Deductible Costs Associated with Refinancing Mortgage

The taxpayers who took advantage of this year's low interest rates to refinance their mortgages may be eligible to deduct some costs associated with their loans.

Generally, the taxpayers who itemize may deduct the "points" paid to obtain a home mortgage as interest. They may deduct the points on the mortgage related to a home purchase or a home improvement in the year paid, but for other loans - such as refinanced mortgage - they must deduct the points over the life of the loan.

A taxpayer who uses part of the refinanced mortgage money to pay for improvements to the home, and meets certain other requirements, may generally deduct the points associated with the home improvements in the year paid, spreading our the rest of the points over the life of the loan.

When refinancing for a second time, or paying off a loan early, a taxpayer may deduct all the not-yet-deducted points from the first refinancing when that loan is paid off.

Other closing costs such as appraisal fees and processing fees, generally are not deductible.

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