TurboTax / Tax Calculators & Tips / All Tax Guides / Rental Property / Mortgage Refinance Tax Deductions

Mortgage Refinance Tax Deductions

Updated for Tax Year 2015


OVERVIEW

When refinancing a mortgage to get a lower interest rate or obtain more favorable loan terms, you're really just taking out a new loan and using the money to pay off your existing home loan. In general, the same tax deductions are available when you're refinancing a mortgage as when you're taking out a mortgage to buy a home. 


Mortgage interest tax deduction

With any mortgage -- original or refinanced -- the biggest tax deduction is usually the interest you pay on the loan. Mortgage interest is tax deductible, meaning you can subtract it from your income, if the following applies:

• The loan is for your primary residence or a second home that you do not rent out 
• The loan is secured by your home. This means your home serves as collateral for the loan; if you fail to make your payments, the lender can foreclose on the home 
• You "itemize" deductions on your tax return, meaning you list all of your deductible expenses, add them up, and then deduct the total amount. The alternative to itemizing is to take a standard tax deduction, which is a set amount you can claim regardless of your actual expenses. (Learn more about itemizing with "What Are Itemized Tax Deductions?")

When you use TurboTax, it helps you decide which option -- itemizing or the standard deduction -- will save you more money. At year's end, your mortgage lender sends you a statement, called Form 1098, explaining how much you paid in interest.

Mortgage points paid

If you paid "points" when you refinanced your mortgage, you may be able to deduct them. Points are prepaid interest; you pay them upfront to get a lower interest rate during the period when you're repaying the loan. One point equals 1% of the loan amount, so if you paid 2 points on a $100,000 loan, for example, you would have paid $2,000. Points sometimes go by other names, including:

• Loan origination fee
• Maximum loan charge
• Discount points
• Loan discount

Points paid as part of a mortgage refinance usually must be deducted over the life of the loan. If you refinanced to a 15-year mortgage, for example, then you'd deduct a portion of the points each year for 15 years. This is different from points paid when you first bought the home; points on an original purchase can often be deducted in full in the year they're paid.

Settlement fees not deductible

You "settle" or "close" your mortgage refinancing when you sign all the paperwork to officially take out the new loan and pay off the old one. A number of fees and charges may be applied at settlement. These closing costs can add up to hundreds or thousands of dollars and may include such things as:

• Appraisal fees
• Attorney fees
• Inspection costs
• Legal and recording fees

These costs are generally not deductible in a mortgage refinance if they're for your residence. Learn more about what you can and cannot deduct when refinancing at the TurboTax AnswerXchange.

Rental properties

The rules are different when you're refinancing the mortgage on a property you use to generate rental income. Rent you receive from tenants is taxable income, and you must report it on your tax return. However, money you spend to generate that income can usually be deducted from your rental income. So you can deduct not only the interest and points paid on a mortgage on rental property, but also all closing costs and fees. (Learn more about tax deductions for rentals with “Rental Property Deductions You Can Take at Tax Time”.)

Get every deduction you deserve

TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.

For only $54.99*
Start for Free

Looking for more information?

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


Security is built into everything we do
Here's how
* Important Offer Details and Disclosures
  • Filing Deadline: IRS filing deadline for tax year 2015 is April 18, 2016 (except for residents of Massachusetts or Maine, where the IRS filing deadline for tax year 2015 is April 19, 2016).
  • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Free 1040EZ/A + Free State offer only available with TurboTax Federal Free Edition; Offer may change or end at any time without notice. Actual prices are determined at the time of print or e-file and are subject to change without notice. Savings and price comparisons based on anticipated price increase expected 3/18/16. Special discount offers may not be valid for mobile in-app purchases.
  • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal e-file of up to 5 federal tax returns. Additional fees apply for efiling state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase expected 3/18/16. Prices subject to change without notice.
  • Anytime, anywhere: Internet access required; standard message and data rates apply to download and use mobile app.
  • Fastest refund possible: Fastest tax refund with efile and direct deposit; tax refund timeframes will vary.
  • Pay for TurboTax out of your federal refund: A $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice. This benefit is available with TurboTax Federal products except the TurboTax Home & Business/QuickBooks Self-Employed bundle offers.
  • About our TurboTax Product Experts: Customer service and product support vary by time of year.
  • About our credentialed tax experts: Live tax advice service is available via phone for your toughest tax questions; fees may apply. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Not available for TurboTax Business customers.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2014 TurboTax products.
  • Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.