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Can I claim mortgage interest points? Form-1098

This page has been updated for 2018 taxes and may not apply to previous years.

 

Points are charges you pay (or charges treated as paid) by a borrower to obtain a home mortgage. They can be different types of points you pay on your mortgage, points may be deductible as home mortgage interest if you itemize your deductions.

Go to this section in Credit Karma Tax: Mortgage Interest Paid

Can I deduct points from my taxable income?

The mortgage interest statement (Form 1098) you receive should show not only the total interest paid during the year, but also your deductible points paid during the year. You may be eligible to deduct your points, regardless of whether you or the seller paid them.

Enter home mortgage interest and points reported to you on Form 1098 directly into Credit Karma Tax to add this information to your return at Mortgage Interest Paid.

You can deduct the full value of the points you paid in the year you paid them if all of the following is true:

  1. The home you live in most of the time secures your loan.
  2. Paying points is normal business practice in the area where the loan was made.
  3. The points paid weren't more than what’s typically charged for your 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. (this is common for most individuals)
  5. The points paid weren't for items such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes.
  6. You can't 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 the home you live in most of the time.
  8. The points are calculated as a percentage of the principal amount of your mortgage.
  9. The amount shows clearly as points on your settlement statement.
    Source: irs.gov

Otherwise, you may be able to deduct the points over the term of your mortgage, rather than fully in the year you (or the seller) paid them, because they are prepaid interest.

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