In the right situation, refinancing a home mortgage at a lower interest rate can be a smart financial move. If you refinance your mortgage this year, don’t overlook the following potential tax deductions.

Points. Your lender may charge you points — prepaid interest — in connection with the refinancing. (One point equals 1% of the loan amount, two points equals 2%, etc.) The points are deductible as an itemized deduction. In general, you have to spread your deduction over the term of the new loan. But points are currently deductible to the extent you spend the proceeds from the refinancing on improvements to your principal residence.

Refinancing a mortgage for the second time opens up the opportunity to deduct the balance of the points on your first refinancing, assuming you are switching lenders. If not, you can deduct the points remaining from the first refinancing over the life of the new loan.

Mortgage insurance. Premiums paid to secure private mortgage insurance (PMI) in connection with a mortgage taken out after 2006 are deductible, once again, only if you itemize your deductions. The deduction is also available if you get mortgage insurance from the Federal Housing Administration, Rural Housing Administration, or Department of Veterans Affairs. The deduction phases out if your adjusted gross income is between $100,000 and $109,000 ($50,000 and $54,500 if you are married filing separately). Under current law, this deduction is available only through 2010.

Pass Those Tests

Unless a 401(k) plan has certain “safe harbor” features, it must perform nondiscrimination testing every year. The tests are meant to prevent the plan from favoring highly compensated employees.

The actual deferral percentage (ADP) test compares the level of elective contributions made by highly compensated and nonhighly compensated employees.

The actual contribution percentage (ACP) test looks at the level of employer matching (and certain other) contributions for the two groups.

If test results show that the highly compensated group’s average contribution rates are too high relative to those of the rank and file, the plan has a limited time to fix the problem or risk disqualification. Frequently, this means distributing excess contributions to company executives, who in turn have to dig into their own pockets and pay income taxes on the distributions.

Encouraging greater plan participation and higher contribution levels can go a long way toward avoiding problems with the nondiscrimination tests.

Talk it up. Employees who decided not to join the plan when they were first given the opportunity to enroll might be receptive to joining at a later time. Similarly, employees who have been participating for a while may decide to raise their initial contribution amount if encouraged to do so. Additional meetings and personalized communications are examples of ways to stimulate increased participation.

Tout the Saver’s Credit. Available only to employees with modest incomes, this federal income-tax credit essentially puts money back into the pockets of employees who contribute. The credit is available for up to $2,000 of annual contributions, and the credit rate is 50%, 20%, or 10%, depending on income.