Did you know there are tax breaks to consider as a result of refinancing your VA loan or your FHA mortgage? But, to refinance your home loan for tax breaks from the IRS may be a bit extreme. Rather, think about these assocaiated tax considerations from refinancing a perk rather than a purpose.
Hopefully if you already have a mortgage you were informed by your loan officer or your tax preparer that some of your closing costs – discount points were tax deductible. If you didn’t and you recently bought a home in the past few years – make sure you speak to your tax preparer about doing an amended return in the event that you can get some more money back from the IRS.
Now, once you own your home and you refinance your mortgage you can get some additional tax breaks associated with any discount points you pay – but the deduction must be spread out over the life of your loan. What this means is that if you paid $3000 for example for discount points for a 30 year mortgage then you must divide the $3000 by 30 years to give you an annual deduction of $100 per year.
In the case that you refinance again say several years later because interest rates are low you will be eligible to deduct the remainder of the discount points your paid on the original mortgage in the year that you refinance provided you refinance with a new lender.
In the case of a refinancing with a new lender you will still be able to deduct any discount points from the new mortgage. But again, you must divide the points over the term of your loan to get your annual deduction. If you refinance with the same lender you will only be able to keep filing the same annualized deduction from your original mortgage along with the new annualized deduction from your new mortgage.
One last thing to mention – these deductions have nothing to do with the mortgage interest deduction that you get as a home owner with a mortgage. This discussion has to do with just the points/closing costs you pay when you refinance your mortgage.
As with all our news items – this article is for informational purposes only. To learn exactly how these tax break suggestions apply to you please speak directly to a tax professional.