Mortgage points are tax deductible only if you meet specific conditions about the loan, the property, and how you use the deduction

Mortgage points—also called discount points—are upfront fees you pay to a lender to lower your interest rate. Whether you can deduct them depends on whether the loan is for your primary home or a second property, whether you paid the points yourself or the seller paid them, and whether you're itemizing deductions on your tax return. The IRS allows you to deduct points on loans secured by your main home or a second home, but not on investment properties, business loans, or most refinances.

If you meet the basic rules, you can deduct the full amount in the year you paid them, or spread the deduction across the life of the loan. The catch is that you must itemize deductions on Schedule A to claim points—if the standard deduction is larger, you get no tax benefit from the points at all.

Key Takeaways

  • Points on a loan for your primary residence or second home are deductible, but points on investment properties, business loans, or most refinances are not.
  • You can deduct the full amount of points you paid yourself in the year you paid them, or amortize (spread) the deduction over the loan term.
  • If the seller paid your points as part of the sale, you still deduct them, but you must reduce your home's cost basis by that amount.
  • Points on a cash-out refinance are amortized over the new loan term, not deducted in full in year one.
  • You must itemize deductions on Schedule A to claim points; the standard deduction may be larger and eliminate the tax benefit.

Which loans may have access to for the points deduction

The IRS allows you to deduct points on loans that are secured by your home—meaning the lender can foreclose if you don't pay. This includes mortgages on your primary residence and second homes (vacation homes, rental condos you live in part-time). The property must be real estate, and you must have a legal interest in it.

Points on investment properties do not may have access to. If you own a rental house or apartment building, points paid on the mortgage are not deductible as a personal tax item. They may be deductible as a business expense under different rules, but that is separate from the mortgage points deduction. The same applies to commercial loans or loans on land you don't build on.

Points on home equity lines of credit (HELOCs) and home equity loans are deductible if the borrowed money is used to buy, build, or substantially improve the home that secures the loan. If you use a HELOC to pay off credit cards or fund a vacation, the points are not deductible. The key is what you did with the money, not just that the loan is secured by your home.

The difference between new purchases and refinances

When you take out a new mortgage to buy a home, you can deduct all the points you paid in the year you closed the loan. This is the simplest scenario: you pay points upfront, you deduct the full amount on that year's tax return. You need documentation from your lender showing the amount of points paid at closing, which appears on your Closing Disclosure form.

Refinances are treated differently. When you refinance—replace an old loan with a new one—you must amortize the points, meaning you spread the deduction across the life of the new loan. If you paid $3,000 in points on a 30-year refinance, you deduct $100 per year for 30 years, not $3,000 in year one. The exception is a cash-out refinance where you borrow more than you owe and take the difference in cash. In that case, you can deduct points related to the portion used to improve the home in the year you paid them, and amortize points on the cash-out portion.

If you sell the home or pay off the loan early, you can deduct any remaining unamortized points in the year of the sale or payoff. This allows you to recover the full deduction even if you don't keep the loan for its full term. For example, if you refinanced with $2,400 in points on a 30-year loan and sold after 10 years, you would deduct the remaining $1,600 in the year of sale.

Who paid the points matters for your deduction

If you paid the points yourself, you claim the deduction directly. You need documentation from your lender showing the amount of points paid at closing, which appears on your Closing Disclosure form. This is the straightforward path: your money out, your deduction.

If the seller paid your points as part of the purchase agreement, you still deduct them—but with a catch. You reduce your home's cost basis (the value used to calculate depreciation or gain when you sell) by the amount the seller paid. This is a trade-off: you get the deduction, but your basis is lower, which means a larger taxable gain if you sell later. The seller cannot deduct points they paid on your behalf; that benefit goes to you.

If the lender paid the points by rolling them into the loan amount or crediting them against your rate, you did not pay them out of pocket. In this case, you cannot deduct them. The lender's cost is built into your interest rate instead. You will pay a slightly higher rate but avoid the upfront cash outlay and the need to itemize to claim a deduction.

Itemizing deductions versus the standard deduction

To claim the mortgage points deduction, you must itemize deductions on Schedule A of your tax return. You cannot claim points if you take the standard deduction. The standard deduction for 2024 is $14,600 for single filers and $29,200 for married couples filing jointly.

If your total itemized deductions—mortgage interest, property taxes, charitable donations, and points—add up to less than the standard deduction, you will pay less tax by taking the standard deduction instead. In that case, the points deduction provides no tax benefit. Many homeowners find that mortgage interest alone does not exceed the standard deduction, especially after the 2017 tax law changes capped the state and local tax deduction at $10,000.

If you are close to the standard deduction threshold, points might push you over it and make itemizing worthwhile. A tax professional can calculate whether itemizing saves you money in your specific situation. Some people benefit from bunching deductions in certain years—for example, making a large charitable donation in a year when you also have points to deduct, then taking the standard deduction in other years.

How to report points on your tax return

Points you deduct in full in the year of purchase go on Schedule A, line 8 (Mortgage interest and points). You will need the Closing Disclosure or a statement from your lender showing the dollar amount of points paid. The IRS does not require you to attach the Closing Disclosure, but keep it with your tax records in case of an audit.

If you are amortizing points over the loan term (as with a refinance), you deduct only the portion attributable to that tax year. Your lender or tax software can calculate this, or you can divide the total points by the number of years in the loan term. For example, $2,400 in points on a 30-year loan equals $80 per year. You report this $80 on Schedule A each year for 30 years.

If you paid off the loan or sold the home early and have unamortized points remaining, you deduct the full remaining balance in the year of payoff or sale. This also goes on Schedule A. For instance, if you sold after 10 years of a 30-year refinance with $2,400 in points, you would deduct the remaining $1,600 in the year of sale, plus the $80 for that year's amortization.

Points paid by the seller and your home's basis

When a seller pays points on your behalf, the IRS treats this as a reduction in your purchase price. You deduct the points as mortgage interest, but you must subtract that same amount from your home's cost basis. This matters if you sell the home later because your taxable gain is the sale price minus your basis.

A lower basis means a higher gain and potentially more capital gains tax. For example, if you bought a home for $300,000 and the seller paid $6,000 in points on your behalf, your basis is $294,000, not $300,000. If you sell for $400,000, your gain is $106,000 instead of $100,000. The difference in capital gains tax depends on your tax bracket and whether the gain qualifies for the primary residence exclusion.

In most cases, the tax benefit of deducting the points in year one is larger than the cost of a slightly higher gain years later, especially if you hold the home for many years. But the math depends on your tax bracket, how long you keep the home, and whether you will owe capital gains tax at all. A tax professional can compare the two scenarios for your situation.

Frequently Asked Questions

Can I deduct points on a second home or vacation property?

Yes. Points on a mortgage for a second home you own are deductible under the same rules as your primary residence. The home must be real property that you have a legal interest in, and you must itemize deductions. Investment properties and rental homes do not may have access to.

What if I paid points but didn't close until the next calendar year?

You deduct points in the year you actually paid them, not the year you closed the loan. If you paid points in December but the loan closed in January, you deduct them in the year you paid. Your Closing Disclosure will show the exact date of payment.

Can I deduct points on a home equity loan used to renovate my kitchen?

Yes. Points on a home equity loan or HELOC are deductible if the borrowed money is used to buy, build, or substantially improve the home that secures the loan. Kitchen renovations may have access to. If you used the HELOC for other purposes, the points on that portion are not deductible.

Do I lose the points deduction if I refinance again?

No. When you refinance, any unamortized points from the original loan become fully deductible in the year of refinance. Then you begin amortizing points on the new loan over its term. You do not lose the deduction; you recover it earlier.

Is the points deduction worth it if I plan to sell in five years?

It depends on the numbers. If you paid $5,000 in points and your tax bracket is 24%, the deduction saves you $1,200 in year one. If you sell five years later with unamortized points remaining, you deduct the rest in the sale year. Run the math with a tax professional, but in most cases the upfront deduction makes points a reasonable choice even if you don't keep the loan long-term.