Mortgage Refinance Tax Deductions: What You Can Claim

When you refinance a mortgage, certain costs associated with the new loan may be tax deductible. The most significant of these is the mortgage interest deduction, which allows homeowners who itemize deductions to deduct the interest they paid on their mortgage during the tax year. However, the rules around which refinance costs qualify as a tax deduction – and how to claim them – can be more complex than many borrowers expect.

This guide breaks down exactly which mortgage refinance tax deductions are available, how to claim them on your tax return, and when these deductions might not apply to your situation. Understanding these rules before you refinance a mortgage can help you make a more informed financial decision.

What Is a Refinance Tax Deduction?

A refinance tax deduction is any expense from your mortgage refinance that the IRS allows you to subtract from your taxable income. These deductions reduce the amount of income subject to federal tax, which can lower your overall tax bill.

Not every cost of refinancing qualifies. The IRS has specific rules about what is deductible, how much you can deduct, and how certain costs must be claimed over time. The main categories of deductible refinance expenses include mortgage interest, discount points, and – in certain situations – other closing costs.

It is important to note that these deductions only benefit you if you itemize deductions on your federal tax return rather than taking the standard deduction. According to the IRS, the 2024 standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. If your total itemized deductions (including mortgage interest) do not exceed your standard deduction, itemizing will not provide a tax benefit.

Mortgage Interest Deduction

The mortgage interest deduction is the largest and most common tax break available to homeowners who refinance. When you take out a new loan to replace your existing mortgage, the interest you pay on that new mortgage is generally deductible if you itemize.

How Much Can You Deduct?

According to IRS guidelines, you can deduct the interest paid on mortgage debt up to $750,000 for loans originated after December 15, 2017. For mortgages taken out before that date, the limit is $1 million. These limits apply to the combined mortgage debt on your primary residence and a second home.

When you refinance, the deduction limit is based on the remaining balance of your original loan, not the new loan amount – unless you took cash out. For example, if you owed $400,000 and refinanced into a new loan for the same amount at a lower interest rate, all of the interest on that $400,000 would generally be deductible (assuming you meet the other requirements).

Primary Residence and Second Home Rules

You can deduct mortgage interest on your primary residence and one second home. The IRS does not allow the mortgage interest deduction on a third property used for personal purposes. However, rental properties have different rules (discussed below).

Your lender will send you Form 1098 each year, which reports the total mortgage interest you paid during the tax year. This form is what you use to claim the deduction on your tax return.

Discount Points Deductions

Discount points – sometimes called mortgage points – are fees you pay to your lender at closing to buy down your interest rate. Each point typically costs 1% of the loan amount and reduces your rate by a set amount (often 0.25%, though this varies by lender).

How Points Work Differently for Refinances

Here is where refinancing differs from an original home purchase. When you buy a home, the IRS generally allows you to deduct the full cost of points in the tax year you paid them. When you refinance, however, you must spread the deduction over the life of the loan.

For example, if you paid $6,000 in discount points on a 30-year refinance, you would deduct $200 per year ($6,000 divided by 30 years) for the life of the loan. If you refinance again or sell the home before the loan term ends, you can deduct the remaining unamortized points in that final year.

What If You Paid Points on a Previous Refinance?

If you are refinancing again and still have unamortized points from your previous refinance, you can deduct the remaining balance of those old points in the year you close on the new loan. This is a commonly overlooked tax deduction that could save you money. Keep thorough records of points paid on previous loans to take advantage of this.

Cash-Out Refinance and Tax Deductions

A cash-out refinance replaces your existing mortgage with a larger new loan, giving you the difference in cash. The tax treatment of the interest on that extra cash depends entirely on how you use the money.

When Cash-Out Interest Is Deductible

According to the IRS (specifically following the Tax Cuts and Jobs Act of 2017), you can deduct the interest on the additional borrowed funds only if you use the money to “buy, build, or substantially improve” the home that secures the loan. Eligible uses include:

• Adding a new room or building an addition
• Major kitchen or bathroom renovations
• Installing a new roof or HVAC system
• Other projects that substantially improve your home

When Cash-Out Interest Is Not Deductible

If you use cash-out funds to pay off credit card debt, finance a vacation, buy a car, or cover other personal expenses, the interest on the extra amount is not deductible. You would only be able to deduct the interest attributable to the portion of the loan that refinanced your original mortgage balance.

This is an important distinction. Many borrowers assume all the interest on their new mortgage is deductible after a cash-out refinance, but the IRS treats the home improvement portion and the personal use portion differently. A tax professional can help you calculate the correct split.

Deductions on Closing Costs for Rental Properties

If you refinance a mortgage on a property used as a rental or for business purposes, the tax rules are more favorable in several ways. Owners of rental properties can often deduct a broader range of refinance expenses.

What Rental Property Owners Can Deduct

• Mortgage interest: All interest paid on a rental property mortgage is generally deductible as a business expense on Schedule E. The $750,000 limit that applies to personal residences does not apply here.
• Discount points: Points must still be amortized over the life of the loan, not claimed all at once.
• Other closing costs: Expenses like appraisal fees, title insurance, and recording fees that are not deductible on a personal residence may be deductible or added to the property’s cost basis for rental properties.

According to the Consumer Financial Protection Bureau (CFPB), closing costs on a refinance typically range from 2% to 5% of the loan amount. For rental property owners, being able to deduct more of these costs can significantly affect the financial calculus of whether to refinance.

What Refinance Costs Are NOT Tax Deductible?

Many homeowners assume that because refinancing involves tax-deductible interest, all refinance costs are deductible. This is not the case. For personal residences, the following common closing costs are not deductible:

• Appraisal fees
• Title insurance premiums
• Attorney fees
• Recording fees
• Credit report fees
• Escrow deposits for property taxes and insurance

While these costs are a real part of the expense of refinancing, the IRS does not allow you to deduct them on your tax return for a primary residence or second home. Use our break-even calculator to see how these non-deductible costs affect your overall refinance timeline.

Home Equity Loan and Home Equity Line of Credit (HELOC) Deductions

If instead of a traditional refinance you take out a home equity loan or HELOC, the same principle from the 2017 Tax Cuts and Jobs Act applies. You can deduct the interest only if the borrowed funds are used to buy, build, or substantially improve your home.

Before 2018, interest on home equity debt up to $100,000 was deductible regardless of how the funds were used. That rule no longer applies. The combined total of your first mortgage and any home equity loan or HELOC must also stay under the $750,000 limit (or $1 million for pre-December 2017 loans) for the interest to be deductible.

How Do You Claim a Refinance on Your Taxes?

Claiming refinance-related deductions requires a few specific steps. Here is a simplified process:

1. Gather your Form 1098: Your lender will mail or make available online a Form 1098 showing the total mortgage interest you paid during the tax year. If you refinanced mid-year, you may receive two 1098s – one from each lender.
2. Collect your closing disclosure: This document itemizes the discount points and other fees you paid. You will need it to calculate your annual points deduction.
3. Decide whether to itemize: Compare your total itemizable deductions (mortgage interest, state and local taxes, charitable contributions, etc.) to the standard deduction. If your itemized total is higher, itemizing saves you more on taxes.
4. File Schedule A: Report your mortgage interest deduction and points deduction on Schedule A of your federal tax return (Form 1040).
5. Keep records: Retain copies of your closing documents, Form 1098, and any receipts for home improvements (if claiming interest from a cash-out refinance) for at least three years.

According to the CFPB, borrowers should carefully review their closing disclosure and Form 1098 to confirm the numbers match. If you notice discrepancies, contact your loan servicer. CFPB complaint data from 2024 shows that trouble during the payment process is the most frequently reported issue across major mortgage servicers, so verifying your documents is especially important.

Risks and Considerations

While the tax benefits of refinancing can be meaningful, they should not be the primary reason you refinance. Here are important factors to weigh:

• The standard deduction may wipe out the benefit: Since the 2017 tax law nearly doubled the standard deduction, far fewer homeowners benefit from itemizing. If your mortgage interest and other deductions do not exceed the standard deduction threshold, the mortgage interest deduction provides no practical benefit.
• Resetting your amortization schedule: Refinancing into a new 30-year loan restarts the amortization clock, meaning you will pay more interest over time even at a lower interest rate. The early years of a mortgage are heavily weighted toward interest.
• Break-even timing: If you plan to move within a few years, the closing costs of refinancing may exceed the interest savings and any tax benefits. Use the Wirly break-even calculator to model your specific scenario.
• Hidden costs: Appraisal fees, title insurance, prepayment penalties on your old loan, and other closing costs add up. Most of these are not tax deductible for personal residences.
• Credit score impact: Applying for a refinance triggers hard credit inquiries. While rate-shopping within a 14 to 45 day window (depending on the scoring model) typically counts as one inquiry, multiple applications outside that window could lower your score.
• Rate lock risks: If your rate lock expires before closing, you may face a higher interest rate. Ask your lender about float-down options and lock extension policies.

According to the CFPB, borrowers should compare offers from multiple lenders before committing to a refinance. Explore Wirly’s comparison of refinance lenders to review your options side by side.

A Note on International Tax Rules

This guide covers U.S. federal tax rules for mortgage refinance deductions. Tax treatment of mortgage interest varies significantly by country. Borrowers in the UK, Canada, Israel, Mexico, and other countries should consult local tax authorities or a qualified tax professional in their jurisdiction, as these rules do not apply outside the United States.

The Bottom Line: Refinancing Fees Are Tax Deductible in Certain Scenarios

A mortgage refinance can offer real tax deductions, primarily through the mortgage interest deduction and the amortized deduction of discount points. A cash-out refinance may provide additional deductions if you use the funds to improve your home. Owners of rental properties enjoy broader deduction options.

However, these tax benefits depend heavily on your individual situation – particularly whether you itemize deductions, how much mortgage debt you carry, and how you use any cash-out funds. The tax savings alone rarely justify a refinance. Focus first on whether the new loan terms (a lower interest rate, shorter term, or both) improve your financial position, and treat any tax deduction as a secondary benefit.

Use the Wirly refinance calculator to estimate your potential savings, and always consult a qualified tax professional before making decisions based on tax implications.

Disclaimer: This article is for educational purposes only and does not constitute financial, tax, or legal advice. Tax laws change frequently, and individual circumstances vary. Consult a qualified tax professional or CPA for advice specific to your situation. Wirly is not a lender, mortgage broker, or tax advisor.

Frequently Asked Questions

Are mortgage refinance fees tax deductible?

Some refinance fees are deductible and some are not. Mortgage interest and discount points are generally deductible if you itemize. However, most other closing costs – such as appraisal fees, title insurance, and attorney fees – are not deductible for personal residences. Rental property owners may be able to deduct or amortize a wider range of fees.

Which mortgage refinance tax deductions should I claim?

At minimum, you should claim the mortgage interest deduction (reported on your Form 1098) and the amortized portion of any discount points you paid. If you did a cash-out refinance and used the funds for home improvement, you can deduct the interest on that portion too. Rental property owners should also consider deducting applicable closing costs as business expenses.

Can I deduct the interest on a cash-out refinance?

You can deduct the interest on the portion of a cash-out refinance that replaces your old mortgage balance. For the additional cash-out amount, you can only deduct the interest if you used those funds to buy, build, or substantially improve your home. Interest on cash-out funds used for personal expenses is not deductible.

Do I need to itemize to get the mortgage interest deduction?

Yes. The mortgage interest deduction is only available if you itemize deductions on Schedule A of your federal tax return. If your total itemized deductions are less than the standard deduction ($14,600 for single filers or $29,200 for married filing jointly in 2024), taking the standard deduction makes more financial sense and you would not benefit from the mortgage interest deduction.

How do I deduct mortgage points on a refinance?

Unlike a home purchase, where you can typically deduct points in full the year you pay them, points on a refinance must be deducted proportionally over the life of the loan. Divide the total points paid by the number of years in the loan term. If you refinance again or sell the home before the term ends, you can deduct any remaining unamortized points in that final year.

Sources

• IRS Publication 936 – Home Mortgage Interest Deduction rules and limits
• IRS Guidance on Home Equity Loan Interest – Clarification on deductibility under the Tax Cuts and Jobs Act
• Consumer Financial Protection Bureau (CFPB) – Guidance on discount points and closing costs
• CFPB Consumer Complaint Database – 2024 mortgage servicer complaint data
• IRS Tax Year 2024 Adjustments – Standard deduction amounts for 2024

Sources

• CFPB (Consumer Financial Protection Bureau) – Official consumer protection guidelines and mortgage resources

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Written by the Wirly Editorial Team. Last reviewed: March 29, 2026. Fact-checked against IRS Publication 936, IRS 2024 standard deduction adjustments, CFPB closing cost guidance, CFPB 2024 complaint data. See our methodology for how we evaluate lenders.