Is Home equity points tax detuctible ?

Question

If home equity loan is received with points - Does the points are tax detuctible ?

Answer 1

A Home Equity Loan is a type of home mortgage.

Points (also called loan origination fees, loan charges, or loan discount fees) generally must be deducted over the life of the loan, unless they fit certain guidelines. To be deductible, they must be paid solely for the use of the money.

To be fully deductible in the year paid, the deduction can not exceed the number of points typically charged in an area. The loan must be secured by your main home and residence (not income property), and can not be rolled over into the loan. They must be paid up-front, and clearly labeled on documents you receive from the lender. Also, the funds must be used to buy or build a new home, or make improvements to your main home.

If you took out a home equity loan and bought a car with some of the funds, or paid off credit cards, for example, the loan would qualify as home equity debt, or home equity mortgage loan. It's possible the interest paid could be fully deductible, but the points would have to be deducted over the life of the loan.

Also, points are only deductible (on schedule A) if you itemize.

Prepaid interest is generally deducted over the life of the loan.

Answer 2

If the home equity loan was secured to pay for an addition to the home or improvements to it the points would be deductible in full in the year paid. Otherwise they can be deducted over the life of the loan on a straight line basis.

Answer 3

Points on a home equity loan must be amortized over the life of the loan.