Most refinance closing costs are not tax deductible. The main exception is discount points, which the IRS treats as prepaid interest and lets you deduct — usually spread across the life of the new loan. Appraisal fees, title insurance, attorney charges, and similar settlement costs give you no tax break, and they generally cannot be added to your home’s cost basis either.
Discount Points Are the Deductible Piece
Each discount point equals 1 percent of your loan amount, and paying points upfront buys down your interest rate. Because points are interest paid in advance, the IRS allows you to deduct them.1Internal Revenue Service. Topic No. 504, Home Mortgage Points
Points on a refinance work differently from points on a home purchase. Federal law requires prepaid interest to be spread over the period it covers, so refinance points must be amortized across the full term of the new loan rather than deducted all at once.2Office of the Law Revision Counsel. 26 USC 461 – General Rule for Taxable Year of Deduction One narrow exception, for improvement-related refinancing, appears below.
Spreading Points Over the Loan Term
Divide the total points paid by the number of monthly payments in the loan term. Multiply that per-month figure by the number of payments you actually made during the tax year, and that is your deduction.
Say you paid $4,800 in points on a 20-year refinance. Divide $4,800 by 240 months to get $20 per month. Twelve full payments in a year come to a $240 deduction.3Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction On a 30-year loan with $3,000 in points, the monthly figure is about $8.33, or roughly $100 a year.
Shorter terms produce bigger annual deductions for the same points, because the cost is compressed into fewer years. A 15-year term doubles the yearly deduction compared to a 30-year term on the same point amount.
When You Can Deduct Points All at Once
If you use refinance proceeds to substantially improve your main home, the portion of points tied to those improvements is deductible in the year you pay them.3Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction Substantial improvements are projects that add value or extend the home’s useful life, such as a new roof, an addition, or a full HVAC replacement.
To claim the immediate deduction, all of the following must be true:3Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction
- The loan is secured by your primary residence.
- Paying points is standard business practice in your area.
- The points charged are not more than what lenders in the area typically charge.
- You use the cash method of accounting, which most individuals do.
- The points were not charged in place of settlement fees like appraisal or title.
- The cash you brought to closing was at least equal to the points charged.
If only part of the refinance funds improvements, only the matching share of points qualifies for the year-one deduction. The remainder amortizes over the life of the loan.
What Happens to Leftover Points
Sell your home, pay off the loan early, or refinance with a different lender, and any unamortized points become deductible in that year.4Internal Revenue Service. Real Estate Taxes, Mortgage Interest, Points, Other Property Expenses If you paid $3,600 in points on a 30-year loan and sell after 10 years, the remaining $2,400 comes off that year’s return.
Refinancing with the same lender is the exception. You cannot write off the leftover points from the old loan in the year of the refinance. Instead, they get added to any new points and amortized over the new loan’s term.3Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction Switching lenders unlocks the leftover balance immediately; staying put pushes the benefit further out.
Debt Limits and Cash-Out Refinances Shrink the Deduction
Interest on your refinanced mortgage is only deductible on debt up to $750,000, or $375,000 if you are married filing separately.5Office of the Law Revision Counsel. 26 USC 163 – Interest That cap, introduced by the Tax Cuts and Jobs Act for loans taken out after December 15, 2017, is now permanent. If you had an older mortgage under the previous $1 million limit, refinancing in 2026 or later brings your new loan under the $750,000 cap. Interest on any balance above the threshold is not deductible.
Cash-out refinances add another restriction. Interest on cash you take out and use for something other than buying, building, or improving the property is not deductible.3Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction Paying off credit cards, funding tuition, or covering personal expenses with the extra proceeds all fall outside the deduction.
Refinance a $400,000 balance into a $500,000 loan and use the extra $100,000 to consolidate debt, and only the interest tied to the $400,000 that replaced your original mortgage qualifies.
The Fees That Are Not Deductible
Every other line on your settlement statement is off the table as mortgage interest. Non-deductible refinance charges include:3Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction
- Appraisal fees
- Title insurance premiums
- Attorney and legal fees
- Notary fees
- Credit report charges
- Document preparation fees
- Mortgage insurance premiums
The IRS treats these as costs of getting the loan rather than payments for the use of money, so they do not qualify as interest.
A common assumption is that these non-deductible fees can at least be added to your home’s cost basis to reduce future capital gains. For a refinance, that generally does not work. IRS Publication 551 specifically excludes refinancing fees, lender-required appraisals, and credit report costs from basis.6Internal Revenue Service. Publication 551, Basis of Assets The rule differs from a home purchase, where certain settlement costs like title insurance and recording fees do increase basis.
How to Claim the Deduction
Refinance points and mortgage interest only help if you itemize on Schedule A instead of taking the standard deduction.7Internal Revenue Service. About Schedule A (Form 1040), Itemized Deductions Itemizing pays off only when your total deductions beat the standard deduction for your filing status. For 2026, the standard deduction is:8Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- Single filers: $16,100
- Married filing jointly: $32,200
- Head of household: $24,150
Add your mortgage interest, amortized points, state and local taxes, charitable contributions, and other eligible expenses. If the total clears the standard deduction, itemizing wins.
Two documents do the work. Your Closing Disclosure shows the exact dollar amount of points you paid.9Consumer Financial Protection Bureau. How Should I Use Lender Credits and Points Form 1098, mailed by your lender each January, reports the mortgage interest and points paid during the prior year.
Enter the interest and points from Form 1098 on line 8a of Schedule A.10Internal Revenue Service. Instructions for Schedule A (Form 1040) If you are amortizing points, calculate the deductible slice for the year using the method above and include that figure. Because your lender also reports these amounts to the IRS, the numbers on your return should match what the lender submitted.