Got Questions On Refinancing?
If you are thinking about the possibility of obtaining a home mortgage refinance loan, you may have some questions ... including some very basic questions such as "what is refinancing?" You will be provided with valuable information about home mortgage refinancing here.

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Home Mortgage Refinancing: Tax Facts on Refinancing

When it comes to home mortgage refinancing, many people spend a great deal of time comparing interest rates and costs. However, you also need to pay attention to tax consequences related to home mortgage refinancing. Through this article, you are presented some of the important tax facts relating to home mortgage refinancing.

If you are planning to refinance your home soon, don’t miss another way to save money on it: your tax deduction. Your loan representative will very likely tell you that you can take deductions, but may not tell you what to do. You should consult a tax professional before you make your final decisions on financing.

Itemizing Points

First, you may be able to itemize the points you pay for your refinanced loan. A point is 1% of your loan amount, and is part of your refinancing fees. In some cases you can deduct all points in the year they were paid, although most must deduct points over the full term of the loan.

Home Improvements

The exception to deducting over the life of the loan is the homeowner who uses the money to build home improvements. Although the taxpayer must meet other criteria, these points may be deductible in the tax year in which she paid the points. If it’s a second refinancing, the points from the first refinancing that are paid off are also deductible. For details, see your local tax professional.

Technical Aspects

The IRS says you can find the amount of the deduction by dividing the points paid by the number of payments to fulfill the loan. The lender should provide this information to you, but remember that although points are fully deductible (even though by different methods), many other refinancing costs are not. Appraisal fees, surveys, and other fees that do not involve the payment of interest are not deductible.

Remember, though, that the IRS encourages you to itemize your taxes for these benefits. If you do, remember that if you pay less in interest, you have less of an overall deduction. So if you are refinancing to lower interest rates and monthly payments, ask for the lender’s help in figuring out if you will actually pay more in taxes (through reduced deductions) than you will save on the interest rate. If you don’t get a thorough answer, try a tax consultant or lawyer.

Seeking Professional Assistance

Taxation can be a complicated matter. If you need more assistance figuring out the tax ramifications of itemizing your taxes after refinancing your home, talk to a tax professional. It will be worth the few dollars to be well informed when it comes time to close your loan and how to file your taxes.

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