Mortgage Points Tax Deduction: Limits, Timing, and $750K Cap

The mortgage points tax deduction lets you write off points as home mortgage interest, either all at once in the year you paid them or spread evenly across the life of the loan. Which path you take depends on what the loan was for, whose home secures it, and whether you meet a specific set of IRS tests. Points on a mortgage used to buy, build, or substantially improve your main home usually qualify for the immediate write-off. Almost everything else, including refinances, second homes, and rentals, has to be amortized.

When You Can Deduct All the Points in the Year You Paid Them

Federal law normally requires prepaid interest to be spread across the period it covers, but 26 U.S.C. § 461(g) carves out an exception for points paid on a principal residence.¹ To take the full deduction in the year of closing, every one of the following has to be true:

The loan is secured by the home where you live most of the time.
The points are figured as a percentage of the loan amount, not a flat fee for services like appraisals or document preparation.
Paying points is customary in the area where the loan originates, and the amount does not exceed what lenders in that market typically charge.
You brought enough of your own money to closing, through your down payment, escrow deposits, earnest money, or other payments, to at least cover the points. Funds borrowed from the lender or mortgage broker do not count.
You use the cash method of accounting, which most individual taxpayers already do.

Miss even one of these, and the immediate write-off is off the table. You amortize instead.²

The same rules extend to loans you take out to build or substantially improve your main home. The statute covers debt incurred “in connection with the purchase or improvement of” a principal residence, which brings new construction and major renovation loans inside the exception.¹ With construction loans, points sometimes do not show up on Form 1098 the way they would on a straight purchase. You can still claim them, but you will need to work from your Closing Disclosure and enter the figure on the manual line of Schedule A.³

When You Have to Spread Points Over the Loan Term

Refinances, mortgages on second homes, and any loan that fails one of the tests above all fall into the amortization bucket. You divide the total points by the number of monthly payments, then multiply by the payments you actually make during the year.

Say you paid $4,800 in points on a 20-year refinance. That is 240 monthly payments, so $20 of the points is deductible each month. A full year of payments gives you a $240 deduction. Close in October and make only three payments before year-end, and your first-year deduction is $60.²

Keep a running schedule of how much you have deducted and how much is left. You will need it if the loan ends before the term runs out.

What Happens if the Loan Ends Early

Sell the home, pay off the mortgage, or lose it to foreclosure, and any unamortized points generally become deductible in that final year. The debt they were tied to no longer exists, so the leftover balance clears at once.²

Refinancing is where people get tripped up. Refinance with a different lender and the old loan is treated as paid off; the unamortized points from that original loan are deductible in the year the new loan closes. Refinance with the same lender, and you cannot. Instead, you roll the leftover points from the old loan into any points on the new loan and amortize the combined total over the new loan’s term.² If clearing that balance sooner matters to you, factor it into your choice of refinance lender.

The $750,000 Mortgage Debt Cap

Points ride on the same debt limit as mortgage interest generally. For loans taken out after December 15, 2017, only interest and points on the first $750,000 of acquisition debt qualify, or $375,000 if you are married filing separately. That cap was set by the Tax Cuts and Jobs Act and has been made permanent under the One Big Beautiful Bill Act signed in 2025. Mortgages taken out on or before December 15, 2017 still use the older $1 million limit ($500,000 if married filing separately).²

If your mortgage exceeds the cap that applies to you, only a portion of the points is deductible. Publication 936 sets the calculation: divide the qualified loan limit by your total mortgage balance, then multiply the points paid by that decimal. On a $1 million mortgage taken out in 2024 with $10,000 in points, the deductible amount is $7,500 ($750,000 ÷ $1,000,000 × $10,000).²

The cap applies to the combined debt on your main home and one second home. Carry mortgages on both, and the total across the two cannot exceed the applicable limit.

Rental and Investment Property Points

Points on a mortgage for a rental or investment property never qualify for the immediate deduction. The principal-residence exception only covers homes you live in, so landlords always amortize.³ You also report differently. Amortized points go on Schedule E as an expense against rental income, not on Schedule A. The Schedule E instructions state that prepaid interest on income-producing property “must be deducted over the life of the loan.”⁴

Seller-Paid Points

If the seller pays your points as part of the deal, the deduction still belongs to you. The IRS treats seller-paid points as though the buyer paid them using funds the seller provided.²

There is a trade-off. You have to reduce your cost basis in the home by the amount of seller-paid points, which can increase your taxable gain later if you sell for a profit that exceeds the home sale exclusion. On most homes this never surfaces. On high-value properties or homes held for decades, it can.²

How to Claim It

Your lender sends Form 1098 each January with the interest and points paid the prior year. That is the document the IRS uses to cross-check your return, so the figures on your 1098 should match your own records.⁵ Your Closing Disclosure gives the line-by-line breakdown. Look for “discount points,” “loan origination fee,” or simply “points.” Appraisal, inspection, title, and attorney fees are not interest and cannot be deducted as points even though they appear on the same page.² Keep both documents for as long as you are still deducting points on that loan. A 30-year amortization means holding the Closing Disclosure for the life of the mortgage.

Points are an itemized deduction. You claim them on Schedule A of Form 1040, which means itemizing only pays off if your total deductible expenses (mortgage interest, points, state and local taxes up to the $40,400 SALT cap, charitable contributions, and other qualifying items) beat your standard deduction. For 2026, the standard deduction is $32,200 for married couples filing jointly, $16,100 for single filers and married individuals filing separately, and $24,150 for heads of household.⁶ A large points payment in the year of purchase is often what tips a household into itemizing.

On Schedule A, enter points reported on your Form 1098 on the line for home mortgage interest and points. If your points were not included on the 1098, a separate line handles manually reported figures. That situation comes up with construction loans and some seller-paid arrangements. Either way, the numbers should tie back to your Closing Disclosure.⁷ In a year where you are amortizing a small amount of points and your other deductions are modest, run the numbers both ways. You cannot claim the standard deduction and itemize on the same return.

1
Office of the Law Revision Counsel. 26 U.S. Code 461 – General Rule for Taxable Year of Deduction
2
Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
3
Internal Revenue Service. Topic No. 504, Home Mortgage Points
4
Internal Revenue Service. 2025 Instructions for Schedule E (Form 1040)
5
Internal Revenue Service. Instructions for Form 1098
6
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
7
Internal Revenue Service. Instructions for Schedule A (Form 1040)