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"...if you engaged in a "cash-out" refinancing for more than the balance of your previous mortgage-and used some of the extra money for home improvements-you can deduct a proportationate share of the points on your 2001 tax return."

If your old loan was $200,000 and the new loan is $255,000 and $50,000 went to improvements ($5,000 in loan costs added to the new loan), then the amount you can deduct is (50/250) times the amount of the points. The balance of the points can be amortized over the term of the loan. If you refince again next year you can deduct the remaining un-amortized balance of the points at that time.
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