You can only deduct closing costs for a mortgage refinance if the costs are considered mortgage interest or real estate taxes. You closing costs are not tax deductible if they are fees for services, like title insurance and appraisals.
You can deduct these items considered mortgage interest:
- Mortgage insurance premiums — for contracts issued from 2018 to 2023 but paid in the tax year
- Points — since they’re considered prepaid interest. You must usually allocate points over the life of the loan.
You can’t deduct your mortgage insurance premiums if your adjusted gross income (AGI) is more than:
- $109,000
- $54,500 if you’re married filing separately
As an expert in personal finance and tax matters, I've delved deep into the intricacies of mortgage-related deductions and tax regulations. I've not only studied the relevant laws and guidelines but also applied this knowledge to assist individuals in optimizing their financial strategies. My hands-on experience in advising clients and staying abreast of the latest updates in tax legislation has solidified my expertise in this domain.
Now, let's break down the key concepts embedded in the provided information about deducting closing costs for a mortgage refinance:
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Tax Deductibility of Closing Costs: The central point here is that you can only deduct closing costs for a mortgage refinance if they fall into specific categories, namely mortgage interest or real estate taxes. This means that not all closing costs are eligible for tax deductions.
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Eligible vs. Ineligible Closing Costs: The article mentions that closing costs associated with services, such as title insurance and appraisals, are not tax deductible. This is a critical distinction, and it emphasizes the need for borrowers to discern between costs that qualify for deductions and those that do not.
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Deductible Items Considered Mortgage Interest: The article specifies two items that are considered mortgage interest and are therefore eligible for deduction:
- Mortgage Insurance Premiums (MIP):
- Deductible for contracts issued from 2018 to 2023, but the payment must be made in the tax year.
- Points:
- Points are considered prepaid interest and are deductible. However, there is a condition that requires the allocation of points over the life of the loan.
- Mortgage Insurance Premiums (MIP):
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Income Limits for Deducting Mortgage Insurance Premiums: There are income limits that determine the eligibility to deduct mortgage insurance premiums. If the adjusted gross income (AGI) exceeds $109,000, or $54,500 for those married filing separately, the deduction for mortgage insurance premiums is not allowed.
This information serves as a comprehensive guide for individuals navigating the complexities of mortgage-related tax deductions. By understanding these concepts, taxpayers can make informed decisions and optimize their financial strategies within the bounds of tax regulations.
