You can claim most deductions over the life of your refinance. This means that if you refinance your mortgage to a 15-year term, you must spread your deductions over 15 years of tax returns. Let’s take a look at how this works in practice. You may deduct the interest paid on your refinanced loan as long as you meet the criteria laid out above. You can claim the deduction every year that you make payments on your loan. However, you can only deduct the interest that you paid during that year. For example, you might pay $1,000 in interest on your mortgage loan during the 2021 tax year, so you can only deduct $1,000 from your taxes. This means that as your loan gets closer to maturity, you’ll be able to claim less and less in interest deductions because more of your payments go toward the principal. Not sure how much money you paid in interest this year? Your mortgage lender will send you a document called Form 1098 at the beginning of each new tax year. This is your Mortgage Interest Statement, and it tells you exactly how much you paid in interest. You don’t need to include a copy of your Form 1098 with your tax return, but your lender is responsible for forwarding the IRS a copy. If you don’t receive a Form 1098 by mail or you have questions about the balance on your statement, contact your lender.Mortgage Interest
Rocket Mortgage® clients may also access 1098 electronically by logging into their Rocket Account.
Discount Points And Closing Costs
You typically can’t deduct the total amount that you paid at closing the year that you refinance if you buy discount points. Instead, you must spread your deductions over the total course of your loan. For example, let’s say that you paid $5,000 at closing for discount points. Let’s also say that your refinanced loan has 10 years left on its term. You’d only be able to deduct $500 per year from your federal taxes. However, you can claim this deduction every year until your loan matures.
The same rules apply for closing costs on a rental property refinance. For example, if you spent $15,000 on closing costs for a 15-year refinance, you’d deduct $1,000 a year until your loan matures.
Remember that tax laws can change on a year-to-year basis. If you aren’t sure about the rules for this year, consider speaking to a CPA or other tax professional.
Mortgage Tax Deduction Restrictions
Keep in mind that most deductions only apply for homeowners who itemize their deductions. This means adding up all the individual deductions you qualify for and deducting them from your taxable income. You may choose to itemize your deductions or take the standard deduction. The standard deduction is a single deduction that anyone can claim, no questions asked. The standard deductions for 2021 are as follows:
$12,550 for single filers
$25,100 for married couples filing jointly
You can’t deduct things like interest and mortgage points if you take the standard deduction. This rule applies for both primary residence refinances as well as investment property deductions.
