How to Deduct Mortgage Points on Your Taxes

Purchasing mortgage points allows you to pay more upfront in exchange for a lower interest rate on a home loan. Doing so may reduce your monthly mortgage payment and the amount of interest you pay over time. Mortgage points can also qualify for a federal income tax deduction when you meet IRS requirements. Depending on the loan and how you use the proceeds, you may deduct eligible points in the year you pay them or spread the deduction over the life of the mortgage.

A financial advisor could help you create a financial plan for your home buying needs and goals.

What Are Mortgage Points?

Mortgage points are upfront charges that home buyers may opt to pay when obtaining a home loan. Depending on their structure, mortgage points may represent prepaid interest or fees connected with originating the mortgage. For tax purposes, only mortgage points that qualify as interest are deductible.

A common reason buyers pay discount points is to secure a lower mortgage rate. A common price for a point is 1% of the amount you borrow. On a $100,000 mortgage, for example, one point would cost $1,000.

Home buyers generally pay points at closing, separate from other expenses you may encounter when buying a home. Closing costs generally do not qualify as deductible mortgage interest as they are part of the closing process.

Are Mortgage Points Tax Deductible?

Mortgage points can qualify as deductible home mortgage interest when you itemize deductions and meet the applicable federal tax rules. In many cases, points are treated as prepaid interest and deducted gradually over the mortgage term. However, certain points on a main-home mortgage can instead qualify for a deduction in the year they are paid.

To deduct qualifying points in full in the year paid, you generally must meet a number of conditions:

• Your main home secures the mortgage.
• Paying points is customary in the area where you took out the mortgage.
• The amount charged is not unusually high for that area.
• You use the cash method of accounting.
• The points do not represent other closing expenses, such as appraisal, inspection, title, attorney or property tax charges.
• You contribute enough money at or before closing to cover the points rather than financing that amount through the lender or broker.
• You are using the mortgage proceeds to buy, build or substantially improve your main home.
• The points are based on the mortgage principal.
• The settlement paperwork separately identifies the points.

If you qualify to deduct points immediately, you may instead choose to spread that deduction over the term of the mortgage.

Because taxpayers generally claim mortgage points as an itemized deduction, the benefit also depends on whether itemizing exceeds your standard deduction. For tax year 2026, the standard deduction is $16,100 for single filers and married taxpayers filing separately and $32,200 for married couples filing jointly and qualifying surviving spouses. It’s $24,150 for heads of household. ¹

Using an income tax calculator can help you compare the potential effect of itemizing with the standard deduction.

When You’re Required to Deduct Points Over the Life of the Loan

When points do not qualify for the exception allowing for an immediate deduction, it’s generally necessary to deduct them over the mortgage term.

This commonly applies to points paid to refinance a mortgage. Even when the refinanced loan is secured by your main home, the points are generally deducted over the new loan’s term. However, if you use part of the refinancing proceeds to substantially improve your main home and satisfy the other IRS requirements, you may be able to deduct the portion of the points attributable to those improvements in the year you paid them. The remaining eligible points would generally be deducted over the life of the mortgage.

Points paid on a mortgage secured by a second home also cannot generally be deducted entirely in the year paid. Instead, it is necessary to deduct qualifying points over the life of the loan.

For that reason, the tax treatment can affect the calculation when deciding whether buying points makes sense. While paying points may reduce your mortgage rate and monthly payment, it’s also important to factor in the upfront cost and timing of any deduction.

How Mortgage Debt Limits Can Affect Your Points Deduction

The tax treatment of mortgage points also depends on whether the debt itself qualifies for the home mortgage interest deduction. If only part of a mortgage qualifies, that may also limit the deductible portion of the points.

This can matter with home equity borrowing. Interest associated with a home equity loan or line of credit may qualify when the proceeds are used to buy, build or substantially improve the property securing the debt, subject to the applicable mortgage limits. Using borrowed funds for personal expenses, however, generally does not produce the same mortgage interest deduction.

Homeowners with larger mortgages, refinanced debt or home equity borrowing may therefore need to determine how much of the underlying debt qualifies before calculating the deduction attributable to points.

How to Deduct Mortgage Points on Your Taxes

If your mortgage points qualify for a deduction, you will generally report them as an itemized deduction on Schedule A of Form 1040. Points associated with the purchase of your principal residence may appear in Box 6 of Form 1098.

Form 1098 can also show information such as the mortgage interest received by the lender during the year and the outstanding principal balance.

Some deductible points may not appear on Form 1098. In that situation, your settlement paperwork can provide the amount paid. You may need to calculate the deductible portion separately when completing Schedule A.

If you’ve been spreading a points deduction over the mortgage term and pay off the loan ahead of schedule, the remaining eligible amount may generally be deductible in that year. The treatment may differ if you replace the old mortgage with a new loan from the same lender.

Are Mortgage Points Tax Deductible When Paid by the Seller?

A buyer may still qualify for a deduction when the seller pays points on the buyer’s mortgage. For federal tax purposes, the IRS generally treats qualifying seller-paid points as though the buyer paid them.

There is another tax effect to consider, though. When the buyer deducts those seller-paid points, it’s typically necessary to reduce the home’s tax basis by the amount deducted. That lower basis can matter later when calculating a gain or loss on a future sale.

Talking to a tax professional or your financial advisor can help you determine how seller-paid points affect both your current deduction and the basis you will use when calculating a future gain or loss on the home.

Bottom Line

Buying mortgage discount points can lower the interest rate on a home loan, but the tax treatment depends on the mortgage, the property securing it and what you use the borrowed funds for. Certain qualifying points associated with buying, building or substantially improving a main home may be deductible in the year paid. For others, however, you’ll generally have to spread them out across the mortgage term.

Mortgage Planning Tips

• Consider talking to your financial advisor about whether it makes sense to buy mortgage points if you’re planning to buy a home. SmartAsset’s free tool matches you with financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Keep in mind that mortgage points aren’t the only deduction you can claim as a homeowner. Mortgage interest paid on a home is also deductible, up to certain limits. However, you can only deduct mortgage interest on home equity loans or home lines of credit if you use the proceeds for home improvements or repairs.

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