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jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3000
Experience:  I've prepared all types of taxes since 1987.
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We refinanced our home in CY 2007. When we received our ...

Resolved Question:

We refinanced our home in CY 2007. When we received our Mortgage Interest 1098, block "2" indicated we paid no points. However, our HUD1A showed we paid amounts for the following items / lines:      

0801     Loan Origination Fee
0803     Appraisal Fee
0811     Processing Fee
1101     Settlement or Closing Fee
1103     Title Examination, Abstract, and Property Report
1108     Title Insurance / Title Premium Fees
1201     Recording Fee
1202     Local Grantee Tax
1203     State Grantee Tax

The IRS tax pubs have conflicting information as to what we can or cannot deduct from our CY 2007 federal taxes. I have read on the Internet where some even say these HUD1A items are not deductible at this time, but somehow can be figured in if we were to sell our home (huh?).

My question is: Are any of these items deductible on our CY 2007 federal tax return? If so, which one(s) and where on the bloody tax forms do they go?

Thank you for your time and assistance.

Steve Glass
Yorktown, VA
Submitted: 6 years ago.
Category: Tax
Expert:  jgordosea replied 6 years ago.

Greetings,

Loan origination fees are points. You can deduct the points in full in the year they are paid, if all the following requirements are met:

  1. Your loan is secured by your main home (your main home is the one you live in most of the time).
  2. Paying points is an established business practice in your area.
  3. The points paid were not more than the amount generally charged in that area.
  4. You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them.
  5. The points were not paid for items that usually are separately stated on the settlement sheet such as appraisal fees, inspection fees, title fees, attorney fees, or property taxes.
  6. The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. You cannot have borrowed the funds from your lender or mortgage broker in order to pay the points.
  7. You use your loan to buy or build your main home.
  8. The points were computed as a percentage of the principal amount of the mortgage, and
  9. The amount is clearly shown on your settlement statement.

That is, if you did not pay (at or before closing) at least as much as the loan origination fee you will not be able to deduct the loan origination fee in one year but can deduct it ratable over the life of the loan (for example if it was a no down payment purchase).

Points not included in Form 1098 should be entered on line 12 of Form 1040, Schedule A , Itemized Deductions. For more information, refer to Publication 936, Home Mortgage Interest Deduction; and Tax Topic 504, Home Mortgage Points.

The other items you listed from the HUD-1 are all costs of buying the property. When you figure your gain on the sale of the house you include your purchase price add the costs of buying the property. That is, if your contract price was 100,000 but you had closing costs of 5,000 (that you did not deduct on Schedule A) when you sold that house for 200,000 you would have only 95,000 of gain. That is what is meant by the costs being figured in when you sell the home.

I hope this helps for deducting points and using the closing costs as part of your cost of the property.

Best regards.

 

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3000
Experience: I've prepared all types of taxes since 1987.
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