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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
5. Either your loan amount is $250,000 or Home improvement loan. You can also fully Original issue discount. If you don't qualify to
less, or the number of points isn't more deduct in the year paid points paid on a loan to either deduct the points in the year paid or de-
than: substantially improve your main home if tests 1 duct them ratably over the life of the loan, or if
a. 4, if your loan period is 15 years or through 6 are met. you choose not to use either of these methods,
the points reduce the issue price of the loan.
less; or Second home. You can't fully deduct This reduction results in original issue discount.
b. 6, if your loan period is more than 15 ! in the year paid points you pay on loans
years. CAUTION secured by your second home. You can
Amounts charged for services. Amounts
deduct these points only over the life of the charged by the lender for specific services con-
Example. You use the cash method of ac- loan. nected to the loan aren't interest. Examples of
counting. In 2023, you took out a $100,000 these charges are:
home mortgage loan payable over 20 years. Refinancing. Generally, points you pay to refi- • Appraisal fees,
The terms of the loan are the same as for other nance a mortgage aren't deductible in full in the • Department of Veterans Affairs (VA) fund-
20-year loans offered in your area. You paid year you pay them. This is true even if the new ing fees,
$4,800 in points. You made 3 monthly payments mortgage is secured by your main home. • Mortgage insurance premiums,
on the loan in 2023. You can deduct $60 However, if you use part of the refinanced • Notary fees, and
[($4,800 ÷ 240 months) x 3 payments] in 2023. mortgage proceeds to substantially improve • Preparation costs for the mortgage note or
In 2024, if you make all twelve payments, you your main home and you meet the first six tests deed of trust.
will be able to deduct $240 ($20 x 12). listed under Deduction Allowed in Year Paid, You can't deduct these amounts as points either
earlier, you can fully deduct the part of the in the year paid or over the life of the mortgage.
Deduction Allowed in Year Paid points related to the improvement in the year
you paid them with your own funds. You can de- Points paid by the seller. The term “points”
You can fully deduct points in the year paid if duct the rest of the points over the life of the includes loan placement fees that the seller
you meet all the following tests. (You can use loan. pays to the lender to arrange financing for the
Figure B as a quick guide to see whether your buyer.
points are fully deductible in the year paid.) Example 1. In 1999, you got a mortgage to
buy a home. In 2023, you refinanced that mort- Treatment by seller. The seller can't de-
1. Your loan is secured by your main home. gage with a 15-year $100,000 mortgage loan. duct these fees as interest. But they are a sell-
(Your main home is the one you ordinarily The mortgage is secured by your home. To get ing expense that reduces the amount realized
live in most of the time.) the new loan, you had to pay three points by the seller. See Pub. 523 for information on
2. Paying points is an established business ($3,000). Two points ($2,000) were for prepaid selling your home.
practice in the area where the loan was interest, and one point ($1,000) was charged for
made. services, in place of amounts that are ordinarily Treatment by buyer. The buyer reduces
stated separately on the settlement statement. the basis of the home by the amount of the
3. The points paid weren't more than the You paid the points out of your private funds, seller-paid points and treats the points as if he
points generally charged in that area. rather than out of the proceeds of the new loan. or she had paid them. If all the tests under De-
4. You use the cash method of accounting. The payment of points is an established prac- duction Allowed in Year Paid, earlier, are met,
This means you report income in the year tice in the area, and the points charged aren't the buyer can deduct the points in the year paid.
you receive it and deduct expenses in the more than the amount generally charged there. If any of those tests aren't met, the buyer de-
year you pay them. Most individuals use Your first payment on the new loan was due July ducts the points over the life of the loan.
this method. 1. You made six payments on the loan in 2023 If you need information about the basis of
and are a cash basis taxpayer. your home, see Pub. 523 or Pub. 530.
5. The points weren't paid in place of You used the funds from the new mortgage
amounts that are ordinarily stated sepa- to repay your existing mortgage. Although the Funds provided are less than points. If you
rately on the settlement statement, such new mortgage loan was for your continued own- meet all the tests in Deduction Allowed in Year
as appraisal fees, inspection fees, title ership of your main home, it wasn't for the pur- Paid, earlier, except that the funds you provided
fees, attorney fees, and property taxes. chase or substantial improvement of that home. were less than the points charged to you (test 6,
6. The funds you provided at or before clos- You can't deduct all of the points in 2023. You earlier), you can deduct the points in the year
ing, plus any points the seller paid, were at can deduct two points ($2,000) ratably over the paid, up to the amount of funds you provided. In
least as much as the points charged. The life of the loan. You deduct $67 [($2,000 ÷ 180 addition, you can deduct any points paid by the
funds you provided aren't required to have months) × 6 payments] of the points in 2023. seller.
been applied to the points. They can in- The other point ($1,000) was a fee for services
clude a down payment, an escrow deposit, and isn't deductible. Example 1. When you took out a $100,000
mortgage loan to buy your home in December,
earnest money, and other funds you paid you were charged one point ($1,000). You meet
at or before closing for any purpose. You Example 2. The facts are the same as in
can't have borrowed these funds from your Example 1, except that you used $25,000 of the all the tests for deducting points in the year
lender or mortgage broker. loan proceeds to substantially improve your paid, except the only funds you provided were a
home and $75,000 to repay your existing mort- $750 down payment. Of the $1,000 charged for
7. You use your loan to buy or build your gage. You deduct 25% ($25,000 ÷ $100,000) of points, you can deduct $750 in the year paid.
main home. the points ($2,000) in 2023. Your deduction is You spread the remaining $250 over the life of
8. The points were figured as a percentage $500 ($2,000 × 25% (0.25)). the mortgage.
of the principal amount of the mortgage. You also deduct the ratable part of the re-
maining $1,500 ($2,000 − $500) that must be Example 2. The facts are the same as in
9. The amount is clearly shown on the settle- spread over the life of the loan. This is $50 Example 1, except that the person who sold you
ment statement (such as the Settlement [($1,500 ÷ 180 months) × 6 payments] in 2023. your home also paid one point ($1,000) to help
Statement, Form HUD-1) as points The total amount you deduct in 2023 is $550 you get your mortgage. In the year paid, you
charged for the mortgage. The points may ($500 + $50). can deduct $1,750 ($750 of the amount you
be shown as paid from either your funds or were charged plus the $1,000 paid by the
seller). You spread the remaining $250 over the
the seller's. Special Situations life of the mortgage. You must reduce the basis
of your home by the $1,000 paid by the seller.
Note. If you meet all of these tests, you can This section describes certain special situations
choose to either fully deduct the points in the that may affect your deduction of points. Excess points. If you meet all the tests in De-
year paid, or deduct them over the life of the
loan. duction Allowed in Year Paid, earlier, except that
the points paid were more than generally paid in
Publication 936 (2023) 7
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