I refinanced my home in October 2009. My refinance price was $9,000, and I borrowed $20,000 to do home remodeling and upgrades to my home. I bought my home in 2001, and last before it was a FHA loan through Countrywide which is now Bank of America. Now I am with a new bank. Please let me know if there is anything I can claim on my income tax return regarding my refinance?
The answer to your question is "yes" if you paid points to get the refinance. According to the IRS, points are prepaid interest and may be deductible as home mortgage interest if you itemize deductions on Form 1040, Schedule A. If you can deduct all of the interest on your mortgages, you may be able to deduct all of the points paid on the mortgage. If your acquisition debt exceeds $1 million or your home equity debt exceeds $1,000,000, you cannot deduct all the interest on your mortgage and you cannot deduct all your points.
You can deduct the points in full in the year they are paid, if all the following requirements are met:
1. Your loan is secured by your main home (your main home is the one you live in most of the time).
2. Paying points is an established business practice in your area.
3. The points paid were not more than the amount generally charged in that area.
4. You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them.
5. The points were not paid for items that usually are separately stated on the settlement sheet such as appraisal fees, inspection fees, title fees, attorney fees, or property taxes.
6. The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. You cannot have borrowed the funds from your lender or mortgage broker in order to pay the points.
7. You use your loan to buy or build your main home.
8. The points were computed as a percentage of the principal amount of the mortgage, and
9. The amount is clearly shown as points on your settlement statement.
Points that do not meet these requirements may be deductible over the life of the loan. Points paid for refinancing generally can only be deducted over the life of the new mortgage.
You may be subject to a limit on some of your itemized deductions, including points; for more information on the adjusted gross income limitations please refer to the Form 1040 Instructions.
For more information on points, refer to Publication 936, Home Mortgage Interest Deduction. The information here was based on IRS Topic 504: Home Mortgage Points.
I hope this information helps you Find. Learn & Save.