Which Fees in a Mortgage Refinance Are Tax Deductible?
- Creatas/Creatas/Getty Images
Refinancing a home mortgage can be a smart financial decision. Lower interest rates, shorter loan terms and increased tax benefits are positive reasons to consider refinancing. Additionally, some fees in a mortgage refinance are tax deductible, allowing you to reduce your amount of taxable income at the end of the year. - Points that you pay on a home mortgage refinance can be deducted. According to MSN Money and the IRS, all points you pay when you refinance your home can be deducted on a monthly basis over the life of the new mortgage loan. The amount of the points must be broken down month by month for the duration of the new loan. Points can be deducted every year until the entire amount has been satisfied. Since the points are spread out over a period of time, the yearly deductions may not be very large, but they are still a significant mortgage refinance tax deductible fee.
- If you refinanced your home after 2006, then your mortgage insurance premiums (MIP) could be considered a deductible mortgage insurance fee. According to tax laws post-2006, insurance to secure a government-sponsored loan, including Federal Housing Authority (FHA) and Veteran's Authoritity (VA) loans, is usually tax deductible. According to Erate, for mortgage insurance contracts that were created to cover a home loan purchased after 2006, the entire MIP is tax deductible. MIP on a home purchased before 2006 is not deductible. Home owner's insurance is not the same as MIP mortgage insurance and is not tax deductible.
- Interest-related expenses in a mortgage refinance are deductible. Interest paid on a refinanced home loan is tax deductible as long as it does not exceed certain limits. According to Erate, the interest on a refinanced mortgage is tax deductible up to a $1 million for those who are married filing jointly and assumed their original home loan after October 13,1987. The limits are $500,000 for single tax payers and for those who are married filing separately under those same date restrictions. If the original purchase of the home was before October 13, 1987, there are no limits on the amount of interest that can be deducted with the new mortgage refinance. According to the IRS, closing costs, non-interest fees and appraisal fees are not tax deductible when refinancing a home loan.
