Tricky??? tax questions.

[nicknamy1996]

I've been googling all day looking for an answer and I have had no luck. I'm hoping to get lucky here... or at least get pointed in the right direction.

When you refinance a house you can deduct the points you paid over the life of the loan.

Let say you pay 2000 in points on a 30 year refi. You can deduct 2000/360 or $5.55 per month. So for that first year take 5.55 x no. of payments and you can claim it as interest and 12 x 5.55 for years 2 through 29. This much I know.

Now here are my questions...


I am refinancing with the same company and understand I can 'roll the unclaimed points from my first loan in to my second' and deduct the sum of both (again divided by the 360 months)

BUT I haven't claimed any of the points yet, so...

1) Can I start claiming them now by adding the two point totals together since I haven't claimed any yet?
2) Do I have to take the original points and deduct the amount I could have claimed to this point?


I know I'm kind of all over the place here but in simpler terms )and not that you would want to) but that would essentially be the same question.:

If I paid 2000 in points on a 30 year refi. I am entitled to deduct 1/30 of that every year.

1) Would you be allowed to wait until the 30th year and deduct the full amount?
OR 2) deduct 1/30th of it
OR 3) Not do it at all since you didn't for the first 29 years.

WOW... thanks for sticking with me through that! And thanks in advance for any advice!

 

[EthansMom]

Nope, that's not the way it's done. You are supposed to ammortize the points over the life of the refinance. Since that first refinance is over, you will deduct the whole remaining portion on that tax year's (2009, if doing the refi this year) taxes. You then ammortize the points for the new refi over the life of that loan.

So, if you had already deducted $500 of the first refi's $2000 in points on prior year's taxes and paid some points on a new refinance, you would deduct the following: $1500 deduction for points from the first refi AND 1/360 * number of months of mortgage this year * amount of new points.

I hope this helps!

 

[nicknamy1996]

Nope, that's not the way it's done. You are supposed to ammortize the points over the life of the refinance. Since that first refinance is over, you will deduct the whole remaining portion on that tax year's (2009, if doing the refi this year) taxes. You then ammortize the points for the new refi over the life of that loan.

So, if you had already deducted $500 of the first refi's $2000 in points on prior year's taxes and paid some points on a new refinance, you would deduct the following: $1500 deduction for points from the first refi AND 1/360 * number of months of mortgage this year * amount of new points.

I hope this helps!

Thanks! That would be correct if I was not refinancing through the same company. When you do that you cannot deduct the balance of the points, but instead you must roll them in to your new loan.

However, my question is more... what if I haven't deducted any yet. Can I claim the full point value or do I miss out on what I haven't deducted which I could have?

 

[nicknamy1996]

bump

 

[Cheshire Figment]

If you refinanced twice within the same year you should have received two 1098s; one for each refinancing. On a 1098 the points will be separately stated. I would take the one that was opened and closed during the year and fully deduct the points, and amortize the one that was opened during the year and is still in effect.

Mike (CPA Retired).

 

[nicknamy1996]

Thanks again. My first refi was in March of 06. I have not claimed any of the points. I get that I could claim the balance of the points if I was refinancing through a new company. But since it is through the same company that is now allowed. And even that would play in to my original question which I'm still stumped on.

Can I roll over the whole amount of my original points(since I have not claimed any yet),
27/30th of them (since I am 3 years in to that refi)
or none (since I didn't for the first 3 years)

I'm debating talking to a tax pro, but I'm fairly confident I should (and can) go with the 27/30ths. Its not that much different and it's my own fault for not claiming them. My only issue could possibly be if because I didn't do it the first 3 years I somehow am not allowed to do it this year.

I don't see it being an issue. Lets say every year you can deduct $80 worth of points (1/30th of your original points on a refi) and you forget/don't for year 8, I'm sure the IRS lets you start back up at 9... but then I would ask do you get to claim years 8 and 9.

 

[allyphoe]

You refi'd once in some prior year, and paid points, but never amortized them? And you've now refi'd a second time with the same holder, and paid more points?

1) Calculate what would be left of the first round of points at 12/31/07 if you'd properly amortized them.

2) Calculate the amortization on the first points through the refi date - that's a 2008 deduction.

3) Subtract the number in Step 2 from the number in Step 1.

4) Add the number in Step 3 to your new points on the 2nd refi. Amortize that total over 360 months, starting in the month of the second refi. The bit that's allocated to the remainder of 2008 is the second piece of your 2008 deduction.

Points go on Line 12 of Sch A, not lumped in with the other mortgage interest.

 

[allyphoe]

(Oh, and 2006 and 2007 are still open, so you can amend to take the points on those years if it's enough to be worthwhile.)

 

[nicknamy1996]

Thank you very much for taking the time! That's what I was looking for. I would need to amend previous tax returns to get the missed money... not worth it. Actually I haven't done my 08 taxes yet so I could still put 12 months on there from the old refi and I only missed out on a couple of years.

But I can going forward. I will take my new points and my old points (minus the 3 years worth) add them up and divide by 360. Then claim my 8 months worth on next years taxes and then the 12 months worth each year for the next 29 years (in theory)

My first refi was to combine my 1st and 2nd (originally did an 80/10/10 to avoid PMI) and refi'ed them together when I was below 80% again. This time around (still below 80% of course) and I got a 4.25%. I'm hoping to never have to mess with it again.