@SonorityGenius wrote:
I have a quick Q since we're on the topic..
Suppose a person pays 5 points which comes out to around 8-9k of avg purchase price, but they are already getting refund in taxes, do they get EXTRA 8-9k back because of these points or no?
Not exactly. Points paid for a housing mortgage (including the originating point) are not tax credits (like the 8K federal housing credit right now is), they are tax deductible.
The difference is a tax credit gives you $1 back per $1 of credit on your taxes. In the case of a fully refundable tax credit (like the housing credit), this can even reduce your tax liability below $0 (in other words, the IRS could actually pay you more than you had withheld for the year).
A tax deduction, on the other hand, reduces your taxable income by the amount of the deduction. Since you have a smaller taxable income due to the deductions, you owe less in tax, but it's not a dollar for dollar amount - it depends on what tax bracket you are in. If you're in a 25% tax bracket, you will save about 25 cents for every dollar amount of the tax deduction in taxes. A tax deduction cannot reduce your tax liability below zero. In this case, if you paid 8K in points, and you were in a 25% tax bracket, you would see your refund increase by $2000.
Note that a refundable tax credit is applied AFTER all appropriate tax deductions (this is important, since this means you get the total tax credit as well as the maximum refund you can get from your lower tax liability from your tax deductions).
