Publication 530 - Tax Information For Homeowners

2. Paying points is an established business

Amounts charged for services. Amounts

end early due to a prepayment, refinancing,

charged by the lender for specific services con-

foreclosure, or similar event.

practice in the area where the loan was

nected to the loan are not interest. Examples of

made.

Example. Dan paid $3,000 in points in 2004

these charges are:

3. The points paid were not more than the

that he had to spread out over the 15-year life of

•

Appraisal fees,

points generally charged in that area.

the mortgage. He had deducted $1,400 of these

•

Notary fees, and

points through 2010.

4. You use the cash method of accounting.

Dan prepaid his mortgage in full in 2011. He

This means you report income in the year

•

Preparation costs for the mortgage note or

can deduct the remaining $1,600 of points in

you receive it and deduct expenses in the

deed of trust.

2011.

year you pay them. Most individuals use

You cannot deduct these amounts as points

this method.

Exception. If you refinance the mortgage

either in the year paid or over the life of the

with the same lender, you cannot deduct any

5. The points were not paid in place of

mortgage. For information about the tax treat-

remaining points for the year. Instead, deduct

amounts that ordinarily are stated sepa-

ment of these amounts and other settlement

them over the term of the new loan.

rately on the settlement statement, such as

fees and closing costs, see Basis, later.

appraisal fees, inspection fees, title fees,

Form 1098. The mortgage interest statement

Points paid by the seller. The term “points”

attorney fees, and property taxes.

you receive should show not only the total inter-

includes loan placement fees that the seller

est paid during the year, but also your deductible

6. The funds you provided at or before clos-

pays to the lender to arrange financing for the

points paid during the year. See Mortgage Inter-

ing, plus any points the seller paid, were at

buyer.

est Statement, later.

least as much as the points charged. The

Treatment by seller. The seller cannot de-

funds you provided do not have to have

duct these fees as interest; but, they are a sell-

been applied to the points. They can in-

Where To Deduct

ing expense that reduces the seller’s amount

clude a down payment, an escrow deposit,

Home Mortgage Interest

realized. See Publication 523 for more informa-

earnest money, and other funds you paid

tion.

at or before closing for any purpose. You

Enter on Schedule A (Form 1040), line 10, the

Treatment by buyer. The buyer treats

cannot have borrowed these funds from

home mortgage interest and points reported to

seller-paid points as if he or she had paid them.

you on Form 1098 (discussed next). If you did

your lender or mortgage broker.

If all the tests listed earlier under Exception are

not receive a Form 1098, enter your deductible

7. You use your loan to buy or build your

met, the buyer can deduct the points in the year

interest on line 11, and any deductible points on

main home.

paid. If any of those tests are not met, the buyer

line 12. See Table 1 for a summary of where to

must deduct the points over the life of the loan.

deduct home mortgage interest and real estate

8. The points were computed as a percent-

taxes.

The buyer must also reduce the basis of the

age of the principal amount of the mort-

If you paid home mortgage interest to the

home by the amount of the seller-paid points.

gage.

person from whom you bought your home, show

For more information about the basis of your

9. The amount is clearly shown on the settle-

that person’s name, address, and social security

home, see Basis, later.

ment statement (such as the Uniform Set-

number (SSN) or employer identification num-

tlement Statement, Form HUD-1) as points

Funds provided are less than points. If you

ber (EIN) on the dotted lines next to line 11. The

charged for the mortgage. The points may

meet all the tests listed earlier under Exception

seller must give you this number and you must

be shown as paid from either your funds or

except that the funds you provided were less

give the seller your SSN. Form W-9, Request for

the seller’s.

than the points charged to you (test 6), you can

Taxpayer Identification Number and Certifica-

deduct the points in the year paid up to the

tion, can be used for this purpose. Failure to

amount of funds you provided. In addition, you

meet either of these requirements may result in

Note. If you meet all of the tests listed above

can deduct any points paid by the seller.

a $50 penalty for each failure.

and you itemize your deductions in the year you

get the loan, you can either deduct the full

Example 1. When you took out a $100,000

amount of points in the year paid or deduct them

Mortgage Interest Statement

mortgage loan to buy your home in December,

over the life of the loan, beginning in the year

you were charged one point ($1,000). You meet

you get the loan. If you do not itemize your

If you paid $600 or more of mortgage interest

all the tests for deducting points in the year paid

(including certain points and mortgage insur-

deductions in the year you get the loan, you can

(see Exception, earlier), except the only funds

ance premiums) during the year on any one

spread the points over the life of the loan and

you provided were a $750 down payment. Of the

mortgage to a mortgage holder in the course of

deduct the appropriate amount in each future

$1,000 you were charged for points, you can

that holder’s trade or business, you should re-

year, if any, when you do itemize your deduc-

deduct $750 in the year paid. You spread the

ceive a Form 1098 or similar statement from the

remaining $250 over the life of the mortgage.

tions.

mortgage holder. The statement will show the

Home improvement loan. You can also

total interest paid on your mortgage during the

Example 2. The facts are the same as in

fully deduct in the year paid points paid on a loan

year. If you bought a main home during the year,

Example 1, except that the person who sold you

to improve your main home, if you meet the first

it also will show the deductible points you paid

your home also paid one point ($1,000) to help

six tests listed earlier.

and any points you can deduct that were paid by

you get your mortgage. In the year paid, you can

the person who sold you your home. See Points,

deduct $1,750 ($750 of the amount you were

Refinanced loan. If you use part of the refi-

earlier.

charged plus the $1,000 paid by the seller). You

nanced mortgage proceeds to improve your

The interest you paid at settlement should be

spread the remaining $250 over the life of the

main home and you meet the first six tests listed

included on the statement. If it is not, add the

mortgage. You must reduce the basis of your

earlier, you can fully deduct the part of the points

interest from the settlement sheet that qualifies

home by the $1,000 paid by the seller.

related to the improvement in the year you paid

as home mortgage interest to the total shown on

them with your own funds. You can deduct the

Form 1098 or similar statement. Put the total on

Excess points. If you meet all the tests under

rest of the points over the life of the loan.

Schedule A (Form 1040), line 10, and attach a

Exception, earlier, except that the points paid

statement to your return explaining the differ-

were more than are generally charged in your

Points not fully deductible in year paid.

ence. Write “See attached” to the right of line 10.

area (test 3), you can deduct in the year paid

you do not qualify under the exception to deduct

A mortgage holder can be a financial institu-

only the points that are generally charged. You

the full amount of points in the year paid (or

tion, a governmental unit, or a cooperative hous-

must spread any additional points over the life of

choose not to do so), see Points in Publication

ing corporation. If a statement comes from a

the mortgage.

936 for the rules on when and how much you

cooperative housing corporation, it generally will

can deduct.

Mortgage ending early. If you spread your

show your share of interest.

Figure A. You can use Figure A as a quick

deduction for points over the life of the mort-

Your mortgage interest statement for 2011

guide to see whether your points are fully de-

gage, you can deduct any remaining balance in

should be provided or sent to you by January 31,

ductible in the year paid.

the year the mortgage ends. A mortgage may

2012. If it is mailed, you should allow adequate

Publication 530 (2011)

Page 6

Publication 530 - Tax Information For Homeowners - 2011 Page 6

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