Although taxpayers who itemize their deductions are generally allowed to deduct the "points" paid to obtain a home mortgage as interest in the year they are paid, the points paid to refinance a mortgage must be deducted over the life of the loan, not in the year paid. However, if the taxpayer uses part of the refinanced mortgage proceeds to improve his main home and meets the following requirements, the portion of the points related to the improvement may be deducted in the year paid:

• The taxpayer is legally liable for the debt and his main home secures the loan.
• Paying points is an established practice in the taxpayer's area.
• The amount of points paid is reasonable for the area.
• The taxpayer uses the cash method of accounting, reporting income in the year received and expenses in the year paid.
• The points were not paid for items such as appraisal fees, attorney fees, title fees, inspection fees, and property taxes.
• The taxpayer provided funds either at or before the closing that were at least equal to the amount of points charged, not including any points paid by the seller. The taxpayer cannot borrow these funds from the lender.

If the taxpayer has refinanced his home before or is paying off a loan early, any points from the first refinancing that have not yet been deducted may be fully deducted at the time of the new refinancing.

Other closing costs for specific services, such as preparation costs for the mortgage note, appraisal fees, or notary fee are not deductible even if they are called "points" because they are not interest. In addition, taxpayers with gross incomes above a statutory amount may be limited in the amount of deductions they are entitled to claim.

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