You have recently refinanced and want to deduct the cost of closing your mortgage refinancing. Are refinance closing costs tax deductible?
Refinancing loan closing costs can only be deducted if these costs are considered as interest on the mortgage or property taxes. Closing costs are not tax deductible if they are service fees such as property insurance and valuation.
You can deduct those items that are considered as interest on the mortgage:
- Mortgage insurance premiums – for contracts concluded from 2014 to 2019, but paid in the tax year
- Points – because they are considered interest paid in advance. Usually points should be allocated for the whole loan period.
Tax deduction on mortgage interest
For any mortgage – primary or refinanced – the largest tax deduction is usually the interest you pay on the loan. In principle, mortgage interest can be tax deductible, which means you can deduct it from your income if the following conditions apply:
- The loan is for a primary residence or second home that you do not rent
- The loan is secured by your home. This means that your home serves as collateral for the loan; if you don’t make the payment, the lender can close the house
- You “position” the deductions in your tax return, which means you list all your deductible costs, add them up, and then subtract the total amount from your income. An alternative to the specification is the use of a standard tax deduction, which is a fixed amount that you can apply regardless of actual expenses. (Learn more about positioning with “What are special tax deductions?”)
Deductions from mortgage refinancing
Can the mortgage refinancing costs be deducted? It depends. In this section, we’ll discuss the different mortgage refinancing deductions that are available in 2019, show you how to apply, and discuss the limits of each.
If you have received refinancing your mortgage and have collected cash from the difference between the value of your home and your mortgage, you will be pleased to know that the IRS does not consider this income taxable.
Real estate taxes
If you refinanced near the property tax due date, you may have paid money for property tax at the time of closing the loan. If so, you can deduct the amount you paid in your tax return. However, you can only deduct property taxes that you or the mortgage company actually made during the year.
In most cases, other closing costs should also be covered when refinancing your home. These costs may include title fees, legal expenses, evaluation fees and other administrative expenses. You cannot deduct these fees from your taxable income.