It is that time of the year again, when we scram for last minute completing and filing tax return. You will be happy to know that Internal Revenue Service (IRS) allows you to deduct the interest and discount points.

Interest

Interest on mortgage can be deducted on your tax return. To claim interest on mortgage, you must meet the following requirements. First, your home must be your first or second home. Second, the purchase price must not exceed $1,000,000, and the home loans equity must not exceed $100,000. Third, there have a deed of trust that is recorded among land records against your house.

Discount Points

Many homeowner elects for discount points to lower mortgage payment. It works by paying a certain amount at closing to lower mortgage payment. Each point equals one percent. For example, Jim wants to bring down the interest rate from 7.5 % to 5.5 %. Jim elects for 2 discount points.

There are three situations to claim discount points. First, first time homebuyers may claim the full amount of discount points on the year paid. Second, the homeowners may claim the full amount of discount points, when the homeowners refinance towards the improvement of the home. Third, the homeowners claim the discount points over the life of the mortgage without the home improvement. If there is unused discount points towards refinance, the homeowners may claim the unused discount points on the year of refinance.

Internal Revenue Services (IRS) change rules and taxes regulations every year. You may want to verify with your tax advisor, mortgage advisor, and IRS for latest updates.