Know what to bring to your tax preparer
It’s tax time and you may have received a list of items from your tax preparer that he/she needs in order to prepare your return . That list of items should include your closing statement (or HUD1) if you refinanced a home in 2016. A closing statement summarizes your loan transaction, along with all loan costs. It is important that you provide your tax preparer with you closing statement for 2016, along with your closing statement from your previous loan. Why??
Points are considered mortgage interest and are tax-deductible. When you refinance, points are amortized over the term of the loan.
Let’s say you refinanced in 2014 and paid $3,000 in points for a 30-year loan:
$3000 points/30 years = $100 per year
For the next 30 years, you get to deduct $100/year on your taxes. It’s not a whole lot, however, let’s say you refinanced in 2016 and paid $0 in points. You’ll have $0 deduction for points paid in 2016, however, you’ll be able to write off the remaining unamortized points from your previous refinance:
$3000 Points paid in 2014
($100) 2014 Deduction
($100) 2015 Deduction
($2800) Remaining deduction applied to 2016 taxes
In 2016, you could deduct $2800 in points. Assuming you are in a 30% tax bracket, this deduction will save you $840 in taxes!
If you’ve recently switched tax preparers, this could be overlooked. Even if you’ve used the same tax preparer for years, it’s recommended that you let them know that you’ve refinanced. Always provide them with your current year’s closing statement as well as the closing statement from your previous refinance. I recommend that you keep the following documents each time you refinance:
- Closing Statement / HUD1
- Deed of Trust