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Are mortgage points tax deductible? Sometimes — here are the rules.
Mortgage points have become a hot topic in recent years as mortgage rates steadily rise. Able to reduce your interest rate and, thereby, your monthly payment, they’ve been a popular choice for cash-strapped consumers buying on a budget. In fact, according to the Consumer Financial Protection Bureau, over 60% of home buyers used mortgage points in September 2023, nearly double the share seen just two years prior.
While these points come with a fee — 1% of the buyer’s total loan amount per point — they also come with a unique perk: a potentially valuable tax deduction. Here’s what you need to know about mortgage discount points when you file your taxes.
Dig deeper: How the mortgage interest tax deduction works
In this article:
What are mortgage points?
Mortgage points — also called discount points — are a tool used to reduce your mortgage rate. You pay a fee up-front (at closing), and your lender gives you a lower rate in exchange. Essentially, it’s a way of prepaying interest on the home loan and reducing your monthly payment.
You’ll pay 1% of the loan amount for every “point,” generally lowering your rate by around 0.25%. So, on a $500,000 loan, you’d pay $5,000 to go from a 7% rate to a 6.75% one. (Each lender does this differently, though, so you may get a smaller or larger reduction depending on who you choose to get your mortgage with.)
You can also buy fractional rates. For example, if you don’t want to spend the full $5,000, you could buy half a point and reduce your rate by 0.125% instead (or whatever fractional amount your lender offers).
Read more: What are mortgage discount points, and should you pay for them?
Is there a mortgage points tax deduction?
Many closing costs are tax deductible. Chief among them is mortgage interest. Since points are a form of prepaid mortgage interest, they’re also tax deductible.
How the mortgage points tax deduction works
Technically, you can write off all the mortgage interest you pay each year on up to $750,000 in total mortgage debt. That can be across multiple loans, and it can include mortgage points.
But here’s the catch: Even though you pay for mortgage discount points all at once (at closing), it’s usually not a one-time write-off.
For instance, if you pay $5,000 for points, you can’t deduct all $5,000 in one year. Instead, your deduction is spread out over your entire loan term. So, if you paid $5,000 for points on a 30-year loan, you’d divide that 5,000 by 360 — the number of months in your loan term — and deduct 12 months' worth of that cost every year you have the loan. In this example, that’d be a deduction of about $166 annually across 30 years.
Other requirements
To qualify for a points deduction, the property used to secure your mortgage loan must be a “qualified home.” In the IRS's eyes, this means a primary residence or second home with sleeping, cooking, and toilet facilities. Houses, condos, co-ops, mobile homes, houseboats, and other properties can all fall into this category.
If the property is a second home and you rent it out, you must meet certain annual usage thresholds to qualify for the write-off (otherwise, it’s considered a rental property and not a home). There are several rules about renting out your home and interest deductions, so speak with a tax professional if you have questions.
You can also deduct points on home equity loans and home equity lines of credit (HELOCs) — but only if the money was used to “buy, build, or substantially improve” your home, according to the IRS.
Itemizing deductions vs. taking the standard deduction
Finally, to write off home mortgage points, you need to itemize your tax returns rather than take the standard deduction. Here are the standard deduction allowances for the tax years 2024 and 2025.
Remember, you’ll pay your 2024 taxes in 2025 and your 2025 taxes in 2026. If your total potential itemized deductions come to less than the standard deduction, you’re likely better off not itemizing. Talk to a tax professional to be sure, though.
Dig deeper: Standardized vs. itemized tax deductions
Other homeowner tax benefits
Mortgage points and mortgage interest aren’t the only things you can deduct from your taxable income as a homeowner. Property taxes are also deductible (up to $10,000 annually), and you may be able to write off expenses like home office costs — as long as you use your home office specifically for business purposes.
You can also receive tax credits if you make specific energy-efficient home improvements, and you can get credits and deductions for making accessibility updates.
If you’re unsure which tax deductions you qualify for, talk to a qualified tax professional. They can help you decide if an itemized deduction is the best, maximize your write-offs, and reduce your total tax burden.
Learn more: Tax credit vs. tax deduction — What are the differences?
Mortgage points tax deduction FAQs
How do I claim my mortgage points on my taxes?
Your mortgage lender should mail you a Form 1098 detailing how much you paid in mortgage points and interest across the year. You’ll put this info into Line 8A on tax Form 1040, Schedule A, to claim these costs as an itemized deduction.
What mortgage fees are tax deductible?
You can deduct mortgage interest and mortgage points on your annual tax returns. Property taxes and home office costs are also popular homeownership costs that are tax deductible.
Can I deduct second home mortgage interest?
Yes, interest paid on your second home is tax deductible, but only up to the cap set by the Internal Revenue Service. The IRS lets you write off interest on up to $750,000 in total mortgage debt.
Is it worth claiming mortgage interest on your taxes?
That depends on how much interest you paid and other itemized expenses you would claim. The standard deduction for the 2024 tax year is $29,200 for married couples filing jointly, $21,900 for heads of household, and $14,600 for solo tax filers and married couples filing separately. For the 2025 tax year, the standard deduction will be $30,000 for married couples filing jointly, $22,500 for heads of household, and $15,000 for those filing solo or married filing separately. The standard deduction will likely save you more if your itemized deductions don’t exceed these thresholds.
This article was edited by Laura Grace Tarpley.
