Are mortgage points tax deductible? How the IRS treats points

The tests for deducting in the year paid

IRS Publication 936 for 2025 says you can fully deduct points in the year paid if you meet all of these tests:

1. The loan is secured by your main home, the one you ordinarily live in most of the time.
2. Paying points is an established business practice in the area.
3. The points were not more than what is generally charged in the area.
4. You use the cash method of accounting, as most individuals do.
5. The points were not paid in place of amounts normally listed separately, such as appraisal, inspection, title or attorney fees or property taxes.
6. The funds you provided at or before closing, plus any seller-paid points, were at least as much as the points. Your down payment, earnest money and other funds count, but not money borrowed from the lender or broker.
7. You used the loan to buy or build your main home.
8. The points were figured as a percentage of the loan amount.
9. The amount is clearly shown on the settlement statement as points.

If you meet all the tests, you can choose to deduct the points in full in the year paid or spread them over the loan.

When points must be spread

If any test is not met, you generally deduct points ratably over the life of the loan. Publication 936 notes some common cases:

• Second homes. Points on loans secured by a second home cannot be fully deducted in the year paid; they are spread over the loan.
• Refinancing. Points paid to refinance generally are not fully deductible in the year paid, with an exception for the part used to substantially improve your main home.
• Funds short of the points. If your own funds were less than the points, you can deduct up to the amount you provided in the year paid, plus any seller-paid points, and spread the rest.

Seller-paid points

When the seller pays points to help you get financing, the IRS says you treat them as if you paid them. If all the tests are met, you can deduct them in the year paid. You also reduce your home's basis by the amount of seller-paid points, which matters when you eventually sell.

When the mortgage ends early

If you have been spreading points and the mortgage ends, through a sale, payoff or refinance, Publication 936 says you can deduct any remaining balance in the year the mortgage ends. The exception is a refinance with the same lender, where you spread the remainder over the new loan's term.

The itemizing question

Points are deductible only as an itemized deduction. Whether itemizing beats the standard deduction depends on your total mortgage interest, state and local taxes, charitable gifts and other itemized items. In many first years, the combination of interest and points makes itemizing more likely, but run the numbers or ask a tax professional.

Records to keep

• Your Closing Disclosure or settlement statement showing the points.
• Form 1098 from your lender, which may report points paid.
• A note of seller-paid points and your adjusted basis.
• A running record of spread points still to deduct.

The bottom line

Points paid to buy your main home can often be deducted in full in the year paid if all the IRS tests are met. Otherwise, spread them over the loan and deduct the rest when it ends. Keep your closing documents, and check whether itemizing makes sense for the year.