For residential real estate purchases, discount points are tax deductible in the year in which they're paid. However, according to the IRS, they must not exceed the amount of points generally charged in the local area in order to be deducted. Points paid for refinancing are handled differently; they must be deducted over the life of the loan. For example, if a borrower paid $1,800 in points when refinancing to obtain a 30-year loan with a lower interest rate, he or she could only deduct $5 for each of the next 360 months, or $60 per tax year. But the IRS does allow refinance points to be deducted in the year that they're paid if part of the refinance money is used to pay for improvements to the home and the taxpayer meets other requirements. Under those circumstances the points associated with the improvements may be fully deducted in that same year.