If you’re considering refinancing your home, you’re probably wondering: Are refinancing fees tax deductible? The short answer is that most fees and closing costs associated with refinancing are not deductible. However, there are important exceptions that can help you reduce your tax burden if you know what to look for. Here’s a comprehensive breakdown of what the IRS allows, which refinance tax deductions you can claim, and how to report them on your tax return.
What Is a Refinance Tax Deduction?
A tax deduction is an expense the IRS allows you to subtract from your taxable income, lowering the amount of taxes you owe. When you refinance your mortgage, certain costs may be deductible, but the rules are specific. Most deductions relate to mortgage interest and points, and the Tax Cuts and Jobs Act of 2017 changed the landscape by lowering the cap on deductible mortgage interest and reducing the number of homeowners who benefit from itemizing.
Itemizing Deductions vs. Standard Deduction
To claim most refinancing-related deductions, you must itemize your deductions on your tax return. This means adding up all eligible expenses—such as mortgage interest, property taxes, and certain points—and subtracting them from your taxable income. If you take the standard deduction ($15,750 for individuals or $31,500 for married couples filing jointly in 2025), you generally cannot deduct mortgage interest or points paid during a refinance. This rule applies to both primary residences and investment properties.
Mortgage Interest Deduction
Mortgage interest is typically the largest deduction available to homeowners. When you refinance, the interest you pay on your new loan can still qualify for a deduction, provided the mortgage meets IRS requirements and you itemize your deductions. This applies whether you refinance to secure a lower rate, shorten your loan term, or switch from an adjustable-rate to a fixed-rate mortgage.
If you complete a cash-out refinance, the rules are more nuanced. The IRS only allows you to deduct the interest on the portion of your loan used to buy, build, or substantially improve your home. Interest on funds used for other purposes—like paying off credit cards or funding a vacation—is not deductible.
Requirements for Deducting Mortgage Interest
- The home must secure the loan (primary and second homes qualify if you occupy them for more than 14 days or more than 10% of the days they’re rented out, whichever is greater).
- The lender must have a lien on the property.
- You must itemize your deductions.
Cash-Out Refinance Interest Deduction
For a cash-out refinance, the interest on the portion of the loan that pays off the original mortgage is generally deductible, as long as the mortgage meets IRS requirements and you itemize. The interest on the cash-out portion is only deductible if those funds are used for capital improvements to your home.
Is a Cash-Out Refinance Taxable?
No. The cash you receive from a cash-out refinance is considered loan proceeds, not income, so it’s not taxable. However, how you use those funds affects whether the interest is deductible. Only interest on funds used for capital improvements is deductible.
What Qualifies as a Capital Improvement?
Capital improvements are permanent upgrades that add value to your home, extend its life, or adapt it to new uses. Examples include:
- Adding a pool
- Installing a new roof
- Building an extra bedroom
- Major garage upgrades
- Installing storm windows
- Adding a home security system
- Upgrading to central heating and cooling
Repairs, maintenance, and minor cosmetic updates (like painting) do not qualify as capital improvements.
Discount Points Deductions
Discount points are upfront fees paid to lower your mortgage interest rate. For refinances, the IRS generally requires you to deduct points over the life of the loan, not all at once—unless a portion of the refinance funds is used for capital improvements. In that case, you may be able to deduct the points related to the improvement portion in the year paid.
Deductions on Closing Costs for Rental Properties
Rental property owners have more flexibility. Many closing costs and upkeep expenses for a refinance on a rental property are deductible as business expenses, including:
- Attorneys’ fees
- Loan origination fees
- Appraisal costs
- Insurance and repair expenses
These costs are typically deducted over the life of the loan.
How to Claim Refinance Deductions on Your Taxes
Most refinance-related deductions are claimed gradually. For example, mortgage points paid during a refinance must be deducted evenly over the life of the loan. If you refinance with a 15-year mortgage and pay deductible points, you would claim 1/15 of the deduction each year.
Mortgage interest is deducted annually, based on the amount of interest paid each year (as reported on Form 1098 from your lender). As your loan matures, the deductible interest amount decreases because more of your payment goes toward principal.
For rental properties, closing costs that qualify as business expenses are also deducted over the loan’s term.
The Bottom Line
Most refinancing fees aren’t deductible, but some costs can lower your tax bill if you meet certain conditions. Mortgage interest is deductible if you itemize, discount points are deductible over the life of the loan, and cash-out interest can qualify when the funds are used for capital improvements. Rental property owners have even more flexibility, as many refinance closing costs count as business expenses. Always consult a tax professional to ensure you’re maximizing your deductions and complying with IRS rules.
