Mortgage Interest

• Homeowners who itemize their 1040 tax returns may deduct the cost of interest paid on home mortgages. The mortgage must be for the primary residence and not exceed a $1 million balance. Homeowners document the amount of paid interest using line one of the IRS Form 1098 -- mortgage interest statement. Since you refinanced your mortgage, expect to receive at least two of these forms, one from each lender. As long as all of the loans qualify for the mortgage deduction, you may deduct the interest paid for the year on all of your loans.
  
  

Points Paid During the Refinance

• Line 2 of IRS Form 1098 reports the amount of points paid for a mortgage loan. The form specifically states this section is for points paid for the purchase of a primary residence. Sometimes mortgage lenders include points paid for a refinance loan as well. If you pay points on your refinance and they do not show up in this box, provide your CPA or tax professional a copy of your HUD-1 closing statement. Points paid for refinance may be deducted, but limitations apply, so consult your CPA or tax advisor. The mortgage company may or may not notify the IRS of these points.
  
  

Mortgage Insurance

• As of 2011, the IRS allows deduction of mortgage insurance. Box 4 of the IRS Form 1098 reports the amount of mortgage insurance premiums paid for the year. If your new refinance loan includes mortgage insurance, you may be able to deduct it from your taxes. If your new refinance loan eliminated mortgage insurance, the 1098 will not report any to the IRS. The 1098 from your previous loan will report the amount of mortgage insurance paid prior to the refinance.
  
  

Cash Received from the Refinance

• The IRS does not consider money received from the refinance of a home as income. Homeowners do not pay taxes on these funds even if they received hundreds of thousands of dollars, because it must be repaid. The 1098 filed by your new mortgage company will not mention these funds to the IRS.