Figure A. Are My Points Fully Deductible This Year?

Summary: This flowchart is used to determine if mortgage points are fully deductible for the current tax year.

Start

This is the starting of the flowchart.

Decision (1)

Is the loan secured by your main home?

Decision (2)

Is the payment of points an established business practice in your area?

Decision (3)

Were the points paid more than the amount generally charged in your area?

Decision (4)

Do you use the cash method of accounting?

Decision (5)

Were the points paid in place of amounts that ordinarily are separately stated on the settlement sheet?

Decision (6)

Were the funds you provided (other than those you borrowed from your lender or mortgage broker), plus any points the seller paid, at least as much as the points charged?
Footnote: The funds you provided do not have to have been applied to the points. They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose.

Decision (7)

Did you take out the loan to improve your main home?

Decision (8)

Did you take out the loan to buy or build your main home?

Decision (9)

Were the points computed as a percentage of the principal amount of the mortgage?

Decision (10)

Is the amount paid clearly shown as points on the settlement statement?

Process (a)

You cannot fully deduct the points this year. See the discussion on Points.

Process (b)

You can fully deduct the points this year on Schedule A (Form 1040).

End

This is the ending of the flowchart.

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