Your Questions About Mortgage Refinancing Tax Deductible

Laura asks…

Tax question: are mortgage loan origination fees deductible?

Michigan, US, what part, if any, of fees charged by lender to refinance can be itemized or considered points on schedule A?

John answers:

Loan origination fees on a refinanced mortgaged can be deducted over the life of the mortgage. If you have a 15-year mortgage, you can deduct 1/15 of the fees each year as points.

In the year you pay off this mortgage, you can deduct the remaining origination fees.

Jenny asks…

What portion(s) of my closing costs are tax deductible?

For an FHA refinance mortgage loan, what portion(s) of the closing costs can I wrote off??

John answers:

You can deduct on schedule A, the amounts shown for (1) interest, (2) property tax for the period after you bought the home, (3) points or loan origination fees, (4) mortgage insurance.

All of the other costs would either (1) be added to the cost basis of your home or (2) be non-deductible.

Richard K
Master Tax Advisor
Enrolled Agent

This advice is based upon my understanding of the tax law at the time it was written as it applies to the facts provided by you. See my profile for more information.

Sandra asks…

Refinanced Mortgage and paid down some prior loan – what’s deductible?

I just refinanced. No Points, no PMI, just some typical fees, prepaid interest. But as a part of this refi, I had to pay down some of my prior loan balance down to the appropriate level so that my new mortgage didn’t exceed 80% of the assessed value. At closing, this amount was part of my closing costs, went to the title agent, who pays off my previous bank. My question – the title agent at closing said that the entire amount say $20K that I paid down my previous mortage by via closing is tax deductible as a cost of my new mortgage. And if I had paid the previous bank down directly prior to closing, it wouldn’t have been deductible. Is this deductible? I can’t see how it is. But she proceeded to swear it was, citing her H&R Block day job to bolster her credibility. Let me know what you think. Thanks. Brian

John answers:

If you are paying down the mortgage it is not deductible. The mortgage interest would be. Most closing costs add to the basis of your home. I do not trust what realtors say.

Sandy asks…

Should I pay a $1770 fee to refinance a 5.5%,12yr mortgage to a 4.75%,10yr term (Tax Bracket = 28%, P = 127k)?

Assuming that I can invest the money elsewhere to get a 4.5% return (after taxes), I don’t think I will break even if I refinance. Does this sound right? I am assuming that all my mortgage interest payments are tax deductible.

P stands for Principal remaining on mortgage.

John answers:

Up to you…below is the math

5.5% 12year
$46,767 Total Interest Paid at payoff

4.75% 10year
$32,787.96 Total Interest Paid

I personally would pay the $1,700 to save $14,000 over the course of the loan (assuming you don’t sell or move out)

Mary asks…

Is a 1% origination fee tax deductible (with a refinance loan at 4.375% for 30 years)?

My credit union has a 4.375% 30 year loan with a 1% origination fee. Is the origination fee tax deductible? How does the rate sound compared to what a mortgage broker might be able to offer?

Thanks.
Thanks for the answers. I just got a rate of 4.50% with no points.

John answers:

It would be deductible but amortized over the life of the loan.

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