Can I deduct mortgage origination fees as points when itemizing tax deductions?

Yes, mortgage origination fees can often be deducted as points when you itemize, but it depends on a few factors. The IRS generally allows deduction of loan origination fees if they're calculated as a percentage of your mortgage amount, which it sounds like yours are (2.5% of your loan). For the deduction to be valid, the fees must be for your primary residence, the payment of points must be an established practice in your area, and the points must be reasonable for your area. Since you mentioned this is your primary residence, you're on the right track. Look at your closing documents - specifically the Loan Estimate and Closing Disclosure. If the origination fees are clearly listed as a percentage of the loan amount, they likely qualify as deductible points. You'll report these on Schedule A under "mortgage interest and points.

I was in this exact situation last year with my home purchase and spent hours trying to figure it out. After getting nowhere, I discovered https://taxr.ai which analyzed my closing disclosure and instantly told me which fees qualified as deductible points. It literally highlighted the specific sections on my closing documents that were deductible and explained why each fee did or didn't qualify. It saved me from making a mistake that would have cost me over $2,000 in deductions. My origination fees were similar to yours, and it turned out only part of them qualified as points. The system explained the IRS rules about "services performed" versus actual points in a way that finally made sense.

I have to admit I was totally wrong about taxr.ai. After posting my skeptical comment, I decided to try it anyway since I've been confused about my mortgage points deduction for months. I uploaded my closing disclosure and within minutes it showed me exactly which fees qualified as points and which were service fees. Turns out I had been planning to deduct about $1,200 in fees that weren't actually eligible points, which could have caused problems. The breakdown was super clear showing the legitimate points versus the "services performed" fees that the IRS doesn't allow as deductions. Definitely worth checking out if you're trying to figure out mortgage deductions.

If you're struggling to get clear answers about your origination fees, you might want to ask the IRS directly. I had a similar question last year but couldn't get through their phone lines for weeks. Then I found https://claimyr.com which got me connected to an actual IRS agent in about 15 minutes instead of waiting on hold for hours. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with confirmed that origination fees that are calculated as a percentage of the loan amount (like your 2.5%) generally qualify as deductible points, but fees for specific services don't. She also walked me through exactly how to report it on Schedule A. It was way more helpful than all the conflicting info online.

Ok I need to apologize for my earlier comment. After a particularly frustrating morning trying to call the IRS myself about my mortgage deductions (3 hours on hold before being disconnected), I gave in and tried Claimyr. Within 18 minutes I was talking to an actual IRS representative who gave me definitive answers about my origination fee deductions. She confirmed that my percentage-based fees qualified as points but the administrative fees didn't. She also explained exactly which form to use. I've been doing my own taxes for 15 years and have always been proud of figuring things out myself, but I have to admit this was worth it just for the certainty of getting official information directly from the IRS. Sometimes being stubborn costs more than it saves.

Just a heads up - you need to check if you're actually going to be able to itemize your deductions before worrying about this. With the higher standard deduction ($12,950 for single filers, $25,900 for married filing jointly for 2022), many people don't end up itemizing anymore. Add up your state/local taxes (capped at $10k), charitable contributions, mortgage interest AND points, and see if they exceed the standard deduction. If not, this won't matter since you'll take the standard deduction anyway.

My tax guy explained that the key difference is whether the fee is for a specific service vs simply a charge for making the loan. True "points" are essentially prepaid interest, calculated as a percentage of the loan amount. If your origination fee is listed as "1% origination fee" (or 2.5% in your case), it's more likely to qualify. But if it lists specific services like "document preparation fee" or "underwriting fee," those usually don't qualify even if they're calculated as a percentage.

The distinction isn't really about what they call it - it's about what the fee actually represents. The IRS looks at the economic substance, not just the label. Points are essentially prepaid interest that you pay upfront to get a better rate or to secure the loan. Service fees are payments for specific work done during the loan process. Even if a lender calls something "points," if it's really paying for document prep, appraisals, or underwriting work, the IRS won't treat it as deductible points. Conversely, if they call it an "origination fee" but it's calculated as a percentage of the loan amount and isn't tied to specific services, it likely qualifies. The best approach is to look at your HUD-1 or Closing Disclosure form. Section A lists your loan terms and any true discount points. Section B lists origination charges. If your 2.5% fee appears to be a general loan origination charge rather than payment for itemized services, you should be able to deduct it as points when you itemize.