Question on Points

[JG EA]

If a refinancing loan was taken and improvements done with part of the money and no funds were paid at closing (only received), could you count some of the payment money for the year as payment toward points in order to take a higher amount of points this year? (For improvements/total received)

[Gretel]

So, you are saying clients paid points on the refi and want to know if some of the points can be allocated to the improvements and taken this year?

I believe they can write off any points associated with the improvements, but not the old balance of the loan or any funds used for something else.

[JG EA]

But there's that nagging little "point" about having to pay something covering the points (not taken out of re-fi money). So, I was wondering about counting part of the payments for the year as being paid toward points. But, it does seem that would be a pretty small %. Has anyone thought about doing this?

[taxmom34]

points?

if there were points wouldn't it show up on the 1098 and don't they have to be amortized?

[S T]

points on Refi

JG,

Wanted to try to answer this question for you and point you to the right reference source, so took some diverted time.

TTB 4-12 on TTB Web CD, left hand column, Under Home Improvement Loan

Home improvement loan. If tests 1 through 6 are met under
points paid to purchase a home, the taxpayer can fully deduct
points paid on a loan to substantially improve the taxpayer’s
main home (not a second home). If only a portion of the loan is
used to improve the home, only that portion of the points are
fully deductible. The rest of the points are amortized over the life
of the loan.

Your question is due to no monies being paid into escrow or on the refi to cover the points, so maybe this will answer that question.

From an article

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.

If you meet these tests and you used the proceeds of the refinance to improve your main home you can deduct that portion of the points that qualify in the year you paid them. You deduct it as home mortgage interest on Form 1040, Schedule A (Itemized Deductions

From Pub 936 http://www.irs.gov/pub/irs-pdf/p936.pdf chart would indicate no deduction as the t/p did not pay at least as much at closing to equal the points charged, for the points to be deductible at closing. . In otherwords no money was paid by t/p at closing, all points were "rolled into" the loan.

Were the funds you provided (other than those you borrowed from your lender or mortgage broker), plus any points the seller paid, at least as much as the points charged?*

I am interpreting no deduction, regardless of what the funds were used for, if in fact the t/p paid no monies at time of closing of the refinance.

Hope this helps,

Sandy

[JG EA]

JG,

Wanted to try to answer this question for you and point you to the right reference source, so took some diverted time.

..
at or before closing. .
Sandy

Thanks Sandy, I was trying to get around those words. "The funds you provided at or before closing..."

I appreciate your time.