Florida Mortgage Loan Points: How to Use Them for Tax Deductions
Too many homeowners overlook an important tax break:
The points you pay to receive a Florida mortgage loan.
On a conventional mortgage (usually a fixed-rate, 30-year loan that is not insured by a federal agency), points may be paid by either buyer or seller or split between them. Even if the seller pays all the points, the buyer enjoys the deduction. Exactly how much of one and when depends on the loan circumstances.
Loan points are fully tax deductible in the year paid if they meet all these requirements:
1. The Florida mortgage is secured by your main home, the house you live in most of the time.
2. Paying points is an established business practice in your area.
3. The points are generally what is charged in your region.
4. You use the cash method of accounting: You report income in the year you receive it and deduct expenses in the year you pay them. Most individuals do this.
5. The points are not paid in place of amounts ordinarily stated separately on the settlement sheet. That is, you cannot pay points in exchange for lower or no appraisal fees, inspection fees, title fees, attorney fees and Florida property taxes.
6. The funds you come up with at or before closing, plus any points the seller pays, must be at least as much as the points charged. The money does not have to apply just to the points. It can include a down payment, escrow deposit or earnest money. But it all must come to at least as much as the points.
For example, you took out a $100,000 Florida mortgage and were charged $1,000 (one point). However, your lender only required a $750 down payment. In this case, you cannot deduct the full $1,000 points payment, only $750 of it. The remaining $250 must be deducted over the life of the loan. And you cannot have borrowed any of the money you paid at closing from your lender or Florida mortgage broker.
7. The loan is used to buy or build your main home.
8. The points are computed as a percentage of your mortgage’s principal amount.
9. The amount is clearly shown on the settlement statement as points charged for the mortgage.
