If you refinanced your mortgage last year, review your settlement papers as you get ready to file your 2007 tax return. Any points you paid to refinance a mortgage can be deducted over the life of the loan. Even better: if the loan was used for home improvements, in whole or in part, all or some of the points you paid may be deducted right away.
Suppose, for example, you refinanced an outstanding $500,000 mortgage in 2007 with a new, $600,000, 30-year loan. You paid $12,000 in points and used $60,000 of the loan proceeds to add an extra room to the house.
In this scenario, 10 percent of the loan was used for home improvements: $60,000 of $600,000. Therefore, 10 percent of the points you paid ($1,200) can be deducted in 2007. The other $10,800 you paid in points can be deducted over the 360-month term of the loan.
What’s more, suppose the mortgage you refinanced last year also had been a refinance, from 2004; you had points from that 2004 refinancing you were deducting over time. In this scenario, you can write off all the non-deducted points from that 2004 refinancing on your 2007 tax return.
