in full time, is the loan security.
• Paying points is an acceptable business practice in your region.
• You paid either less or an equal amount in points than is generally charged in your area.
• You report income and deductions in the year in which they were received and paid.
• Points paid were not for items such as inspections, titles, attorney costs, property taxes, or appraisal fees.
• You didn’t borrow funds from a lender so you could pay points. Any monies provided at closing were at least the amount charged in points.
• Your mortgage is used to purchase or construct your main home.
• Points are a percentage of your principal.
• The amount is listed accurately and clearly as points on any statement of settlement.

If you’ve taken a mortgage loan in order to improve your primary residence, and you meet the first six bullet points above, you can typically deduct the full amount of points you paid that year. Points may still.be deductible over a series of years if they don’t meet all the rules.

Points on a refinanced loan are usually only deductible for the life of the new mortgage, unless you meet the first six rules stated above. Then you are able to fully deduct your points that year. If you paid points for specific services like attorney’s fees or notary costs, they aren’t considered interest and therefore are not eligible for deduction. Points paid by a home seller aren’t interest on the seller’s behalf, however it will reduce the amount of gain from the sale. The buyer is eligible to deduct points if they subtract the amount form the cost basis of the residence. Points are only deductible on a second home over the life of the loan. Some itemized deductions, including points are subject to a 2% AGI limitation.