Guides / Tax Strategies for Individuals
The Deductibility of Points
Points paid on a mortgage are prepaid interest, and whether you can deduct them all at once or have to spread them out depends on a fairly specific set of tests.
In this guide
What points actually are
Points, sometimes called loan origination fees, loan discount, or discount points, are charges paid to a lender to obtain a home mortgage. They're treated as prepaid interest, which means they can be deductible as home mortgage interest if you itemize on Schedule A, generally to the same extent the rest of your mortgage interest is deductible. If your acquisition debt exceeds $750,000 for tax years 2018 through 2025, or your home equity debt exceeds $100,000, you won't be able to deduct all of your interest, and the same limit applies to your points.
Tests for deducting points in full
Points are usually prepaid interest, which means the default rule is deducting them gradually over the life of the loan. You can deduct the full amount in the year paid instead if you meet all of the following: the loan is secured by your main home, paying points is an established practice in your area, the amount paid doesn't exceed what's generally charged there, you use the cash method of accounting (true for most individuals), the points weren't standing in for other fees normally itemized separately (appraisal, inspection, title, attorney, or property tax fees), the loan was used to buy or build your main home, the points were calculated as a percentage of the loan principal, the amount is clearly stated on the settlement statement, and the funds you provided at or before closing (plus any seller-paid points) were at least equal to the points charged. A home improvement loan on your main home can also qualify for full deductibility if the first five of these are met.
Amounts that aren't points at all
Lender charges for specific services, appraisal fees, notary fees, mortgage note preparation costs, mortgage insurance premiums, and VA funding fees among them, aren't interest and can't be deducted as points, either immediately or over the life of the loan.
Seller-paid points and other special cases
When a seller pays points to help a buyer secure financing, the seller can't deduct them as interest, but they do reduce the seller's amount realized as a selling expense. The buyer, meanwhile, reduces their basis in the home by the seller-paid amount and treats those points as if paid personally, deductible under the same tests above.
If the funds you provided at closing were less than the points charged, you can still deduct points up to the amount you actually provided, plus anything the seller paid, with the remainder spread over the loan term. If the points paid exceed what's typically charged in your area, only the typical amount is deductible immediately; the excess spreads over the loan's life. Points on a loan for a second home are never fully deductible in the year paid; they always spread over the loan term, regardless of how well you meet the other tests. If you spread points over a loan's life and the mortgage ends early, through prepayment, refinancing with a different lender, or foreclosure, you can generally deduct whatever balance remains in the year it ends. Refinancing with the same lender is the one exception: the remaining balance carries over into the new loan's term instead.
Refinancing and second homes
Points paid to refinance a mortgage generally aren't deductible in full in the year paid, even when the refinanced loan is secured by your main home. There's an exception: to the extent you use part of the refinance proceeds to improve your main home, and meet the first five tests listed earlier, that portion of the points is fully deductible immediately, while the rest spreads over the loan term. Working out the improvement-related share can take some calculation, since it's based on the proportion of proceeds actually used for improvement versus other purposes like debt repayment.
Related guide
If you're weighing a refinance or purchase alongside a future sale, see our guide on Selling Your Home: How to Minimize the Tax on the Gain.
What Form 1098 tells you
Your mortgage interest statement, Form 1098, reports total interest paid during the year and, if you purchased a home during the year, the deductible points paid, including any seller-paid points. As a general rule, Form 1098 only reflects points fully deductible in the year paid; points you're spreading over the loan term, or certain other deductible points not shown on the form, still need to be tracked separately using the rules above.
Frequently asked questions
Are points on a refinance ever fully deductible right away?
Only to the extent the refinance proceeds went toward improving your main home, and only if you otherwise meet the deductibility tests. The rest of the points spread over the new loan's term.
Can I deduct points on a vacation home purchase?
Not in the year paid. Points on a second home always have to be spread over the life of the loan, regardless of whether you meet the other tests that would allow immediate deduction on a main home.
What happens to unspread points if I sell the home?
You can generally deduct any remaining, un-deducted balance of points in the year the mortgage ends, whether through sale, payoff, or foreclosure, as long as you didn't refinance with the same lender.
Does Form 1098 show everything I can deduct?
Not necessarily. It generally reflects points fully deductible in the year paid but may omit points you're required to spread over the loan term or other deductible amounts, so it's worth reviewing against your own settlement statement.
Not sure how your points should be treated?
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Schedule a consultationThis guide is for general informational purposes only and is not tax, legal, financial, or investment advice. It does not cover every situation or exception that may apply to you. Consult a licensed professional before making decisions based on this information.