Are Mortgage Refinancing Fees Tax Deductible?

With over 1.2 million refinances projected this year per Freddie Mac, a key question arises: Are home refinancing fees tax deductible? We will explore the answer and review the nuances in this article. Under IRS rules, points (prepaid interest) and certain property taxes qualify for deductions, often amortized over the loan term, while common mortgage refinance fees and costs like appraisals and title fees add to your home’s basis, reducing future capital gains taxes upon sale. In the evolving tax environment of 2025, where the Tax Cuts and Jobs Act provisions remain in effect until their sunset at year-end, homeowners are increasingly eyeing mortgage refinances amid stabilizing rates around 6.75% for 30-year fixed loans.

Homeowners to Deduct Mortgage Refinance Fees and Closing Costs

This article unpacks the deductibility of refinance fees, drawing from IRS guidelines and expert analyses, to help you maximize savings.

The RefiGuide will explore eligible deductions, non-deductible items, claiming processes, and three real-world-inspired case studies of homeowners who navigated these rules in 2025.

As home equity swells to $32 trillion nationally, understanding these nuances can shave thousands off your tax bill—potentially $500-$2,000 annually on points alone.

However, with TCJA limits capping mortgage interest deductions at $750,000 debt ($375,000 for married filing separately), strategic planning is essential. Read more about which refinance closing costs are tax deductible in 2025.

Understanding Deductible vs. Non-Deductible Mortgage Refinance Fees

Refinancing incurs closing costs averaging 2-5% of the loan amount—$4,000-$10,000 on a $200,000 loan—including origination fees, appraisals ($400-$600), title insurance ($1,000+), credit reports ($30-$50), and more. Not all are deductible, per IRS Publication 530. Here’s the breakdown:

Deductible Fees:

• Points (Discount Points): These prepaid interest payments to lower your rate are the star deduction. For refinances, they’re amortized ratably over the loan life—e.g., $3,000 points on a 15-year loan yield $200 annual deductions. If refinancing to improve your home (e.g., cash-out for additions), points may be fully deductible in year one under home equity rules. TurboTax notes this applies to primary or second homes, not rentals (where all costs deduct immediately).
• Mortgage Interest: Ongoing interest on the new loan is deductible up to TCJA limits, provided it’s for acquisition indebtedness (original purchase debt) or home improvements. For cash-out refi’s, interest on amounts exceeding original debt isn’t deductible unless used for home upgrades. Learn more about cash out refinance tax rules.
• Property Taxes: Prorated taxes paid at closing are fully deductible in the year paid, as itemized deductions on Schedule A.

Non-Deductible Fees:

Most others fall here: Title insurance, notary fees, credit reports, origination/underwriting fees (unless classified as points), attorney fees, and appraisals. These capitalize into your home’s adjusted basis, lowering taxable gains on sale. For example, $5,000 in non-deductible costs on a $300,000 home raise the basis to $305,000—potentially saving $1,000 in capital gains tax at 20% rate.

For rentals, the game changes: All refinance costs (interest, points, fees) deduct from rental income in year one, treating the property as a business. Jackson Hewitt emphasizes consulting pros, as audits rise 10% on real estate deductions in 2025.

To claim: Itemize on Schedule A (Form 1040) if exceeding standard deduction ($14,600 single/$29,200 joint in 2025). Amortize points via Form 4562 for rentals or straight-line on personal returns. Kiplinger warns: Early payoff accelerates remaining deductions in that year. MidFlorida advises tracking via 1098 forms.

Pros and Cons of Chasing Deductions in Refinancing

Pros: Deductions offset refi costs (average $5,000), providing $300-$1,000 annual tax relief on points alone. For high-income filers (over $200,000 AGI), it combats phase-outs. Cash-out for improvements unlocks full interest deductibility, boosting ROI—e.g., a $50,000 kitchen remodel deducts added interest. Rentals amplify benefits, with immediate write-offs enhancing cash flow.

Cons: Amortization spreads savings thin—$3,000 points over 30 years yield just $100/year. Non-deductible fees dominate (70-80% of costs), and itemizing requires beating standard deductions, which only 10% of filers do post-TCJA. Refis solely for deductions rarely pencil out; focus on rate savings (at least 0.5-1% drop). In 2025’s uncertain post-TCJA world, potential extensions could alter rules—stay informed via IRS alerts.

Case Study 1: The Rate-Reduction Strategist (Alex, 38, Seattle)

Alex, a tech consultant earning $150,000, refinanced his $500,000 mortgage in April 2025 from 7.2% to 6.1%, paying $4,500 in points and $3,000 in other fees. Under IRS rules, he amortizes points over 30 years: $150 deduction annually on Schedule A. Property taxes of $800 at closing were fully deductible, saving him $280 in taxes (35% bracket). Non-deductible items like $600 appraisal added to his basis.

Filing jointly with his spouse, itemizing unlocked $430 in total refi-related savings for 2025, offsetting 10% of costs. “The amortization is slow, but combined with interest savings ($200/month), it’s a win,” Alex says. Per TurboTax, his case exemplifies primary residence refis: Modest but cumulative benefits. Lesson: Pair with rate drops for max value.

Case Study 2: The Cash-Out Home Improver (Maria and Tom, 45/43, Atlanta)

This couple cash-out refi-ed $100,000 from their $350,000 home in July 2025 for a kitchen remodel, incurring $2,800 points and $4,200 fees. Using funds for “substantial improvements,” points and added interest became fully deductible in year one under home equity provisions. They claimed $2,800 immediately on Schedule A, plus prorated taxes of $500, netting $1,050 savings (28% bracket).

Non-deductible title ($1,200) and underwriting ($800) capitalized, reducing future gains on their appreciating property. “Deductions covered our out-of-pocket, turning remodel into a tax-smart investment,” Maria notes. Rocket Mortgage’s example aligns: Improvement-linked cash-outs amplify deductions. Key: Document use for IRS audits.

Case Study 3: The Rental Investor (Sofia, 32, Denver)

Sofia refinanced her $250,000 rental duplex in September 2025, paying $3,500 points and $2,500 fees. As a business asset, all costs deducted immediately from rental income on Schedule E: $6,000 total write-off, slashing her taxable income by that amount. This saved $1,440 (24% bracket), plus ongoing interest on the new 5.9% rate.

No amortization needed; fees like appraisals deducted as business expenses. “Refi boosted cash flow by $150/month, and deductions made it essentially free upfront,” Sofia shares. The Real Estate CPA’s blog mirrors: Rentals offer aggressive deductions. Insight: Investors reap fuller benefits than owner-occupants.

These studies, based on IRS and expert scenarios, illustrate how deductions vary by loan purpose and property type.

Maximizing Deductions: Tips for 2025 Filers

Track via HUD-1 or closing disclosure. Use software like TurboTax for amortization schedules. If refi pays off early (e.g., selling), deduct remaining points in that year. For HELOCs in refis, deduct interest only if used for home buys/improvements. Consult CPAs, as state taxes (e.g., California’s conformity) add layers.

Deduct Wisely, Save Smartly and Maximize Mortgage Deductions

Mortgage refinancing fees are partially tax deductible—points and taxes yes, most others no—but the benefits can accumulate, especially for rentals or improvements. In 2025, with potential TCJA changes looming, leverage these to offset costs. As our case studies show, informed homeowners turn refinancing into tax advantages without pitfalls. Weigh savings against fees; if dropping rates 1%+, deductions sweeten the deal. Stay compliant, and your refi could pay dividends come April.

FAQs:

Do you have to pay taxes on cash out refinance?

Cash-out refinance funds are not considered taxable income because they are borrowed money, not earnings. However, you’ll still be responsible for paying property taxes, homeowners insurance, and any new mortgage payments that result from the refinance. If you use the cash for investments or improvements, certain tax implications may apply, such as potential interest deductibility. Since IRS rules vary, consult a tax professional to confirm whether your intended use of funds impacts tax liability.

Are points tax deductible on a home refinance?

Yes, points paid on a home refinance may be tax deductible, but the rules differ from an initial purchase. Instead of deducting the full amount in the year you pay them, refinance points usually must be spread out and deducted gradually over the life of the loan. If part of the refinance proceeds are used for qualifying home improvements, you may be able to deduct that portion of points sooner. Always review IRS guidelines or seek advice from a tax advisor.

Are home equity loan closing costs tax deductible in 2025?

In most cases, home equity closing costs—such as appraisal fees, title insurance, or loan origination charges—are not tax deductible. However, the interest paid on a HELOC may be deductible if the funds are used for qualified home improvements under IRS rules. To benefit, the improvements generally need to add value to the property or substantially extend its life. Always consult a tax advisor for specific eligibility, since tax laws change and personal circumstances vary.

Are refinance closing costs deductible on a second home?

Generally, refinance closing costs on a second home are not tax deductible. Fees like appraisals, title insurance, and origination charges are considered personal expenses. However, interest paid on a mortgage or refinance loan for a qualified second home may be deductible, subject to IRS limits on mortgage debt. If the refinance funds are used for capital improvements, part of the interest may qualify. It’s best to review IRS Publication 936 or consult a tax professional for personalized guidance.

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