Points Are Tax Deductible


Points paid on a mortgage loan are tax deductible so long as they are “true” points. To be true point for the tax deduction the points have to exist for the purpose of buying down the interest rate. Think of it this way: because Mortgage Interest is Tax Deductible, points paid to lower the interest rate are like prepaying interest. In most cases tax deductible points will appear as Discount Points and not Origination Points. Discount Points will appear on the Closing Disclosure (formerly known as the HUD-1 Settlement Statement). There are programs (like Texas Vet, Bond Programs, etc.) that have “participation fees” where points are charged and appear as Origination Points, but these types of points are not tax deductible since they aren’t buying down the rate.

The timing of when Discount Points are allowed to be deducted depends on the transaction type.


For purchase loans the points paid at closing are deductible for that tax year; however, if the buyer did not pay the points directly with their own funds then the points have to be prorated over the life of the loan. For example, if $1,000 in points were charged but the borrower only brought $750 to closing and the remaining $250 was paid via Seller Concessions or Premium Pricing, then only $750 is allowed to be deducted and the remaining $250 has to be spread out over the life of the loan. Note: if the points paid were in excess for what is “common and customary” then the points need to be deducted over the life of the loan. Consult your CPA for what’s considered “common and customary.”


Points paid in association of a refinance have to be allocated over the life of the loan. This includes Home Equity Lines of Credit (HELOC).

Second Homes

Any points paid for loan pertaining to a second home must be deducted over the life of the loan, regardless if it’s a purchase or a refinance.

Home Improvement Loans

All points paid in association with Home Improvement Loans are tax deductible in the tax year that the points were paid.

Mortgage Ending Early

If a mortgage ends early due to prepayment, refinance, sale, etc. then any “unused” portion of points that are being deducted for the life of the loan can be “accelerated” and deducted in full. The exception to this rule is that if the loan is refinanced with the same servicer then the points still have to be allocated over the life of the loan. (Let’s be clear: you can use the same Loan Officer multiple times over and have the points be deductible – it’s only when you refinance directly with the servicer that they can’t be accelerated).