origination fees tax-deductible?
I'm confused. I read that origination points are not deductible,
but discount points are. My lender will not use discount instead
of origination points, but claims that the origination point is
still buying my rate down. Can this be true?
In another place on the World Wide Web, I read that
origination points lose their deductibility if the lender bundles
all the fees that are normally broken out separately (title fee,
attorney's fee, etc.) into one and calls it an origination fee.
But if the lender charges a point as an origination fee and then
charges those other fees separately, in that case, is it deductible.
Please clarify. Thank you!
You're getting hung up on terminology. The term "points"
is used to describe certain charges paid, or treated as paid, by
a borrower to obtain a home mortgage. Points also may be called
loan origination fees, maximum loan charges, loan discount or discount
IRS Publication 530 says the following regarding
You can deduct the full amount of points in the year
paid if you meet all the following tests:
- Your loan is secured by your main home.
(Generally, your main home is the one you live in most of the
- Paying points is an established business practice
in the area where the loan was made.
- The points paid were not more than the points
generally charged in that area.
- You use the cash method of accounting. Most individuals
use this method.
- The points were not paid in place of amounts that
ordinarily are stated separately on the settlement statement,
such as appraisal fees, inspection fees, title fees, attorney
fees and property taxes.
- The funds you provided at, or before, closing
plus any points the seller paid, were at least as much as the
points charged. The funds you provided do not have to have been
applied to the points. They can include a down payment, an escrow
deposit, earnest money and other funds you paid at, or before,
closing for any purpose. You cannot have borrowed these funds
from your lender or mortgage broker.
- You use your loan to buy or build your main home.
- The points were computed as a percentage of the
principal amount of the mortgage.
- The amount is clearly shown on the settlement
statement (such as the Uniform Settlement Statement, Form HUD-1)
as points charged for the mortgage. The points may be shown as
paid from either your funds or the seller's.
You cannot deduct the points if they are in lieu of
paying other ordinary costs of closing that are not deductible such
as title insurance and attorney fees, hence the restrictions under
points No. 2 and No. 3 above. So long as you're paying the points
to buy (not refinance) your principal residence, your overall cash
paid through deposits and at closing exceed the points charged,
and you're not using the points to avoid other traditional closing
costs, your points would be deductible as an itemized deduction
on Schedule A.
To ask a question on Tax Talk, go to the "Ask
the Experts" page, and select "taxes" as the