Are refinancing fees tax deductible?

Most homeowners want to know one thing up front: Are refinancing fees tax deductible? In most cases, the answer is no.

Many of the fees and closing costs you pay when you refinance, like appraisal fees, title work, or lender charges, aren’t deductible. But there are a few situations where certain costs can reduce your tax burden.

Knowing which refinance tax deductions you can claim can help you plan ahead and avoid leaving money on the table. In this article, we’ll break down refinance tax deductions, what the IRS allows, and how to claim these deductions 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, which can lower the amount of taxes you owe. When it comes to refinancing, a refinance tax deduction refers to the specific costs you may be able to deduct after replacing your existing mortgage with a new one.

Many of these deductions also apply when purchasing a home, primarily those tied to mortgage interest and points. But the rules around deducting interest changed significantly under the Tax Cuts and Jobs Act of 2017, which lowered the cap on deductible mortgage interest and reduced the number of homeowners who can benefit. As a result, most refinancing fees are no longer deductible in practice.

Itemizing deductions vs. standard deduction

Most refinancing-related deductions only apply if homeowners itemize their taxes. Itemizing means adding up all eligible deductions – mortgage interest, property taxes, and certain points – and subtracting them from your taxable income.

The standard deduction is a fixed amount anyone can claim without tracking individual expenses. For individual taxpayers, the 2025 standard deduction is $15,750 or $31,500 for married couples filing jointly, according to the IRS. If you claim the standard deduction, you generally cannot deduct mortgage interest or points paid during a refinance. This rule applies to both your primary residence and investment properties.

Mortgage interest deduction

Mortgage interest is typically the largest deduction available for homeowners. When you refinance, the interest you pay on your new loan can still qualify for a deduction as long as the mortgage meets IRS requirements and you itemize your taxes. This applies whether you refinanced to secure a lower rate, shorten your loan term, or switch from an adjustable-rate mortgage to a fixed one.

If you completed a cash-out refinance, the rules change slightly. The IRS only allows you to deduct the interest on a portion of your loan used to buy, build, or substantially improve your home. Any interest tied to funds used for other purposes does not qualify.

Mortgage interest for standard rate and term refinances

To deduct mortgage interest from a standard rate-and-term refinance¹, several IRS conditions must be met, including:

• Your home must secure the loan. Primary and second homes qualify if you occupy it for more than 14 days or more than 10% of the days it’s rented out, whichever is greater.
• The lender has a lien on the property. The lender must have a lien for the interest to qualify as deductible.
• You must itemize your deductions. Mortgage interest isn’t deductible if you take the standard deduction.

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 your deductions. This doesn’t change because you refinanced.

The rules are slightly different for the cash-out portion. The IRS only allows you to deduct the interest on the extra funds if they’re used to buy, build, or substantially improve your home. If you used the cash for anything else, like paying off credit cards, covering tuition, or going on vacation, the interest tied to that portion is not deductible.

Is a cash-out refinance taxable?

A cash-out refinance isn’t taxable. Even though you’re receiving cash at closing, it’s considered loan proceeds, not income. The IRS doesn’t treat it as something you owe taxes on.

However, how you use those funds does affect whether the interest is deductible. If you use the cash for a personal expense, the money isn’t taxable, but the interest tied to that portion of the loan cannot be deducted.

Interest becomes deductible only if the cash-out funds are used for capital home improvements, per IRS Publication 936.

Capital improvements

Capital improvements are permanent upgrades that add value to your home, extend its life, or adapt it to new uses. The IRS uses this definition to determine whether interest on a cash-out refinance is deductible. Only improvements that meet this standard qualify.

Examples of capital improvements include adding a pool, installing a new roof, building an extra bedroom, or completing major garage upgrades.

Smaller upgrades can qualify, too. Projects like installing storm windows, adding a home security system, or upgrading to central heating and cooling are also considered capital improvements if they increase the home’s value.

What doesn’t count as a capital improvement?

Not every home project meets the IRS standard for a capital improvement. To qualify, the upgrade has to add value, extend the home’s life, or adapt it to a new use. Many common projects fall outside that definition.

Here’s what typically doesn’t count as a capital improvement:

• Repairs or maintenance, such as fixing a leak, patching drywall, or replacing broken fixtures
• Aesthetic changes, including painting or minor cosmetic updates
• Paying down debt, including student loans, auto loans, or credit cards
• Vacations or discretionary purchases
• Personal expenses like covering medical bills

An example of cash-out refinance interest deduction

Let’s say you refinance an $80,000 mortgage and take $20,000 out in cash, giving you a new $100,000 loan.

If you use the $20,000 for capital improvements, for example, installing a new pool, the IRS allows you to deduct the interest on the entire $100,000 loan. That’s because the cash-out funds were used to buy, build, or substantially improve the home.

But if you use the $20,000 for noncapital expenses, like paying off credit card debt, this limits the deduction to the original $80,000 loan only. The interest tied to the $20,000 wouldn’t meet the IRS standard.

This example shows why it’s important to track how cash-out funds are used. The tax treatment depends entirely on whether the expenses qualify as home improvements.

Discount points deductions

Discount points are an up-front fee you can pay to lower your mortgage interest rate. Each point typically costs 1% of your loan amount. For example, on a $150,000 refinance, one point would cost $1,500.

Mortgage points can be deductible for both a primary home and a qualified second home, but refinancing has stricter rules than a home purchase. For most refinances, the IRS requires you to deduct points over the life of the loan, not all at once, unless a portion of the refinance funds is used on capital improvements.

Because the rules vary depending on how the refinance is structured and how the funds are used, it’s a good idea to consult a tax professional to understand how points apply to your situation.

Deductions on closing costs for a rental property

Closing costs are tax-deductible for refinancing rental properties because the money earned is seen as taxable income.

You have a lot more leeway when deducting closing costs and other upkeep expenses for a refinance on a rental property. Some expenses you can claim as deductions on a rental property include:

• Attorneys’ fees
• State-required inspection fees
• Refinance application fees
• Legal and recording fees
• Appraisal fees
• Insurance
• Repairs for the rental property

In addition, you can also deduct insurance and repair expenses related to a rental property.

How do you claim a refinance on your taxes?

Most refinance-related deductions are claimed gradually, not all at once. The IRS requires some costs, especially mortgage points paid during a refinance, to be deducted over the life of the loan. That means you spread the deduction out evenly across each tax year your new mortgage is in place.

For example, if you complete a 15-year mortgage refinance and pay points that qualify for a deduction, you would divide the allowable amount across 15 tax returns. You would claim 1/15 of the deduction each year until you pay off the loan or refinance again.

Mortgage interest

Homeowners can deduct the interest paid on their refinanced mortgage each year, as long as the loan meets IRS standards and they itemize their taxes. The deduction reflects only the portion of your monthly payment that goes toward interest, not the principal.

As the loan matures, more of the payment goes toward paying down the principal. That means the amount of mortgage interest you can deduct naturally decreases over time.

For example, if you paid $1,000 in mortgage interest in 2025, that full amount would be deductible on your 2025 tax return, assuming you qualify to itemize. The principal portion from that same year wouldn’t be eligible.

Form 1098 for determining mortgage interest

Each year, your lender sends you Form 1098, which lists the mortgage interest you paid the previous year. This form is your primary record for determining how much interest you may be able to deduct.

A copy of Form 1098 is also sent directly to the IRS, so you don’t need to submit it with your tax return. You only need to use the information from the form when preparing your taxes.

If you don’t receive Form 1098, or if the numbers don’t match your own records, contact your lender. Rocket Mortgage clients can access Form 1098 electronically via their account.

Discount points and closing costs

Discount points from a refinance must also be deducted over the life of the loan, not all at once. Because points are treated as prepaid interest, the IRS requires homeowners to spread the deduction evenly across the full mortgage term unless the refinance includes funds used to make capital improvements to the property.

For instance, if you paid $5,000 in discount points on a 10-year refinance, you would deduct $500 per year for 10 years.

Rental property refinances follow a similar structure. Closing costs that qualify as deductible business expenses, such as loan origination fees, legal fees, or appraisal costs, are also deducted over the life of the loan.

So, if you incurred $15,000 in closing costs on a 15-year refinance for a rental property, you would typically deduct $1,000 per year until you pay off the loan.

The bottom line: Refinancing fees are tax deductible in certain scenarios

Most refinancing fees aren’t deductible, but some costs can lower your tax bill when 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 to buy, build, or substantially improve your home. Rental property owners also have more flexibility, since many refinance closing costs count as business expenses.

Ready to begin the home refinancing process? Fill out an application today with Rocket Mortgage.

¹Refinancing may increase finance charges over the life of the loan.