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Published July 15, 2026
Refinance points on a rental usually cannot be deducted in year one. IRC 461(g) requires you to spread them over the life of the new loan.
If you refinanced a rental property in Torrance this year, the points you paid at closing generally cannot be written off all at once. Under Internal Revenue Code section 461(g), points paid to refinance a loan on rental property must be amortized (deducted a little at a time) over the life of the new loan, not expensed in the year you paid them. There is a narrow exception for a purchase-money mortgage on your main home, which does not apply to a rental refinance.
When you buy a home and pay points to get the loan, the IRS treats those points as prepaid interest, and in many owner-occupied purchase situations you can deduct the full amount in the year you paid them. Refinancing breaks that fast track. IRC section 461(g)(2) carves out the current-year deduction only for points paid in connection with the purchase or improvement of, and secured by, your principal residence, where paying points is an established business practice in the area. A refinance on a rental property is neither a purchase of your main home nor typically eligible for that exception, so the general rule in section 461(g)(1) applies: a cash-basis taxpayer must treat prepaid interest, including points, as if paid over the term of the loan.
In practice, that means you divide the total points paid by the number of months in the new loan term, then deduct that monthly amount as mortgage interest on Schedule E for each month the loan is outstanding during the year. A 30-year refinance with $6,000 in points amortizes to $200 a year for 30 years, not a lump sum this April. IRS Publication 527, which covers residential rental property, walks through this treatment directly and is the clearest plain-language source for landlords doing their own numbers.
The rule has a release valve. If the loan ends early, whether because you sell the property, pay off the balance, or refinance again with a different lender before the amortization period is up, you can generally deduct any remaining unamortized points in full in the year the loan ends. The wrinkle is if you refinance again with the same lender. In that case, the leftover points from the earlier refinance typically cannot be deducted immediately; instead they get added to the new loan's points and amortized over the new loan's term. This has tripped up more than one owner who refinanced twice with the same bank in a short window and expected a clean write-off.
If you refinanced for more than your existing loan balance and pocketed cash, or used it for something other than the rental, only the portion of the points allocable to the rental-related debt is deductible as a rental expense on Schedule E. Points tied to loan proceeds used for a non-rental purpose, say a kitchen remodel on your personal residence, are not a rental deduction at all and may fall under different personal interest rules. This is a common trap for Torrance owners who refinance one rental to fund a down payment on another property. Keep a clean paper trail of how every dollar of the loan proceeds was used, because the IRS applies these rules loan-proceeds-by-loan-proceeds, not property-by-property.
Do not expect a full deduction on your 2026 return just because you paid several thousand dollars in points to refinance a Torrance rental. Set up an amortization schedule the year of the refinance, and track it every year the loan is outstanding so you do not lose the deduction entirely. If you sell or pay off the loan, remember to claim whatever is left over in that final year. This is a paperwork problem more than a legal gray area, but it is one that is easy to get wrong without a system.
If you would rather not build a spreadsheet for this yourself, that is part of what we handle for owners at Schofield.
This is general information, not legal or tax advice. Confirm with a licensed tax professional before you act.
Last verified: July 2026.
Topics: taxes, refinancing, rental property, mortgage points, Torrance, landlord tax
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Schofield Properties is a family run property management company at 323 Richmond St, El Segundo, CA 90245. We have managed the South Bay since 1972 and personally oversee about 186 doors today. Book a call to talk about your property.
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