Mortgage-Related Tax Deductions

Tax Deductions if You Bought, Sold, or Refinanced Your Home

When you took out a mortgage to buy your home, did you pay points? You may be able to deduct that prepaid interest on your federal tax return — but only if you meet a long list of rules.

mortgage tax deduct

The points you paid when you signed a mortgage to buy your home may help cut your federal tax bill. With points, sometimes called loan origination points or discount points, you make an upfront payment to get a particular rate from the lender.

Since mortgage interest is deductible, your points may be, too.
If you itemize your deductions on Schedule A of IRS Form 1040, you may be able to deduct all your points in the year you pay them.

Some high-income taxpayers have their total itemized deductions limited, including points. You can read more about that in the instructions for Schedule A.

Lucky for you, the IRS doesn’t care whether you or the homesellers paid the points. Either way, those points are your deduction, not the sellers’.

Tip: Tax law treats home purchase mortgage points differently from refinance mortgage points. Refinance loan points get deducted over the life of your loan. So if you paid $1,000 in points for a 10-year refinance, you’re entitled to deduct $100 per year on your Schedule A.

 

The Fine Print for Deducting Points

The IRS rules for deducting purchase mortgage points are straightforward, but lengthy. You must meet each of these seven tests to deduct the points in the year you pay them.

1. Your mortgage must be used to buy or build your primary residence, and the loan must be secured by that residence. Your primary home is the one you live in most of the time. As long as it has cooking equipment, a toilet, and you can sleep in it, your main residence can be a house, a trailer, or a boat.

Points paid on a second home have to be deducted over the life of your loan.

2. Paying points must be a customary business practice in your area. And the amount can’t exceed the percentage normally charged. If most people in your area pay one or two points, you can’t pay 10 points and then deduct them.

3. Your points have to be legitimate. You can’t have your lender label other things on your settlement statement, like appraisal fees, inspection fees, title fees, attorney fees, service fees, or property taxes as “points” and deduct them.

4. You have to use the cash method of accounting. That’s when you report your income to the IRS as it comes in and report your expenses when you pay them. Almost everybody uses this method for tax accounting.

5. You must pay the points directly. That is, you can’t have borrowed the funds from your lender to pay them. Any points paid by the seller are treated as being paid directly by you.

In addition, monies you pay, such as a downpayment or earnest money deposit, are considered monies out of your pocket that cover the points so long as they’re equal to or more than points. Say you put $10,000 down and pay $1,000 in points. The downpayment exceeds the points, so your points are covered and therefore you can deduct them if you itemize. If you were to put nothing down but you paid one point, that $1,000 wouldn’t be deductible.

6. Your points have to be calculated as a percentage of your mortgage. One point is 1% of your mortgage amount, so one point on a $100,000 mortgage is $1,000.

7. The points have to show up on your settlement disclosure statement as “points.” They might be listed as loan origination points or discount points.

Tip: You can also fully deduct points you pay (for the year paid) on a loan to improve your main home if you meet tests one through five above.

 

Where to Deduct Points

Figured out that your points are deductible? Here’s how you deduct them:

Your lender will send you a Form 1098. Look in Box 2 to find the points paid for your loan.

If you don’t get a Form 1098, look on the settlement disclosure you received at closing. The points will show up on that form in the sections detailing your costs or the sellers’ costs, depending on who paid the points.

 

Report your points on Schedule A of IRS Form 1040.

There are two things related to points that you can’t deduct:

1. Interest buy-downs your builder paid

Some builders put money in an escrow account (as a buyer incentive) that the lender taps each month to supplement your mortgage payment. Those aren’t considered points even though the money is used for an interest payment and it’s prepaid. You can’t deduct the money the builder put into that escrow account.

2. Interest payments from government programs

You can’t deduct points paid by a federal, state, or local program, such as the federal Hardest Hit Fund, to help you if you’re experiencing financial trouble.

Fairhope History Lecture

EIGHT-PART LECTURE SERIES ON

FAIRHOPE HISTORY

January 6th – August 4th, 2015 6PM – 7PM
Giddens Auditorium, Fairhope Public Library

Have you recently moved to Fairhope? Lived here for years and never understood the important dates and personalities that make Fairhope special?

The Education Committee of the Fairhope Single Tax Colony is presenting a citizen’s primer on one of America’s most unique communities and hope you will join us for this free lecture.

historic fairhope

Topics and Speakers

January 6 – “Growing Up in Fairhope” – Anna and Reed Myers

February 3 – “History of Marietta Johnson’s School” – Maggie Mostellar-Timbes

March 3 – “Populism Gives Rise to the FSTC” – Donnie Barrett

April 7 – “Important Dates & Events in Fairhope History” – George Gilmore

May 5 – “The Bay Boat Era” – C.C. “Peco” Forsman

June 2 – “Mann History” – Alison Knight

July 7 – “History of Fairhope Art” – Dean Mosher

August 4 – “FSTC’s Contributions to Fairhope” – Lee Turner, President; Leslie Stejskal, Secretary FSTC 2014

Fairhope single tax colony logo

MARKET UPDATE

Market Report

Spanish Fort, Daphne, Fairhope

Pending or Under contract from 3-3-14 to 3-11-14

  • 41      Residential Properties
  • Ave      price $226,314
  • Average      Days 102
  • Average      Price/Sqft. $100

Just Fairhope

Pending or Under contract from 3-3-14 to 3-11-14

  • 13      Residential Properties
  • Average      Price $228,000
  • Average      Days 83
  • Average      Price/Sqft. $110

Spanish Fort, Daphne, Fairhope

Sold from 3-3-14 to 3-11-14

  • 25      Residential Properties
  • Average      Price $426,827( 2 homes sold $1,990,000 and $2,566,000)
  • Average      days on the market 187
  • Average      price/Sqft $125

 

Fairhope

Sold from 3-3-14 to 3-11-14

  • 11      Residential Properties
  • Average      Price $427,000
  • Average      days on the market 145
  • Average      price/sqft $261

 

The market is picking up but it’s an excellent time to buy!

 

Active Spanish Fort Daphne Fairhope Average
Total:  763 115 282 366
Price Per SqFt $116.72 $112.20 $184.00 $147.32
Days on Market 121 121 204 161
Average List Price $364,897 $302,538 $479,597
Pending/UC Spanish Fort Daphne Fairhope Average
Total:  172 23 80 69
Price Per SqFt $109.43 $87.70 $121.08 $103.99
Days on Market 183 172 208 188
Closed since 1/1/13 Spanish Fort Daphne Fairhope Average
Total:  1,516 225 664 627
Price Per SqFt $97.84 $90.25 $117.56 $102.67
List Price % 96.95% 97.53% 95.84% 96.74%
Days on Market 151 142 177 158
Average List Price $274,997 $215,803 $298,033
Average Sale Price $266,611 $208,958 $283,222
Market Update for January 2014

Mobile Eastern Shore Real Estate For Sale: 6461 Raintree Road

6461 raintreeMobile Eastern Shore Real Estate For Sale:

6461 Raintree Road, Fairhope AL36532

MLS# 178834

Magnificent views of 14 hole of Azalea, Lakewood’s finest golf course. Built in 2009 with incredible detail, this home boosts hardwood floors, tall ceilings, crown, open floor plan, main level master, den/office with built ins, oversized great room, and an isokern fireplace.  You will enjoy cooking in this fabulous kitchen with marble countertops, Wolf 6 burner gas stove. The 5th bedroom is in guest apt. with living, kitchen, and bath.

 Learn more about 6461 Raintree Road, and other Mobile Eastern Shore real estate for sale by visiting JudySells.com.

Search all Mobile Eastern Shore real estate for sale.

The Judy Niemeyer Team knows that selling or buying a Mobile Eastern Shore home is a major event in your life. It represents one of the largest single investments you may make in your lifetime. It is, therefore, our Goal to make this experience a seamless one. Whether buying Mobile Eastern Shore real estate or marketing Mobile Eastern Shore homes for sale, we will provide unparalleled professional, quality service and the most productive approach to achieving your goals.

You can contact Judy by email  or by calling 251-990-0569.

Mobile Eastern Shore Real Estate For Sale: 302 South Tee Drive

302 South Tee DriveMobile Eastern Shore Real Estate For Sale:

302 South Tee Drive, Fairhope AL 36532

MLS# 177786

Don’t miss this incredible home on the 16th tee of Quail Creek.  This wonderful home was built by McElmurry Builders and boasts an open floor plan with split bedrooms.  You will enjoy cooking in the chef’s kitchen.  Outside you will find a 18X32 feet salt water pool, which is heated, totally enclosed and has a Kool deck patio area.  The yard is fenced and very private with a side garden area.

Lean more about 302 South Tee Drive and other Mobile Eastern Shore real estate for sale by visiting JudySells.com.

Search all Mobile Eastern Shore real estate for sale.

The Judy Niemeyer Team knows that selling or buying a Mobile Eastern Shore home is a major event in your life. It represents one of the largest single investments you may make in your lifetime. It is, therefore, our Goal to make this experience a seamless one. Whether buying Mobile Eastern Shore real estate or marketing Mobile Eastern Shore homes for sale, we will provide unparalleled professional, quality service and the most productive approach to achieving your goals.

You can contact Judy by email or by calling 251-990-0569.