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Blog: What's a Point?

Did you buy a house or refinance your mortgage in 2012? Local Realtor Marilyn Messenger reminds you how points may reduce your tax bill.

Pre-paid interest, sometimes called "points," is generally tax deductible when a person pays them in connection with buying, building or improving their principal residence. When points are paid on a refinance, they are not a current deduction but have to be taken pro-rata over the life of the mortgage.

For instance, if $3,000 in points were paid on refinancing a 30 year mortgage, deduction of $100 per year is allowed. When the loan is paid off or replaced by refinancing again or the home is sold and the mortgage paid off from the proceeds, the balance of any un-deducted points may be taken in that tax year.

Your tax professional needs to be made aware of any of these situations so that (s)he can accurately reflect the deduction in your return. Currently, the most common situation is where homeowners may be refinancing their home for the second, third or even fourth time. If there are points that have not been completely deducted, they need to be treated in the year of refinancing.

For more information, see points in IRS Publication 936; there is a section on refinancing in this publication. For advice considering your specific situation, contact your tax professional.

There is still time to buy and home and close before year-end. Tax deductions may change next year, so why not take advantage while you can still benefit. You can visit www.MarilynMessenger.com to see what homes are on the market.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Sudbury Newbie December 03, 2012 at 01:58 AM
Good reminder to deduct the remaining balance if you should refinance. Although it's usually not a good financial move to pay points. Some mortgage brokers push them since they earn extra commission.

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