Mortgage prepayment penalty tax deductible?

Question

I live in Houston, Texas and I am thinking about refinancing my house. If I do it now I have to pay a prepayment penalty that is equal to 6 months worth of interest payments. Would the penalty be tax deductible?

I also understand that there are some laws that prevent mortgage companies from charging these penalties. Is there anyone out there that can point me in the right direction so that I can find out if my mortgage prepayment penalty is illegal? Preferrably someone who knows about Texas laws?

Answer 1

If you pay off your home mortgage early, you may have to pay a penalty. You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan

So if the prepayment meets the above qualification, then yes you could claim it as Mortgage Interest on the Schedule A

Publication 936
http://www.irs.gov/publications/p936/index.html

Answer 2

yes it is a prepayment of interest
I am a mortgage banker