I refinanced my house for the second time in 2003 and didn't realize that I could deduct the rest of the points I paid last time I refinanced. Did I miss my chance, or can I deduct these points on my next year's tax return?
Even though you forgot to take this deduction in the past, you can still reap the benefits now if you file an amended tax return.
Before I walk through the process, let me explain how the deduction works, because you're among many people who refinanced over the past few years and probably not the only one who forgot to take the write-off.
In the year that you buy a house, you can deduct the points paid to get your loan (even points the seller paid on your behalf). If you pay points to refinance, though, you must spread the deduction over the life of the loan. For example, say you paid two points on a $200,000 loan ($4,000) in 2002. If the loan were for 30 years, then you'd only be able to deduct $133 per year ($4,000 divided by 30).
But if you refinance again or sell your home, you can deduct the remaining points on that year's tax return. So, using the example above, let's say you refinance again in 2003. On your 2003 tax return you could have deducted the remaining $3,867 ($4,000 minus $133) in addition to your deduction for any points paid on the new loan.
You have up to three years after the original due date of your tax return to file an amended return if you've made a mistake or left something out.
To make the change, print out form 1040x and fill in the numbers from your original return and then the changes you're making. You'll also need to submit a new Schedule A, because you're changing your itemized deductions.
For more information about deductions you can take when you buy or refinance a house, see IRS Publication 936Home Mortgage Interest Deduction.
GETTING STARTED
