Question

Mortgage Points Deduction After 2nd Refinance

Forum|Forum|5 years ago
March 1, 2021
2 replies
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I refinanced at the beginning of 2020 to a 20 year loan and paid 0.75 points ($2,707.50) to lower the rate. Now I know that I have to deduct that over the life of the loan ($2707.50 / 20 years = $135.37 per year), but now I am refinancing again in 2021 since the rates have dropped even more. I am now going to a 15 year loan and will have the same payment that I have as I am paying biweekly payments now. My question is how do I go about deducting the the other 19 years worth of points from the 20 year loan? Do I deduct it all on next years taxes since that loan is getting paid off in 2021? Or is it more complicated than that?

O

Opus 17

Employee

If you are refinancing with a different lender, you can deduct the remaining points when you pay off the old loan. If you refinance with the same lender, you must add the old points to any new points and spread them out over the new term.

B

bigred1821Author

Just to confirm, when my new lender pays off my old lender, which should be next month, that is the moment that I can deduct the remainder of the points from the old loan? So that would mean with my Tax Year 2021 taxes, correct?

O

Opus 17

Employee

Yes, if you are refinancing with a different lender in 2021, the remaining points from the old loan can be deducted in a lump sum on your 2021 tax return.

Carl11_2

Employee

Assuming this is for rental property and not your primary residence, here's how to deal with the points from the old loan *if* the new loan is with a different lender. Then after that is how to enter the points on the new loan so they are deducted over the life of the new loan, and not depreciated.

DEDUCT FINANCING FEES OF OLD LOAN WHEN REFINANCING

In the Assets/Depreciation section for that rental property, elect to edit/update the entry for your points.

- On the "Review Information" screen click Continue.

- On the "Did you stop using this asset 2021?" screen, click YES.

- On the "Disposition Information" screen, in the disposition date box enter the date you closed on the new loan. Then click Continue.

- On the "Special Handling Required?" screen, click YES.

- On the "Depreciation Deduction Amount" screen, select Transfer These Fees For Me To Other Expenses. Then click Continue.

You'll see the remaining fees of the old loan to be deducted in the Rental Expenses section, very last screen of that section. The entry will start with "Unrealized Refinancing Fees...."

ENTERING POINTS

here's how to enter the points in the Assets/Depreciation section.. (does not apply to entering the property itself, or any other property assets.)
- Select the Add and Asset button. (go straight to the asset summary if presented that option)
- Select Intangibles/Other Property, then continue.
- Select Amortizable Intangibles, then continue.
- Describe it as something like "2021 Financing Fees". Then enter the amount, and the closing date of the loan. Then continue.
- Select "purchased new", then "100% business use", enter the closing date of the loan (again), then continue.
- Code section is 163:Loan Fees, then continue.
- Useful LIfe in Years is the length of the loan, then continue.
- You can "show details" if you like. Then continue, and that does it