In a recent case brought before the United States Tax Court (Hurley 2005-125), the court ruled that the points paid for refinancing a property were tax deductible due to certain criteria being met by the Hurley’s. The case was brought to the Tax Court with the argument that the points paid for the home loan allowed the Hurley’s to obtain a lower rate, which resulted in a lower home loan payment. The monthly payment savings were in turn used for improvements to the property, including a new roof, carpet, and other repairs. Being that the Hurley’s provided documented proof of the improvements, the court ruled in their favor and allowed the points to be deducted from the Hurley’s taxes…all in the year the loan was refinanced.It is important to note that if you pay points to refinance a personal property, the points are only tax deductible if the refinance creates a lower home loan payment and the savings will be used for improvements to the property; or if the refinance transaction is being done to purchase an additional property. And as always, consult your mortgage and tax professional regarding your own specific situation to ensure that you meet the criteria needed for a deduction of this type.
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