What Can I Deduct In a Mortgage Refinance?

Whether or not you can deduct bank fees, attorney fees, and other closing costs depends on whether your loan is on your main or second home or a rental property.

If the mortgage refinance was for your main or second home then you are only allowed to deduct qualifying points over the life of the loan and no other fees. Qualifying points are usually fees paid to the lender for the loan. Bank fees, attorney fees, and other closing costs are not deductible.

If, however, the mortgage refinance was for your rental property then all expenses (including points plus other loan expenses) in connection with securing the loan are deductible over the loan term.

Unfortunately, you cannot deduct many other fees from a HUD statement when you refinance. Generally, if you refinanced your main or second home, you are only allowed to deduct qualified points over the life of the loan.

If, on the other hand, you refinanced your rental property you are allowed to deduct points and other fees that appear on your HUD statement such as, underwriting, appraisals, attorney, and title search fees. These fees would still need to be deducted over the term of the loan.

Qualifying points are considered pre-paid interest.  This interest is paid or treated as paid to the lender by a borrower to obtain a mortgage loan. Points can also be called loan origination fees, maximum loan charges, discount points, or loan discount.

Because points are pre-paid interest, they generally must be deducted over the life of the loan. Points charged for specific services such as appraisal fees, notary fees, preparation costs are not interest and cannot be deducted unless the fees were paid to refinance rental property.

For more information on qualified points click Can I Fully Deduct Points Paid on a Refinance?

In general, form 1098 includes points that may be fully deductible in the year paid. However, certain points not included of form 1098 also may be deductible either in the year paid or over the life of the loan.

Points paid to refinance your principal residence may not appear on form 1098, but are deductible over the life of the loan.

Sometimes you may be eligible to deduct points paid to refinance your home that were split with another borrower, but the other borrower is the only one that receives the 1098.

If this is the case, TurboTax will guide you and calculate the correct amount of points and will attach the required statement  to your return showing how much interest and points you paid and the name and address of the person who received the form.

We are here to help.  TurboTax will make all of the complicated behind-the-scene calculations for you.