Legendary activerain blogger, Lenn Harley, expounds on pointing the client/consumer to the IRS website regarding whether the origination fee that your loan officer charges IS deductible if used to reduce the interest rate, but not if it is just to pay the loan officer. Importantly, she points out that the taxpayer should not rely on a loan officer, real estate agent, etc., for tax advice. Go to the source: check the IRS website, read for yourself, check with "your tax professional."
Does this involve more work and time on your part? YES! But it will reap rewards for you both on this issue and on future financial decisions for you to take on the analysis yourself, understand your situation, and make informed decisions for yourself.
An anectdote: a family member we'll call "Dave" has for years been "into" the tax code, as he has some land in another state and lives in a relatively high tax state. Dave has saved himself six figures of dollars by doing his homework on depreciation, running a few cows on the land, clear-cutting trees, revamping his estate plan, etc. Here are some pics from a recent trip to this property, with some of the calves and some of the tree-cleared areas:
As Lenn says below, the devil is in the details; I'd add: get into the details and sift that devil outta there!
IS THAT ORIGINATION POINT ON YOUR HUD-1 DEDUCTIBLE? READ THE IRS WEB SITE AND THE ANSWER IS PROBABLY YES, YES, YES.
YOU'D BE SURPRISED HOW EASY THE IRS WEB PAGE IS TO READ.
Agents and loan officers sometimes advise buyers and sellers about the deductablity of the certain items on the HUD-1.
For instance, home buyers often ask their real estate agent or loan officer questions about detectability of closing costs. Sellers ask too, but not as often. Buyers often depend on the detectability of mortgage interest to bridge the gap between renting and buying. Clearly, the higher the income, the more valuable the tax deduction is to a home buyer.
DON'T GIVE TAX ADVICE. Send that buyer to the IRS web page and let them read the section on HOME MORTGAGE INTEREST AND POINTS. However, many agents and loan officers make the mistake of telling buyers that the discount point is deductible but that the "origination fee" is NOT. WRONG!!
THE ORIGINATION FEE or point IS DEDICTABLE. That's not Lenn's advice. That's from the IRS.
Read the IRS Instructions for Points.
WARNING TO CONSUMERS AND ALL. THIS MATTER IS COMPLICATED AND I RECOMMEND READING THE IRS WEB SITE. The Devil is in the details.
The term "points" is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points (emphasis added).
ATTENTION HOME BUYERS! Don't ask your real estate agents or loan officer for tax advice. Consult your accountant or the IRS web page. It's in plain English and very helpful.
Let's get this matter cleared up once and for all. A POINT IS A POINT IS A POINT. A point is ONE PERCENT of the loan amount. Call it a butterfly or a shark. An Origination Fee is a POINT.
Save your HUD-1. The points, all of them, even if paid by the seller are deductable for you. You can find that on the IRS site too.
ARE MORTGAGE LOAN ORIGINATION FEES DEDUCTIBLE?? YES, YES, YES.
NOTE: See John Cannata - LegacyTexas Mortgage Sr Loan Officer's comment below. It goes into more detail that I wanted to do but he is correct, which is also clear on the IRS web site.
Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.
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Lisa Delzompo (951-704-4559)
"May your home always be too small ... to hold all your friends!"
CA Dept of Real Estate, Real Estate Broker License #01379811;
NMLS Identifer #331744
REAL ESTATE: www.SandToSeaProperties.com. Covering northern San Diego, Oceanside, Temecula, Murrieta, Riverside County and desert areas of Yucca Valley, Joshua Tree and Twentynine Palms, CA.
LOANS: PRW Lending, Inc. Call direct 951-704-4559, or email me at lisa(@)sand2sea.us
Information is deemed reliable but is not guaranteed. Information is general and may not address your particular situation. Do not rely solely on this or any information you find on the internet. You should consult relevant professionals directly about your real estate, financial, etc., situation.