Points: Rental Property Taxes (2025 IRS Guide)

This guide covers “Points” within rental property taxes. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 527 (2025), Residential Rental Property, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

Listed below are the most common rental expenses.

• Advertising.

• Auto and travel expenses.

• Cleaning and maintenance.

• Commissions.

• Depreciation.

• Insurance.

• Interest (other).

• Legal and other professional fees.

• Local transportation expenses.

• Management fees.

• Mortgage interest paid to banks, etc.

• Points.

• Rental payments.

• Repairs.

• Taxes.

• Utilities.

Points

The term “points” is often used to describe some of the charges paid, or treated as paid, by a borrower to take out a loan or a mortgage. These charges are also called loan origination fees, maximum loan charges, or premium charges. Any of these charges (points) that are solely for the use of money are interest. Because points are prepaid interest, you generally can’t deduct the full amount in the year paid, but must deduct the interest over the term of the loan.

The method used to figure the amount of points you can deduct each year follows the original issue discount (OID) rules. In this case, points paid (or treated as paid (such as seller paid points)), by a borrower to a lender increase OID which is the excess of:

• Stated redemption price at maturity (generally the stated principal amount of the mortgage loan) over

• Issue price (generally the amount borrowed reduced by the points).

Note:

For more detailed information to determine OID on a mortgage loan, including how to determine the stated redemption price at maturity and issue price of a mortgage loan, see the regulations under section 1273.

The first step to determine the amount of your deduction for the points is to determine whether your total OID on the mortgage loan, including the OID resulting from the points, is de minimis. If the OID isn’t de minimis, you must use the constant-yield method to figure how much you can deduct.

De minimis OID.

The OID is de minimis if it is less than one-fourth of 1% (0.0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity (term of the loan).

If the OID is de minimis, you can choose one of the following ways to figure the amount of points you can deduct each year.

• On a constant-yield basis over the term of the loan.

• On a straight line basis over the term of the loan.

• In proportion to stated interest payments.

• In its entirety at maturity of the loan.

You make this choice by deducting the OID (including the points) in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued.

Example.

Carol took out a $100,000 mortgage loan on January 1, 2025, to buy a house she will use as a rental during 2025. The loan is to be repaid over 30 years. The loan requires interest payable each year at a fixed rate. During 2025, Carol paid $10,000 of mortgage interest (stated interest) to the lender. When the loan was made, she paid $1,500 in points to the lender. The amount of the OID on the loan is $1,500, which is the excess of the stated redemption price at maturity of $100,000 over the issue price of $98,500 (the amount borrowed of $100,000 minus the points paid of $1,500). Carol determines that the points (OID) she paid are de minimis based on the following computation.

The points (OID) she paid ($1,500) are less than the de minimis amount ($7,500). Therefore, Carol has de minimis OID and she can choose one of the four ways discussed earlier to figure the amount she can deduct each year. Under the straight line method, she can deduct $50 each year for 30 years.

Constant-yield method.

If the OID (including the points) isn’t de minimis, you must use the constant-yield method to figure how much you can deduct each year.

You figure your deduction for the first year in the following manner.

1. Determine the issue price of the loan. If you paid points on the loan, the issue price is generally the difference between the amount borrowed and the points.

2. Multiply the result in (1) by the yield to maturity (defined later).

3. Subtract any qualified stated interest payments (defined later) from the result in (2). This is the OID you can deduct in the first year.

Yield to maturity (YTM).

This rate is generally shown in the literature you receive from your lender. If you don’t have this information, consult your lender or tax advisor. In general, the YTM is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the issue price of the loan.

Qualified stated interest (QSI).

In general, this is the stated interest that is unconditionally payable in cash or property (other than another debt instrument of the borrower) at least annually over the term of the loan at a fixed rate.

Example—Year 1.

The facts are the same as in the previous example. The YTM on Carol’s loan is 10.2467%, compounded annually.

She figured the amount of points (OID) she could deduct in 2025 as follows.

To figure your deduction in any subsequent year, you start with the adjusted issue price. To get the adjusted issue price, add to the issue price figured in Year 1 any OID previously deducted. Then, follow steps (2) and (3), earlier.

Example—Year 2.

Carol figured the deduction for 2026 as follows.

Loan or mortgage ends.

If your loan or mortgage ends, you may be able to deduct any remaining points (OID) in the tax year in which the loan or mortgage ends. A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. However, if the refinancing is with the same lender, the remaining points (OID) generally aren’t deductible in the year in which the refinancing occurs, but may be deductible over the term of the new mortgage or loan.

Points when loan refinance is more than the previous outstanding balance.

When you refinance a rental property for more than the previous outstanding balance, the portion of the points allocable to loan proceeds not related to rental use generally can’t be deducted as a rental expense.

Example.

You refinanced a loan with a balance of $100,000. The amount of the new loan was $120,000. You used the additional $20,000 to purchase a car. The points allocable to the $20,000 would be treated as nondeductible personal interest.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

• Publication 527 (2025), Residential Rental Property: Rental Income and Expenses (If No Personal Use of Dwelling) — Rental Expenses — Types of Expenses — Points — Internal Revenue Service; 2025 edition.

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.