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# Tax Break Criteria for Mortgage Points

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### TERMINOLOGY

Paying mortgage points on your loan might seem like a forgotten cost to you after you pay them. Many borrowers pay mortgage points on their loans in order to buy down the interest rate. A point on a mortgage is equal to one percent of the total loan. The more points you pay, the lower your rate and monthly payment will be. While they can benefit you over the long-term, mortgage points can also benefit you right now, as a tax deduction that many homeowners overlook.

#### Tax Benefits

The points that you pay on a mortgage are tax deductible and can be deducted from your year-end tax filing. When you receive a 1098 from your lender at the end of the year, they will report the amount of mortgage interest that you paid. However, in the first year of your mortgage, they will also put the amount of money that you paid in points on there. In some cases, this can amount to quite a nice deduction.

For example, let's say that you bought a \$200,000 house and paid two points. This means that you paid two percent of the loan in mortgage points, which amounts to \$4,000. So, you can deduct \$4,000 from your taxable income in the year that you took out the mortgage. In addition to the interest that you paid on the mortgage over the year, this should be a sizable deduction for you.

In order to take advantage of the tax breaks associated with mortgage points, you need to file correctly. Usually, a tax professional will know to ask about points. However, you will want to make sure that they know that you paid points.

If you are doing the taxes yourself, you will have to put the deduction in the proper place on Schedule A. If you get a 1098 from your mortgage lender and the points show up on it as an itemized cost, simply take the number that is on there and fill it in to Line 10 of Schedule A. If you do not see it on your 1098, but it does appear on your closing costs, put it on Line 12 of Schedule A.

#### Requirements

In order to take the deduction, you have to meet a few simple criteria. For one thing, the house has to be your primary house. It cannot be your vacation home or secondary home. In addition, paying mortgage points has to be an accepted practice in your market. You also cannot volunteer to pay points instead of some other cost such as an appraisal fee.