Are refinance points deductible?

Why a refinance is treated differently

Points on a purchase loan can qualify for a full deduction in the year paid because the nine tests in Publication 936 are written around buying or building your main home. A refinance usually fails the last tests. The new loan is for your continued ownership of a home you already have, not for buying or building it. The publication says so directly: points you pay to refinance a mortgage generally are not deductible in full in the year you pay them, and that holds even if the new mortgage is secured by your main home.

What replaces the year-paid deduction is the ratable method. The points are prepaid interest, so you spread them equally over the term of the new loan, provided you meet the ratable conditions: cash-method accounting, a loan secured by a home, a term of 30 years or less, terms in line with other local loans if the loan is longer than 10 years, and either an original principal of $250,000 or less or no more than 4 points (loan of 15 years or less) or 6 points (longer loan).

The publication’s first example

You bought your home in 2005 and in 2025 refinanced with a 15-year, $100,000 mortgage secured by your home. You paid three points ($3,000) out of your own funds: two points ($2,000) were prepaid interest and one point ($1,000) was a charge for services that would otherwise be stated separately on the settlement statement. Paying points is customary and not excessive where you live. Your first payment was due July 1, you made six payments in 2025 and you use the cash method. The new mortgage repaid the old one, so it was not used to buy or substantially improve the home. You cannot deduct all the points in 2025. The two prepaid-interest points are spread over 180 months, so 2025 gets $67 ($2,000 divided by 180, times 6). The other point is a fee for services and is not deductible.

The improvement exception

If part of the refinanced proceeds go into substantially improving your main home, the publication changes the answer for that part. Where you meet the first six tests for a year-paid deduction (main-home loan, customary points, not excessive, cash method, not in place of separately stated charges, and your own funds at least equal to the points) you can fully deduct the portion of points related to the improvement in the year paid, provided you paid them with your own funds. The remainder is spread over the life of the loan.

The second example uses the same facts but $25,000 of the $100,000 loan improves the home and $75,000 repays the old mortgage. The improvement share is 25%, so $500 of the $2,000 in prepaid-interest points is deductible in 2025. The other $1,500 is spread over 180 months, which gives $50 for the six payments made, and the total deduction for 2025 is $550. The calculator above follows that same method.

What counts as a substantial improvement

Publication 936 calls an improvement substantial if it adds to the value of your home, prolongs its useful life or adapts it to new uses. Routine repairs that only maintain the home, such as repainting, are not substantial improvements, though painting done as part of a larger renovation can be counted in the cost. Keep invoices that show where each dollar of the loan went.

Refinancing with the same lender again

If you already spread points on an older loan and then refinance, the leftover balance can usually be deducted in the year the old mortgage ends. The exception is a refinance with the same lender: the remaining balance cannot be deducted at that point, and you deduct it over the term of the new loan. Check who your lender was before you write off the old balance.

Cash-out refinances

A cash-out refinance mixes uses. Proceeds used to improve your main home belong in the improvement share above. Proceeds used for other purposes do not. The broader interest rules also matter: Publication 936 says the loan interest is deductible only to the extent the proceeds were used to buy, build or substantially improve the home. See the home equity loan interest page and the cash-out refinance calculator for the cash-flow side.

Where to report

Points you can deduct and that appear on Form 1098 go on Schedule A (Form 1040), line 8a. Deductible points not on Form 1098 go on line 8c. The publication warns that Form 1098 generally includes only points deductible in full in the year paid, and that certain points it omits may still be deductible over the loan, so keep your closing disclosure and an amortization record for the spread amounts.

Is refinancing worth it at all?

The tax rule is only part of the decision. Use the refinance break-even calculator to see how long the savings take to repay closing costs including points, and the main mortgage points page for the full list of year-paid tests.

Sources

• IRS Publication 936, Home Mortgage Interest Deduction (2025): “Refinancing” under “Deduction Allowed in Year Paid”, plus the Reminders, Table 1 and Table 2. Read November 2, 2026.

Edition read: Publication 936 (2025), for use in preparing 2025 returns. Dollar limits in this publication are for 2025; the publication notes that tax legislation enacted July 4, 2025 (P.L. 119-21) may affect federal deductions, so check IRS.gov/Pub936 and the Schedule A instructions for your tax year. This page summarizes the publication and does not replace it. Marked for human review.