Can I deduct mortgage points if paid using lender credit on my taxes?

This is a great question about mortgage points! When you buy points to lower your interest rate, they're generally deductible as mortgage interest, but the source of the funds used to pay for them matters. Since you paid for the points using a lender credit, you actually can't deduct those points. The IRS views this as if the lender paid the points, not you. For a tax deduction to be valid, you need to pay the expense with your own funds. Think of it this way - you can't claim a deduction for something you didn't personally pay for out of pocket. It's similar to how you can't deduct charitable donations that someone else made in your name. The lender credit is essentially the lender covering that cost for you. If you had paid for some points with your own money and some with the lender credit, you could deduct the portion you personally paid for, but not the portion covered by the credit.

I was in the same situation last year and I found a tool that really helped me figure this out. I used https://taxr.ai to analyze my closing documents and it confirmed exactly what the previous commenter said - points paid with lender credits aren't deductible. The tool actually saved me from making a mistake on my return. You upload your settlement statement and it identifies which closing costs are deductible and which aren't. It explained that since the lender provided the funds for the points, I couldn't claim them as a deduction because I didn't actually pay them out of pocket. The analysis also pointed out other deductions from my closing that I could take, which partially made up for not being able to deduct the points.

Just wanted to follow up after using https://taxr.ai that was mentioned above. I was skeptical at first but decided to try it with my closing documents before my closing next month. The analysis was really detailed and showed me exactly which items would be deductible. For my situation, it confirmed that the $18,000 in points covered by my lender credit wouldn't be deductible, but it also identified about $3,500 in other closing costs that ARE deductible that I had no idea about! What I really appreciated was the explanation for each item - it didn't just tell me yes/no but explained the tax code reasoning behind each determination. Saved me from having an awkward conversation with my CPA about trying to deduct those points. Definitely worth checking out if you're in this situation.

Hey everyone, I had a similar situation last year and spent WEEKS trying to get through to the IRS to confirm whether I could deduct points paid with lender credits. Called literally 8 times and got disconnected or waited for hours. Finally discovered https://claimyr.com which got me connected to an IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed what others have said - points paid with lender credits aren't deductible because you didn't pay them out of pocket. They explained that from the IRS perspective, it's as if the lender paid the points, not you. The agent also mentioned that if you itemize, you should check if you have enough other deductions to exceed the standard deduction before worrying about this specific item. Was definitely worth the call to get an official answer straight from the IRS rather than worrying about getting it wrong.

Ok I have to eat my words. After seeing the comments here I was desperate enough to try Claimyr since I've been trying for TWO MONTHS to reach someone at the IRS about my mortgage deduction questions. I'm genuinely shocked but it actually worked! Got a call back in about 35 minutes and was connected directly to an IRS representative. Asked specifically about my situation with lender credits paying for points and got confirmation that those points aren't deductible. The agent also told me something nobody mentioned - if you refinance and pay points, those are generally deductible over the life of the loan rather than all in the first year like with a purchase. Totally different rule that I had no idea about. Saved me from making a pretty significant mistake on my taxes. Sometimes being skeptical means you miss out on services that actually deliver!

Has anyone considered whether the lender credit could be viewed as a rebate or price adjustment rather than "the lender paying"? I'm thinking that if the credit was part of the negotiated rate, it's really just adjusting the effective price you're paying for the house. I read somewhere that if seller pays your points, those ARE deductible because they're considered part of the house purchase price. Wondering if there's an argument that lender credits could work the same way?

Curious for those who've dealt with this - is it worth paying points at all if you can't deduct them? I'm about to buy my first home and trying to decide if I should use my lender credit for points or for other closing costs that wouldn't be deductible anyway.

This is such a helpful thread! I'm dealing with a similar situation and was totally confused about the lender credit rules. What I'm still wondering about is the timing aspect - if I used some of my own cash AND some lender credit to pay for points, how do I figure out which portion is deductible? My settlement statement shows $15,000 in points total, but I had a $10,000 lender credit that covered part of it. So I effectively paid $5,000 out of pocket for points. Can I deduct that $5,000 portion, or does the fact that any lender credit was involved mean I can't deduct any of it? Also, does it matter how the lender credit is specifically allocated on the settlement statement? Like if the credit shows as covering other closing costs instead of the points directly, but the net effect is the same?