Mortgage Refinancing Tax Deductible Expenses - John R. Dundon II, Enrolled Agent
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Mortgage Refinancing Tax Deductible Expenses

Mortgage Refinancing Tax Deductible Expenses

With mortgage rates at levels not seen in generations and the banks finally starting to lend again many people have been calling with questions about the tax implications of refinancing. It can be a little confusing and this is my best attempt at explaining it in general terms without hitting line item detail of a HUD statement.

Mortgage interest is treated separately and distinctly from mortgage fees, charges and taxes. When loan proceeds are used for business or investment the charges are generally deductible over the life of the loan under Internal Revenue Code §162(a) or §212 and include among other items:

  • Overnight/courier fees
  • Underwriting fees
  • Credit report fees
  • Appraisal fees
  • Notary fees
  • Escrow fees
  • Title insurance fees
  • Document preparation fees
  • Flood certificate fees
  • Modification endorsement fees

Balances not amortized are deducted when the loan is paid off.

Items such as transfer, recording, and conveyance fees are treated as the cost of acquiring the property and included in the property’s basis under §263(a)(1).

If the loan proceeds were used for personal purposes, like your primary residence, taxes and points are generally deductible on Schedule A while most fees and charges are not.

To get an idea on how the tax court has ruled in the past check out Damer & Flynn v. Comm. TC Summary Opinion 2009-145