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Refinanced Your Home – Claim A Tax Deduction For Points
By: Richard Chapo
The mortgage refinance market has cooled off dramatically with recent rate
increases. Many people, however, refinanced during 2005 and can claim tax
deductions.
Refinanced Your Home – Claim a Tax Deduction For Points
Mortgage rates have been shockingly low over the last few years. This is hardly
news to anyone that owns a home. The nominal rates, however, did result in a
major boom for the mortgage industry. As rates jostled up and down, millions
refinanced to save just the fraction more on their home loans. Heck, many people
refinanced multiple times! Alas, this rapid refinance craze has come to an end
with the rise in mortgage interest rates.
If you refinanced this past year to get lower rates, I have some good news. Not
only did you get lower rates, but you probably built up some additional tax
deductions you can use to cut your tax bill.
To obtain a mortgage, whether new or a refinance, homeowners often have to pay
points. These nasty little charges represent a percentage of the loan and are
typically an upfront charge. Fortunately, points are deductible. Generally, you
will claim a deduction for points as part of the mortgage interest deduction
that makes our real estate industry so attractive. The type of loan, however,
impacts how the points are deducted.
If you obtained a new home loan for a residence, you can deduct the full amount
of the points. To do so, however, you must itemize on your tax return. Since you
should be deducting the interest paid on the mortgage as well, this is a no
brainer.
If you refinanced an existing home loan for a residence, however, things are a
bit different. Yes, you can deduct the points paid on the refinance.
Unfortunately, you have to deduct them over the life of the loan. In practical
terms, you cannot deduct the full $3,000 you paid in points when you refinanced
in August of last year. Instead, you can deduct a percentage of the $3,000. The
percentage is the value of the points divided by the number of months of the
loan. There are two ways around this tax handicap.
If you refinanced twice in 2005, and some of you did, you can deduct the full
amount of the points on the first refinance. Why? You can do this because the
life of the first refinance was less than a year, which all occurred in 2005.
In certain cases, points may also be immediately deductible if you used a
refinance for home improvements. It is a bit technical and beyond the scope of
this article. If you actually used a refinance to improve the home, and you can
prove it with receipts, speak with a tax professional to write off all your
points immediately.
About the Author:
Richard A. Chapo is with http://www.businesstaxrecovery.com - recovery of
business taxes through tax help and tax relief. Visit http://www.businesstaxrecovery.com/articles
to read more business tax articles.
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