The secret way to deduct points on a REFINANCE.

9 02 2010

I learn something new every day.  Or at least I hope I do.  And today I learned that there is a way to deduct the points paid on a refinance in the year of the refinance. This is huge.  Let me explain.

I’ve read the IRS publications on deducting points and asked every CPA I meet about this.  Every one of them said the same thing: you can deduct points paid on a purchase in the year of the purchase, but on a refinance, you must evenly divide them over the life of the loan.

This means $3,000 in points on a 30 year refinance would be $3,000 / 30 = $100 tax deduction per year.  Nothing to get excited about.

But I ran across an article in Kiplinger Financial today that stated that if the money saved on a refinance is used to improve, remodel, or repair the home, then you can deduct the total points paid in one calendar year, even if you don’t claim the deduction until, say, the 4th year after the refinance.

So you can save money with a refinance and wait until the year you need a whopper deduction.  Then fix up your home that year, and claim your points that year as a large deduction.  The IRS wants you to love your home.  The trick is knowing how to do it the smart way, so you can save the most money and minimize your taxes.

Please contact me for a personal refinance assessment.

I’ll show you the costs, benefits, and tax consequences and let you choose which is best for you.

For the full Kiplinger financial report, search for Kiplinger Tax letter dated Aug 24, 2005.

I am not a CPA and am not licensed to give tax advice.  Please consult your CPA.

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