Did you refinance your mortgage loan last year? If so, don’t forget to deduct any points you prepaid for interest on your 2005 tax return. The points you pay are pre-paid interest; you pay up front to receive a lower interest rate. The good news for you is these points are a deduction on your tax return.
If you refinanced your mortgage last year you may have to deduct the points you paid over the life of the mortgage. This means for last year your deduction will be a percentage of the total amount you paid for points in 2005. The percentage you are eligible for is the total amount you paid in points divided by the term of the loan. (the term length is in number of months)
There is a way around this. If you refinanced twice in 2005 the full amount of your points is your deduction. Also, if you are cashing out for renovations or improvements your points are fully deductible.