| With a lower interest rate on your home loan, you
will have less interest to deduct on your income tax
return. That, of course, may increase your tax payments
and decrease the total savings you might obtain from a
new, lower-interest mortgage.
You should be aware of an Internal Revenue Service
(IRS) ruling with respect to points paid solely for
refinancing your home mortgage. IRS regulations require
that interest (points) paid up front for refinancing
must be deducted over the life of the loan, not in the
year you refinance, unless the loan is for home
improvements. This means that if you paid a certain
number of points, you would have to spread the tax
deduction for those points over the life of the loan.
If, however, the loan or a portion of the loan is for
home improvements, you may be able to deduct the points
or a portion of the points. Check with the IRS regarding
the current rulings on refinancing, particularly if you
are using the new loan to make home improvements.
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