IR-2003-127 -- Some Refinancing Costs May Be Deductible

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This is of interest to our American Readers who have just
refinanced a mortgage.
Some US Mortgage Refinancing Costs May Be Deductible
IR-2003-127, Nov. 3, 2003
WASHINGTON -- The Internal Revenue Service reminded taxpayers who
took
advantage of this year's low interest rates to refinance their
mortgages
that they may be eligible to deduct some costs associated with
their
loans.
Generally, 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 a refinanced mortgage -- they must deduct
the points
over the life of the loan.
To figure the annual deduction amount, divide the total points
paid by the
number of payments to be made over the life of the loan. Usually,
this
information is available from the lender. For example, a
homeowner who
paid $2,000 in points on a 30-year mortgage (360 monthly
payments) could
deduct $5.56 per payment, or a total of $66.72 for 12 payments.
Taxpayers
may deduct points only for those payments actually made in the
tax year.
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 out 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. Taxpayers with adjusted gross income above
$139,500 --
$69,750 if married filing separately -- also face limits on the
amount of
deductions they can take.
IRS Publication 936, Home Mortgage Interest Deduction, has
details on
deductions related to refinancing. It is available at the IRS Web
site,
www.irs.gov, or by calling (toll-free) 1-800-829-3676.
Web Links:
Publication 936, Home Mortgage Interest Deduction --
http://www.irs.gov/pub/irs-pdf/p936.pdf
IR-2003-127 -- Some Refinancing Costs May Be Deductible --
http://www.irs.gov/newsroom/article/0,,id=117607,00.html
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