Also known as: mortgage point · points · discount points · loan points
Written by attorneys — see sources below.
A loan processing fee paid by a mortgagor-borrower. The Internal Revenue Service treats points and processing fees paid by the borrower as deductible interest rather than nondeductible service fees.
Melanie Morris pays three points when closing a home loan. On her federal income tax return she deducts the points as interest in the year paid. The deduction is allowed because the fee was paid by the borrower rather than a third party.
Meredith Maxwell buys a home. The seller pays points to the lender to secure favorable financing. The IRS classifies those payments as nondeductible service fees. Only fees paid directly by the borrower qualify for interest treatment.
Maria Morales pays a processing fee at closing that the lender calls points. Because the fee is paid by the borrower, the IRS allows the interest deduction regardless of the label used in the loan documents.
Yes. The IRS treats points and processing fees paid by the mortgagor-borrower as deductible interest.
No. Fees paid by a seller to assist in securing the loan are treated as nondeductible service fees rather than interest.
No. The IRS allows the deduction for points and processing fees paid by the borrower regardless of how the lender labels the charge.