When Are Loan Origination Fees Tax Deductible?

Loan origination fees are tax deductible only when they represent prepaid interest, commonly called points, rather than charges for services like processing, appraisal, or document preparation. If the fee qualifies and you paid it to buy or build your main home, you can usually deduct the whole amount in the year you paid it. For a refinance, a second home, a home equity loan, a rental property, or a business loan, the deductible portion has to be spread across the life of the loan instead.

Which Part of the Fee Actually Qualifies

The label on your closing statement doesn’t decide this. The IRS looks at what the charge is for. Only amounts paid solely for the use of borrowed money count as deductible interest. One point equals one percent of the loan amount, so a single point on a $400,000 mortgage is $4,000.¹

Charges that look similar but don’t qualify include appraisal fees, title search costs, notary fees, document preparation charges, and inspection fees.² If your lender folds any of those into a single “origination fee,” that piece of it doesn’t count as prepaid interest. Read your Closing Disclosure line by line. Only the interest portion is deductible, no matter what the fee is called.

Deducting the Full Amount the Year You Buy

Points paid to purchase or build your primary residence get the best treatment available: a full write-off in the year you pay them. This is a specific exception to the general rule requiring prepaid interest to be spread over the loan term.³ To qualify, all nine of the following must be true:²

The loan is secured by your main home, meaning the one you live in most of the time.
Paying points is an established business practice in the area where the loan was made.
The points you paid don’t exceed what lenders in your area typically charge.
You use the cash method of accounting, which is how most individuals file.
The points aren’t standing in for fees that would normally appear as separate line items, like appraisal, inspection, or attorney charges.
The cash you brought to closing (down payment, earnest money, escrow deposits) equals or exceeds the points charged. You can’t borrow the points from your lender.
You used the loan to buy or build your main home.
The points were calculated as a percentage of the loan principal.
The amount appears on your settlement statement, clearly identified as points.

Points on a loan used to substantially improve your main home can also qualify for the immediate deduction, provided the first six tests above are met.¹ Miss any of the required tests and the points must be amortized over the life of the loan.

The $750,000 Debt Cap

Even when all nine tests are satisfied, the deduction is limited. For mortgages taken out after December 15, 2017, you can only deduct interest, including points, on the first $750,000 of mortgage debt ($375,000 if you’re married filing separately). Older mortgages still fall under the prior $1 million cap ($500,000 if married filing separately).² This ceiling covers the combined debt on your main home and any second home.

When the Seller Pays the Points

If the seller covers your points as part of the deal, you still get the deduction. The IRS treats seller-paid points as if you paid them yourself. But you have to reduce the cost basis of the home by that same amount, which means a larger taxable gain later if you sell.¹ The seller can’t deduct those points as interest but can treat them as a selling expense.

Points on a Refinance

The immediate deduction disappears on a refinance. Points paid to refinance a mortgage must be spread evenly over the term of the new loan, even when the loan is secured by your main home.² Pay $4,800 in points on a 20-year refinance and your annual deduction is $240: divide the total by 240 months and multiply by the 12 payments made that year.

The Home Improvement Carve-Out

If part of the refinance proceeds goes toward substantially improving your main home, you can immediately deduct the corresponding share of the points; the rest is amortized.² Say you refinance for $100,000, pay $2,000 in points, put $25,000 into a kitchen renovation, and use the remaining $75,000 to pay off the old mortgage. Twenty-five percent of the loan went to the improvement, so 25% of the points ($500) is deductible this year. The other $1,500 is amortized. The first six tests from the purchase-mortgage checklist still have to be met for the immediate portion.

Paying Off the Loan Early

Sell the home or pay off the mortgage before the amortization runs out, and the remaining unamortized balance becomes deductible in that final year. The one wrinkle: if you refinance again with the same lender before finishing the amortization, you can’t accelerate the leftover points. You add them to the new points and spread the combined total over the new loan. Refinance with a different lender and the old mortgage has ended, so the remaining balance from the prior loan is deductible that year.²

Second Homes, HELOCs, and Home Equity Loans

Points on a second-home mortgage cannot be deducted in the year paid, even if every other test is met. The immediate deduction is limited to your main home. Points on a second-home loan are deducted ratably over the loan’s life.² The $750,000 acquisition debt limit covers the combined mortgages on both homes, so if your primary loan is already $600,000, only $150,000 of second-home debt sits inside the deductible window.

Points and interest on a home equity loan or HELOC are deductible only when the borrowed funds are used to buy, build, or substantially improve the home securing the loan.⁴ Use a HELOC to consolidate credit card debt or pay tuition and none of it is deductible. Use it to add a second story and it qualifies, subject to the same $750,000 combined ceiling. Even then, the points must be amortized rather than deducted right away.²

Rental Property and Business Loans

Origination fees on loans for rental properties, business equipment, or working capital are treated as capital costs and amortized over the loan’s life. There’s no option for immediate deduction, but the annual amortization reduces your taxable income each year. A $6,000 origination fee on a 20-year rental mortgage produces a $300 annual deduction. Rental amortization is reported on Schedule E; non-real-estate business loan fees go on Schedule C.⁵⁶

If you sell the property or pay off the business loan early, the unamortized balance is fully deductible in the year the loan ends.

You Have to Itemize for It to Matter

Points on personal residences are claimed on Schedule A, which means you only see a tax benefit if your total itemized deductions exceed the standard deduction. For 2026, the standard deduction is $32,200 for married couples filing jointly, $16,100 for single filers, and $24,150 for heads of household.⁷

Many homeowners lose the benefit here. If your mortgage interest, points, state and local taxes (capped at $10,000), and other itemizable expenses don’t clear that threshold, claiming the points saves you nothing. The purchase year is often the one year you’ll itemize, since points and a full year of mortgage interest together can push you over the line. In later years, as interest payments shrink, the standard deduction often wins.

How to Claim It on Your Return

Your lender issues Form 1098 after each tax year. Box 1 shows total mortgage interest paid; Box 6 reports points paid on the purchase of your principal residence.⁸ Only points that qualify for immediate deduction on a home purchase show up in Box 6. If you refinanced, that box will typically be blank and the amortization math is on you.

For purchase points, enter the Box 6 amount on Schedule A, Line 8a, along with your deductible mortgage interest from Box 1. Points not reported on Form 1098, which can happen with certain seller-paid arrangements or a second mortgage, go on Line 8c.⁹

When you’re amortizing points from a refinance, divide the total by the number of months in the loan term, multiply by the number of payments made that year, and enter the result on Schedule A with a statement showing the calculation. Keep your Closing Disclosure with your tax records. It’s the proof that the charge you deducted was actually prepaid interest.

1
Internal Revenue Service. Topic No. 504, Home Mortgage Points
2
Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction
3
Office of the Law Revision Counsel. 26 U.S. Code 461 – General Rule for Taxable Year of Deduction
4
Internal Revenue Service. Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses)
5
Internal Revenue Service. 2025 Instructions for Schedule E (Form 1040)
6
Internal Revenue Service. Publication 527 (2025), Residential Rental Property
7
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
8
Internal Revenue Service. Instructions for Form 1098 (Rev. December 2026)
9
Internal Revenue Service. 2025 Instructions for Schedule A (Form 1040)