A homeowner can also deduct points used to obtain a mortgage when buying a home and mortgage interests paid during the year.

What are Points?

Points are certain costs that are associated with a mortgage, one of which is the loan origination fee, typically expressed as points. One point on a $200,000 loan would be $2000. On most mortgage loans, points are often broken down into two categories: the loan origination fee (usually 1 point) and discount points (which are a percentage of the loan balance). Both of these points are tax deductible. Keep in mind that the loan origination fee must be expressed in points in order for it to qualify as tax deductible.

Deducting Points

Points are deductible for the year in which they are paid as long as they meet certain conditions. The primary condition is that the mortgage is secured by the home you primarily live in.

In the case that the seller pays part of these points on behalf of the buyer, the buyer can still deduct the amount from his taxes, if and only if the seller does not do the same since the points cannot be deducted twice.

One exception to this is for people who earn an adjusted gross income of $128,950; there is a limitation on what they can deduct from their taxes.