Almost all of us have become aware that we can't deduct the origination expense (or "points") we pay to take out a refinancing loan in the same way that we can deduct the points for taking out a loan with which we purchase a new home.

For the purchase money loan, the origination "points" (figured as a percentage of the total loan amount) are deductible in the tax return for the year in which they were paid. For the refinancing loan, those origination "points" can only be deducted over the life of the loan−generally 1/15th or 1/30th of the total "points" each year. Thus, if you paid $3,000 to take out your refinancing loan, you will generally deduct about $100 or $200 a year, rather than taking the full $3,000 deduction for the year of origination.

But there is an exception, and it's a very helpful one. If you did a "cash-out" refinancing that pulled out some of the equity from your home and you used that cash to make qualified home improvements, the portion of the origination "points" that went toward that part of the loan origination will be fully deductible on the relevant income tax return. Contact your tax advisor for details. For help with real estate call Beth at (425) 450-5208 and visit her website at www.bethbillington.com.

Beth Billington is a Realtor® with Coldwell Banker Bain in Bellevue, WA.