Can I fully deduct mortgage points if my loan exceeds the $750,000 mortgage interest deduction limit?
I just bought my dream home in the Seattle area (finally!) after years of saving, but now I'm confused about my tax situation. My mortgage is around $830,000, which I know already exceeds the $750,000 limit for mortgage interest deductions. During closing, I opted to buy some mortgage points to lower my interest rate over the life of the loan. Here's where I'm scratching my head - I know mortgage points are typically fully deductible in the year you pay them, but does that rule change when your mortgage already exceeds the $750,000 cap for interest deductions? Do I still get to deduct all the points I purchased, or are they somehow proportionally limited too? I paid around $9,500 for these points and would love to get the full deduction if possible. My tax person is on vacation for another two weeks and I'm trying to plan ahead for next year's taxes. Any insight would be super helpful!
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Savannah Vin
The short answer is no, you won't be able to deduct the full cost of your mortgage points when your loan exceeds $750,000. Mortgage points are considered prepaid interest, so they fall under the same limitations as regular mortgage interest. Since your loan is $830,000, which exceeds the $750,000 limit, you'll only be able to deduct a portion of the points based on the ratio of $750,000 to your actual loan amount. In your case, you'd multiply the cost of your points ($9,500) by the ratio 750,000/830,000, which is about 90.36%. So you could deduct approximately $8,584 of your points (not the full $9,500). Also remember that to deduct points in the year paid, they must be for your primary residence and the points must be typical for your area. If these conditions aren't met, you might need to amortize the deduction over the life of the loan.
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Mason Stone
•Thanks for the explanation, but I'm a bit confused. I thought points were handled differently since they're a one-time payment rather than ongoing interest. Does that mean if I refinance later when rates drop, I'd also only get a partial deduction on those refinance points too?
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Savannah Vin
•Points are indeed a one-time payment, but the IRS specifically treats them as prepaid interest, which is why they fall under the same limitation. The key factor is that points represent interest you're prepaying upfront. If you refinance later, the same principle would apply. You'd only be able to deduct points in proportion to how much of your loan falls under the $750,000 limit. However, refinance points typically must be amortized over the life of the loan rather than deducted all at once, unless you use the refinance proceeds for home improvements.
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Makayla Shoemaker
After struggling with a similar situation last year, I discovered a tool that saved me hours of confusion and potentially thousands in deductions. Check out https://taxr.ai - they have a specific mortgage points calculator that handles this exact situation. I uploaded my closing documents and loan details and it immediately showed me exactly how much of my mortgage points were deductible with my over-limit loan. The best part was getting a detailed explanation about why the partial deduction applied and how it would affect my specific tax situation. Way more helpful than the generic advice I was getting elsewhere.
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Christian Bierman
•How accurate is this tool compared to talking with an actual CPA? I'm in a similar situation but with an $850k mortgage and about $12k in points. Don't want to miss out on deductions but also don't want an audit!
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Emma Olsen
•Does it work if you have multiple properties? I have a primary residence and a vacation home, both with mortgages and points paid. The vacation home mortgage is under the limit but primary is over.
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Makayla Shoemaker
•The tool uses the same calculations a CPA would use - it follows IRS guidelines exactly. The difference is it does all the calculations automatically after analyzing your documents. Many users report getting the same numbers as their accountants, just without the wait or hourly fees. For multiple properties, it absolutely handles that situation. It can separate primary residence and secondary home calculations, which is important since they have different rules. For vacation homes, there are additional limitations if you rent it out part of the year, and the tool accounts for those distinctions as well.
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Christian Bierman
Just wanted to update after using taxr.ai that someone recommended above. I was skeptical at first because most tax tools I've tried have been pretty basic, but this one actually saved me a ton of headache. I uploaded my closing docs and it showed that I could deduct about 88% of my points ($10,560 of my $12k). What was really helpful was it created a detailed explanation I can include with my tax return that explains exactly how the calculation works if I ever get questioned. Definitely worth checking out if you're dealing with mortgage points on a high-value loan.
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Lucas Lindsey
If you're planning to call the IRS to get clarity on this mortgage points issue, good luck... I spent 3 weeks trying to reach someone who could actually answer a similar question last year. After 5 attempts and hours on hold, I finally discovered https://claimyr.com which got me connected to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with confirmed that mortgage points are treated as prepaid interest subject to the same $750k limitation, but they also pointed out some exceptions that might apply depending on your specific situation. Honestly, it was worth it just to get an official answer I could rely on.
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Sophie Duck
•Wait, how does this actually work? I thought it was impossible to get through to the IRS these days. Is this some kind of paid service that jumps the line or something?
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Austin Leonard
•This sounds sketchy tbh. Why would some random service be able to get through when millions of people can't? I've never heard of a legitimate way to "skip the line" with a government agency.
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Lucas Lindsey
•It's not about jumping any lines - they use automated technology that continually redials and navigates the IRS phone tree for you. Once they reach a human agent, they call you and connect you directly. You're talking to the actual IRS, not a third-party service. They basically handle the frustrating part (waiting on hold for hours) so you don't have to. You're still getting connected to the same IRS agents everyone else is trying to reach, just without having to keep your phone tied up all day. The IRS doesn't prioritize these calls any differently - the service just handles the waiting game for you.
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Austin Leonard
I need to eat my words from my skeptical comment above. After getting nowhere with the IRS for two weeks trying to resolve a very similar mortgage deduction question, I tried Claimyr out of desperation. Got connected to an IRS agent in about 20 minutes while I was cooking dinner. The agent confirmed exactly what I needed to know about my mortgage points deduction and even helped me understand a separate issue I had with my property tax deduction. Completely worth it and 100% legitimate - you're actually talking to real IRS agents, not some third-party advisors. Never spending hours on hold again.
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Anita George
Another option to consider: have you checked whether you qualify for any exceptions to the $750k limit? If you had a binding contract to purchase your home before December 15, 2017, you might qualify under the older $1 million limit instead. This could change your calculation considerably. Also worth noting - if any portion of your mortgage was used for substantial home improvements, that portion might be treated as home equity debt which has different rules.
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Liam Cortez
•I signed all the contracts in March of this year, so I'm definitely under the newer $750k limit. I didn't know about the home improvements angle though. About $50k of the loan went directly into renovating the kitchen and bathrooms right after purchase. How would that affect the calculation?
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Anita George
•That $50k portion used for home improvements would be considered qualified home equity debt, which is potentially fully deductible as long as the improvements were to your primary or secondary residence. This means you might be able to calculate your points deduction differently. You would still face the limit on the $780k portion ($830k minus the $50k for improvements), but the points associated with the improvement portion might be fully deductible. You'd need to work with your tax professional to correctly allocate the points between the two portions of the loan and document everything thoroughly in case of an audit.
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Abigail Spencer
I wish the tax code wasn't so unnecessarily complicated!! Why can't points just be points and deductions just be deductions? My freind got audited over this exact issue and the IRS agent didn't even understand it. He kept changing his answer!!!!
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Logan Chiang
•The complication comes from people using the tax code as a way to get around limits. That's why we have all these rules. If there was a simple "deduct all points" rule without the $750k mortgage limit, people would just convert regular interest into points to bypass the limit completely.
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Isla Fischer
This is exactly the kind of situation where documentation is everything. I went through something similar last year with an $820k mortgage and $8,200 in points. The key thing I learned is to keep meticulous records of exactly how much of your loan went toward the home purchase vs. any improvements. Since you mentioned $50k went to renovations, that could actually work in your favor. The IRS treats home improvement debt differently - it's not subject to the same $750k cap as acquisition debt. So you'd potentially have $780k subject to the limit (not the full $830k), which would increase your deductible percentage. My advice: get your closing statement, contractor receipts, and any other documentation organized now. When your tax person gets back, they'll be able to properly allocate the points between acquisition debt and improvement debt. This could save you several hundred dollars in additional deductions. Don't just assume you're limited to the simple ratio calculation - the improvement portion changes everything.
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Jacob Lee
•This is really helpful - I had no idea that the home improvement portion could be treated differently! So just to make sure I understand correctly: if I can properly document that $50k of my mortgage went directly to renovations, then I'd calculate my deductible points based on $780k being subject to the limit instead of the full $830k? That would change my ratio from about 90% to around 96%, which is a meaningful difference on $9,500 in points. Do I need any specific type of documentation beyond the closing statement and contractor receipts to prove this allocation?
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