Points on Old Mortgage

• When you initially financed your house, you probably agreed to pay points on the mortgage over the life of the loan. Since you’re refinancing your house, your old mortgage will be listed as paid in full, and you’ll be starting a new mortgage with new terms. That means the points on your old mortgage will also be paid in full at that time -- which allows you to deduct any mortgage points you hadn’t previously deducted on your taxes in the year that you complete the refinancing. Check your settlement statement after the refinancing to find out the amount you can deduct. Note that this only applies if the old mortgage was also a refinanced mortgage.
  
  

Points on New Mortgage

• The IRS considers refinancing a home slightly differently than it does the initial purchase of a home. If you’re purchasing a new home outright, you’re allowed to deduct the cost of all the points you pay at closing up front, in the year that you purchase that new home. However, if you refinance a home, the IRS says that you must divide the cost of any points you pay evenly over the life of your loan for deduction purposes. You’ll still get the deduction, but it will be a much smaller amount each year, since it will be spread out over time. You won’t get a big tax windfall at once due to refinancing.
  
  

Exception

• If you refinance your home with the same lender through which you had your old mortgage, points get handled slightly differently. Those points get rolled into the new mortgage, unlike if you had switched lenders. What that means for tax purposes is that you must now divide all combined points from the old and new mortgages over the life of the new loan. Then you can calculate the yearly deduction you’re entitled to according to IRS rules.
  
  

Home Renovation Projects

• If the reason you’re refinancing your home is a home renovation or other improvement project, save your receipts for the project. Calculate what percentage of the refinance funds you’re using to pay for that project. Then look at the points you’ve agreed to pay on the refinanced mortgage. You’re allowed to deduct the points paid on the amount used for eligible renovation projects in the tax year that you pay for the project.