Why can't I deduct refinanced mortgage points all at once in the same tax year I paid them?

But wait - if I paid $4000 in points to lower my rate, isn't that still directly tied to my home? And if I can deduct all my mortgage interest each year, why not prepaid interest too? This makes no sense to me.

The key distinction is that with an initial mortgage, the points are considered part of acquiring the property - a one-time event deserving one-time deduction. With a refinance, you're restructuring existing debt, so the points represent interest savings spread across future years. Regarding your other question, you can deduct regular mortgage interest each year because you're paying it for that specific year's loan. Points on a refinance represent interest for all future years, which is why the IRS wants you to spread the deduction across the life of the loan to match when you receive the benefit.

Sounds interesting but do they actually handle refi situations correctly? I tried using TurboTax last year and it completely messed up my mortgage point calculations. I ended up having to manually override everything.

I'm skeptical. How does it handle the situation where you've refinanced multiple times? I'm on my third refi in five years and completely lost track of the remaining points deductions from previous loans.

The system actually specializes in refi situations and handles them better than most tax software. It looks at each refinance separately and calculates the remaining deductions correctly, even tracking previously deducted amounts. For multiple refinances, it handles that really well. You just upload documents from all your previous refis, and it calculates the write-off of remaining points from paid-off loans plus the new amortization schedule. It saved me from completely overlooking about $980 in deductions from an earlier refinance that I could accelerate when I refinanced again.

How exactly does this work? Is it just another way to waste money while waiting on hold? I've tried those "premium" IRS phone services before and they were useless.

Yeah right. Nobody gets through to the IRS this time of year. Last time I called I was on hold for 2+ hours and then got disconnected. What's the catch with this service?

It's definitely not a waste of money. The service basically calls the IRS for you and navigates through all the prompts and wait times. Once they secure a place in line with an agent, they call you to connect. No more sitting on hold for hours. There's no catch - it just solves the miserable hold time problem. I was skeptical too after waiting 4+ hours myself multiple times. But with Claimyr, I got connected in about 15 minutes while I was making dinner. The IRS agent actually knew about mortgage point rules and walked me through exactly how to handle my particular refinance situation on my tax forms.

Is there a specific form or worksheet where we calculate this split between immediate deduction and amortized points? My loan officer never mentioned this and I used $35k from my refi last year for a bathroom remodel.

There isn't a specific IRS form just for this calculation. You'll need to determine what percentage of your loan was used for home improvements, then apply that percentage to your total points paid. For your situation with $35k used for the bathroom, you'd calculate what percentage that is of your total refinance amount. If your total loan was $300k, then about 11.7% of your points could be deducted immediately. You'd include the immediate portion with your other itemized deductions, and create a simple worksheet showing your calculation in case of audit. The remaining 88.3% would be spread over the loan term.

There's no minimum amount specified by the IRS for the home improvement exception. Whether it's $8k or $80k, the same rule applies - the portion used for home improvements can have points deducted immediately. Just make sure you keep good records of the renovation expenses to prove how the money was used.