paid points will be deductible?

Hi Katheren,

Welcome to Mortgagefit forum.

You would be able to fully deduct the points in the year in which they are paid if:

1. The mortgage is secured on your primary residence.


2. In the region where your home is, payment of points is a known business practice.


3. You did not pay points than what is charged from other borrowers in your locality.


4. You report your income in the year in which it is received and deduct the expenses in the year you actually pay them. This method is known as Cash method of accounting.


5. The points you paid were not in place of title fees, property taxes, inspection fees, appraisal fees or title fees. These are normally stated on your settlement statement.


6. The mortgage was used for the purpose of buying or building your primary residence.


7. These points were a certain percentage of the mortgage.


8. The amount paid as points is clearly shown on the HUD-1 settlement statement. You can show the points paid from your funds.

Colin

Another thing is that the points which were charged should be equal to the points seller had paid plus the funds you had provided towards escrow deposit, down payment, earnest money or any other similar expenditure at the time of closing. But such funds cannot be borrowed from your broker or lender.

What relation, if any, do points have to my income tax returns on my property as a first time buyer?

Yes, points may be deductible as home mortgage interest if you are itemizing the deductions on Form 1040, Schedule A.

points are deductible in the year in which you paid them for a purchase.
for a refinance, they are deductible over the life of the loan.
other criteria above also apply.

what is the difference between discount points by the lender and origination fee by the broker?are they the same?on HUD,the origination fee is 1.5 % and disc points by the lender is 0.91.so would i get tax deduction for 1.5% or 0.91%?

Hi bambi,

An origination fee, also known as activation fee, is a payment which is associated with the creation of an account with a bank, broker or other company which provides services associated with taking out a loan. On the other hand, discount points are fees paid to a lender during the closing which helps in lowering the mortgage interest rate. At times, buying points are considered as a good decision, whereas most of the time the purchase can cost you more than it saves.

As far as I know, the origination fee is tax deductible if it has been used to obtain a mortgage and not paid in lieu of other fees, such as attorney or appraisal fees.

Thanks