buying down points - tax advice needed.

[Aharami]

we're closing on a house this thursday. We're locked in at 6.75% but thinking of buying down points to 6.5%. The bank is telling me that to buy it down .25%, it is going to cost me $1610.28 at closing. By buying it down .25%, our monthly payments will reduce by $42. So our break even point is around 38 months.

I have heard that points are tax deuductable. How much of that $1600 is tax deductable, and how do I find out how much of that 1600 will I be getting back at tax time?

This is our fist home. I'm buying the house with my fiancee but we will probably end up getting a court marriage in a month before we move in.

edit: please keep this thread on topic. I dont want to hear how this is a bad time to buy. I've been through that already and we've considered alternatives. Buying a house now works out best for us.

 

[Beattie]

Tax deductible means you subtract that from your income at tax time. That means the real savings is based on your tax rate. At 30% you will save (1600 * .3) dollars.

 

[CPA]

Keep in mind it's only tax deductible if you can itemize. You only itemize if your itemized deductions (property tax + state sales or income taxes + mortgage interest + charitable contributions) is larger than your standard deduction. Doing the house in July/August may mean you won't have enough in itemizable deductions to take advantage of the point buydown. compare the two and then decide what you want to do.