Refinanced Mortgage Points: Why can't I deduct them in the same year as payment?

The difference comes down to how the IRS views the purpose of the points. When you buy a home initially, those points are considered part of acquiring your primary residence, so they're fully deductible in that year. But for a refinance, the IRS considers those points more like prepaid interest rather than a necessary expense of buying a home. Their logic is that a refinance is essentially modifying an existing loan, not acquiring a home. That's why you have to amortize (spread out) the deduction over the life of the loan. There is one exception though - if part of your refinance was used for home improvements, you may be able to deduct the portion of points related to those improvements in the year paid. The rest would still need to be spread out.

After spending hours trying to understand my refinance tax implications, I found an amazing tool that saved me so much headache. I was confused about the same points issue and how to properly amortize them when I discovered https://taxr.ai during my late-night research. I uploaded my closing disclosure and refinance documents, and it instantly identified my mortgage points and calculated the exact yearly deduction amounts across my loan term. It even flagged that I had used $25,000 of my refinance for a bathroom renovation, which qualified for immediate partial deduction that I would have completely missed! The tool explained everything in plain English rather than confusing tax jargon. Really made sense of Publication 936 for me.

Wanted to follow up about that taxr.ai site mentioned earlier. I decided to give it a try with my complicated refinance situation and was honestly impressed. My refinance was a mess - part rate improvement, part cash-out for a new roof and windows, and part debt consolidation. The tool correctly separated the deductible vs non-deductible interest portions and calculated my points deduction schedule. It even created a year-by-year amortization table showing exactly what I can deduct through 2052! But the best part was it found that 40% of my points could be deducted immediately due to the home improvement portion. Saved me from making a $2,300 mistake on my taxes this year. Definitely recommend if you're dealing with mortgage points confusion.

I had the EXACT same question last year and spent weeks trying to get someone at the IRS to explain it. Called multiple times and could never get through - just endless hold music until I eventually gave up. Finally discovered https://claimyr.com which got me connected to an actual IRS agent in about 15 minutes. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c The agent walked me through the entire points deduction process for my refinance and confirmed I was calculating it correctly. Turns out I'd been doing it wrong for years on my previous refinance! She even helped me understand if I should file an amended return (decided it wasn't worth it for the amount). Saved me hours of frustration and potential audit headaches.

Well I need to eat my words about that Claimyr service. After posting my skeptical comment, I decided to test it myself with a different refinance points question I've been trying to get answered. I've literally spent MONTHS trying to get through to the IRS about how to handle the remaining unamortized points from my previous refinance that I did in 2022 (still had 27 years of deductions left). Used Claimyr yesterday and got connected to an IRS representative in about 20 minutes. They confirmed I could deduct all the remaining unamortized points from my previous loan on this year's return since I refinanced again. That's a $3,700 deduction I would have spread over nearly three decades! The agent even emailed me the specific section of the tax code so I have documentation if ever questioned. I've never been happier to be wrong about something.

I'm a loan officer and I see this confusion all the time with clients. Here's a simplified way to think about it: Initial mortgage points: These helped you BUY the house, so they're part of the acquisition cost = immediate deduction. Refinance points: These just helped you get a better LOAN, not buy the property = spread the deduction over loan term. It's like the difference between buying a car (deduct sales tax now) versus refinancing that car loan later (no immediate tax benefit).

Has anyone used tax software to handle refinance points? I tried doing this in TurboTax last year and found it super confusing. It asked if I paid points but didn't clearly separate refinance vs purchase points.