How to Refinance for a Tax Write-Off
- 1). Review all the papers related to your mortgage loan. If you have previously refinanced the same loan, you may be able to deduct the points you paid on your previous refinancing. Points refer to a percentage of your loan amount that you pay at the beginning of the loan term and deduct over the life of the loan. For example, if you paid $3,000 in points for your last refinancing and have only claimed $500 of it, you can claim the remaining $2,500 when you refinance again.
- 2). Pay a larger amount in points when you refinance. Mortgage lenders usually express points as a percentage of the loan amount. For example, if you refinance $100,000 and pay 3 points, you will pay $3,000 (3 percent of $100,000). You can only deduct this amount over the life of the loan and not immediately. For example, if your new loan has a term of five years, you can only claim $600 per year (from $3,000/5). As such, the more you pay in points, the more tax you can write off.
- 3). Determine the amount of your current mortgage. You can claim all the interest you will pay on the portion of the new loan up to this amount. For example, assume you still owe $100,000 and intend to refinance to get a $200,000 loan. The tax authority considers the first $100,000 to be home-acquisition debt and allows you to deduct the interest on this portion of the loan.
- 4). Limit the amount by which your new loan will exceed your current loan to $100,000 to maximize your tax write-off. The tax authority only allows you to write off the points and interest on up to $100,000 of the non-home-acquisition debt portion of the refinanced loan. You can't claim the points or interest on the portion of the loan that is $100,000 over the old loan amount.