Get a Tax Break for Refinancing Again

Although I refinanced my mortgage less than two years ago, interest rates are so low that I plan to refinance again. What costs can I deduct when I refinance for a second time?

Serial refinancers get an additional tax break on top of the usual mortgage-interest and property-tax deduction. You can deduct the points you pay to get a mortgage in the year you buy a home -- even if the seller paid the points for you (a point is equal to 1% of the loan). You can also deduct points paid to refinance a mortgage, but normally that deduction must be spread out over the life of the loan. So if you paid two points ($5,000 in this example) on a $250,000, 30-year mortgage, you can deduct just $166.67 per year for 30 years.

But if you refinance that mortgage, you can generally deduct all of the remaining points in the year that you pay off the loan -- as long as you refinance with a different lender. So if you had already deducted $500 of the $5,000 you paid in points, for example, you could write off the remaining $4,500 balance in the year you refinance. However, if you refinance with the same lender, you must deduct the points over the life of the new loan along with any points you might pay on your latest mortgage.

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For more information about tax breaks for refinancing and owning a home, see IRS Publication 530, Tax Information for Homeowners. And to help decide whether you can benefit from refinancing, see our Am I Better Off Refinancing? calculator.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.