Refinancing Your Mortgage

What Can You Deduct on Your Tax Return?

There are some special tax rules with regard to what costs can be deducted in connection with a refinancing. Let's see what tax breaks you'll get from Uncle Sam.

Interest and Points

Depending on how you refinance, there are several different ways the interest and points on the loan are treated for income tax purposes.




You simply refinance the balance of your original mortgage (you don't borrow any additional cash).

All the interest you pay on the loan is tax-deductible (for loans up to $750,000.)

Points must be deducted equally each year over the term of the loan.

You take out additional cash for reasons other than to make capital improvements to your home.

The interest is tax deductible only if used to “build, buy or substantially improve” the home that secures the loan.

Points must be deducted equally each year over the term of the loan. If your loan exceeds $100,000, the deductibility of the points may be limited.

You borrow additional cash above the principal balance of your original mortgage to make capital improvements to your home. The loan is secured by your principal residence.

You can deduct the interest on up to $750,,000 of debt. (If you are married filing separately, the limit is reduced to $375,000.)

The points generally can be deductible in the year of the refinance.* Exception: if only a portion of the loan is used for the improvements, only the portion of the points related to the improvements is deductible in the year of the refinancing. The remaining points are required to be deducted equally each year over the term of the loan.

* If you finance the points, they cannot be deducted in the year of the refinance, but are deducted equally each year over the term of the loan.

What happens if this is your second refinance and you still have points left over from the first refinance that have not yet been fully deducted? You are able to deduct the remaining balance of the points in the year of the subsequent refinance.

This information should give you an idea of what's tax-deductible and what's not. You consult your tax professional to clarify anything you don't understand and to verify that the information is still valid under current law. Keep in mind that tax laws are always subject to change, and that the tax information provided here could change at any time.

Share Article:
Add to GooglePlus

Securities and Investment Advisory Services are offered through LPL Financial, a Registered Investment Advisor, member FINRA/SIPC. Insurance products are offered through LPL Financial or its licensed affiliates. Heartland Planning Associates is a trade name of Heartland Bank. Heartland Bank and Heartland Planning Associates are not a registered broker/dealers and are not affiliated with LPL Financial.  The investment products sold through LPL Financial are not insured Heartland Bank deposits and are not FDIC insured.  These products are not obligations of Heartland Bank and are not endorsed, recommended or guaranteed by Heartland Bank or any other government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.  The LPL Financial representatives associated with this website may discuss and/or transact securities business only with residents of the following state: Ohio. Check the background of investment professionals associated with this site on FINRA's BrokerCheck.

Not Insured by FDIC or Any Other
Government Agency
Not Bank
Not Bank Deposits or
May Lose