Hey Dave,
I just had my home refinanced to a lower interest rate and to a 15-year fixed mortgage. What are some of the things that are associated with refinancing that I can claim on my taxes?
Brendan
Brendan,
Unfortunately, not a lot. If you had to pay a pre-payment penalty on the old loan and the penalty was a percentage of the loan, you can deduct this penalty as interest. If you paid any points on the new loan (also known as loan origination charges, loan discounts, or basically any charge that is a percentage of the loan amount up to certain maximums), you may amortize the points over 180 months (the term of the new loan) and deduct the points as appropriate each year. If you borrowed additional amounts on the new loan and you will be improving your home with these funds, then the points attributable to the home improvements are immediately deductible on this year’s tax return. If this refinance was with a new lender and you had any amounts you were amortizing in connection with the old loan, the remaining unamortized amounts are also deductible on this year’s return.
Other costs are either added to your home's basis or are considered personal expenses, depending on what the expense was for and your use of the proceeds of the loan. It is likely that most, if not all, of the other expenses would be added to your home’s cost basis.
Our answer assumes that you refinanced for at least the remaining amount on your mortgage, and that it was not a principal reduction loan. Principal reduction loans may have other tax consequences.
Congratulations on your refinance.
Deductibly Yours,
Dave