We refinanced our mortgage in 2006 and 2400.00 for points was added in. The mortgage that was payed off had 2000.00 in points that I hadn't deducted in prior years. The 1098 form I received shows that 2400.00 was paid in points. (Even though we didn't actually pay them yet) Which of these amounts can I actually use? Or do I have to spread them out over the life of the loan? Also can I deduct the prepaid Interest and property taxes that shows on my refinance settlement statement, or would these already be added in on the 1098? I have tried researching these questions,but it seems like different sites give conflicting info. Thanks for your help!
2007-02-10 18:37:14 · 3 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ United States
the $2000.00 dollars in points from the first mortgage can be taken on your 2006 return, The $2400.00 would have to be spread over the life of the loan. The refiance paid off the balance of your mortgage including the points that were charged the first time. With a refinance you must spread the point over the life of the loan, Prepaid interest is deductible as are the property taxes.
See publication 936
http://www.irs.gov/publications/p936/index.html
2007-02-11 01:18:09 · answer #1 · answered by Anonymous · 1⤊ 0⤋
The deduction for the points on the new loan have to be spread out over the length of the new loan.
The un-deducted points on the old loan can be written off in the year you paid off that loan.
The interest on the money you took out when you refinanced is deductible as mortgage interest for up to an amount of $100,000. Interest on any amount above this is non-deductible unless you used the funds to improve the residence.
The interest on the cash out does not qualify as a deduction for the computation of alternative minimum tax.
2007-02-10 22:18:18 · answer #2 · answered by waggy_33 6 · 0⤊ 0⤋
Points incurred for the initial purchase of your principal residence is fully deductible in the year the home purchase is made. When you paid points on a refinance, the points are deductible ratably over the life of the loan, based on the mortgage payments. So if the new loan in the refinance is a 30 year mortgage, then the points is deducted evenly over 360 months. The prepaid interest and property taxes that was done during the escrow SHOULD have been included in the amount that appears on the 1098 for the new loan.
Also, when you refinance an existing mortgage and you take cash out of the equity in your home, if you do not use the cash out to make improvements on the home (i.e. you use the cash out to consolidate your credit cards), then the amount of mortgage interest attributable to the cash out is not deductible for alternative minimum tax purposes and is treated as a preference item.
2007-02-10 18:52:45 · answer #3 · answered by jseah114 6 · 1⤊ 2⤋
To be on the safe side I would go somewhere like HR Block and have them file your taxes.
You can also call the IRS and talk to them about the problem and they can help you for free. You can either call them or go to a local office with your question.
2007-02-10 18:48:38 · answer #4 · answered by Mami of 3 3 · 0⤊ 4⤋