Closing costs and taxes?

[brendo927]

I have been told that on a single family you will only be able to get a small amount back(discount points) on your taxes. My question is on a 3 family someone told me that you will get both origination and discount back at the end of the year....is this true? I got my doubts but this is from a closing attorney who is also an accountant.

[Erik]

I've heard that origination and discount qualify for deductions on any transaction - but I'm not a CPA.

[brendo927]

if that is true about 3 families.....definitely a good pitch to explain closing costs.....I have my doubts though. Anyone have any proof?

[Erik]

Well, after a quick search on google, here's what I found straight from the IRS:

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 loan origination fees, maximum loan charges, loan discount, or discount points.

Scroll down to page 5 of that pdf and you can read all about it. However, there are a lot of conditions that must be met and it does say this:

General Rule. You generally cannot deduct the full amount of points in the year paid. Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage.

Shockingly, it appears consulting a CPA truly is the best probable course of action.

[Thills]

I do believe it depends on whether or not the closing costs are paid POC or included in the loan amount.

With the logic being if you pay outa pocket the full points are deductible in that year.

While rolling them into the loan, you would only pay off (30 year loan for example) 1/30 per year of the points charged.

As always, you really should consult a qualified CPA, in fact refer your borrower to one and start a new relationship!

[Greg]

I prepare taxes on the side and when I was working part time for a CPA we used the amount divided by the loan term and then when you pay the mortgage off the remaining amount can be deducted that year in it's entirety.

Discount Points Only.... Since it is pre-paid interest

Any fee associated with obtaining a mortgage that is paid out of pocket may be deductable. Investment Property or Primary Residence used to also conduct business.