Points! Those pesky fees charged by banks and loan brokers are annoying and can sometimes be incredibly large. The good news is that that fee can be deducted on your taxes.
The IRS says so! Surprisingly the IRS site on points is very easy to read.
Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. I have read the IRS page on points and I believe I have a clear understanding of how it works. However, I am not a tax professional nor do I give tax advice.
Attention Home Buyers: Please, please, please consult your accountant to see how much you can write off. Be sure to save your HUD-1 (the form which breaks-down the money) that you the receive from escrow.
So how is it deducted? Here is the example taken from the IRS site.
Example.
You use the cash method of accounting. In 2009, you took out a $100,000 loan payable over 20 years. The terms of the loan are the same as for other 20-year loans offered in your area. You paid $4,800 in points. You made 3 monthly payments on the loan in 2009. You can deduct $60 [($4,800 ÷ 240 months) x 3 payments; in 2009. In 2010, if you make all twelve payments, you will be able to deduct $240 ($20 x 12).
Have more questions? Read the IRS instruction for yourself on points:
http://www.irs.gov/publications/p936/ar02.html#en_US_publink1000229936
