Capture tax breaks when you refinance

Tax Tip of the Week
July 6, 2009

Did you refinance the mortgage on your home this year while interest rates were low? If so, be sure to put a copy of your closing statement in the file you're using to collect your 2009 tax information.

Why? Some of the settlement fees and closing costs might reduce your taxable income. For instance, points you paid to your lender in connection with the refinancing are typically considered deductible mortgage interest.

Ways you can benefit include:

• As a general rule, you can claim an itemized deduction for a portion of the points each year during the life of the loan.

  Example: You paid $4,500 in points when you refinanced the mortgage on your home in May. The new loan has a term of 15 years (180 months). Assuming you make six payments on the mortgage during 2009, you can take an itemized deduction of $150 ($4,500 divided by 180 months times six months). That's deductible in addition to regular mortgage interest you pay.

• Did you use part of the refinancing proceeds to improve your home? In that case, the portion of the points associated with the improvements you made are fully deductible this year.
• If you have not completely amortized or deducted the points you paid on your original mortgage, you can deduct the remaining balance in the year you refinance.

You may also qualify for other deductions when you refinance, such as premiums you pay for qualified mortgage insurance. Please call if you need more information or assistance.

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E-Mail us at: qa@ClevelandSeniors.Com