How to properly read a closing statement - help :(

[MariaR08]

I'm a first-year tax preparer (newbie) and have a client who just purchased their first home in Nov 2008. They qualify for the first-time homebuyer credit and that was simple enough to do in ProSeries to give them the credit.

But what I'm a bit unsure of is how to properly read their closing statement to make sure I get everything that's deductible - like the mortgage interest, points, taxes, etc.

There's some items that read loan origination fees, VA funding fee, city/town taxes, taxes paid to "lender name", etc.

Can somebody help me out here or point me to a good site that has some detailed info? I need to be able to differentiate and break down what's what on this closing statement? Is it a standard statement where items are placed on the same "line" per say? Like the "loan origination fees" are on line "801" or something like that..

Any help is GREATLY appreciated!

P.S.
I'm in California.

Thanks!

~Maria

[Uncle Sam]

Reading of Closing Statement

If you could provide your fax #, I'll be glad to send you a form I prepared (that actually came from an NCPE tax lecture) based on the HUD-1 Settlement Statement.

[Gene V]

TTB page 6-2 shows Tax Treatment of Settlement Costs

[Koss]

Closing Statement

In principle, it should be standardized. Unfortunately, not all closing agents do everything exactly the same way. And some things vary from one state to another in terms of how property taxes are paid.

E-mail me if you'd like...

BMK

[taxea]

"loan origination fees" = deductible interest. If paid at time of purchase it is deductible in the first year. If included in the loan it is deductible over the term of the loan. These fees are ordinary to the purchase of the property and what they actually do is lower the interest rate of the loan. taxea

[rgtaxservice]

....

Per settlement
lines 101, 1100-1113, 1200-1205, 1300-1305.

For reference, I made a copy of a HUD-1. I blacked out client info, highlighted items that affect basis, or are deductible (in different colors) and laminated it for use in the office. Makes for a quick reference when I'm too lazy to reach for TTB.

Be sure to credit your clients for taxes paid 107-108 - county and school taxes. These amounts are in addition to those shown on the 1098. Loan origination fees (points) should be on the 1098 - don't duplicate them.

[Burke]

Be sure to credit your clients for taxes paid 107-108 - county and school taxes. These amounts are in addition to those shown on the 1098.

As stated above, pay particular attention to the pro-rating of real estate taxes not only on Lines 106/107-406/407 but also on Lines 210/211 & 510/511. These entries will usually be the same on both sides of the form. It depicts the transfer of credits for real estate taxes when the closing is outside of the exact date that the taxes are due, which is almost always the case. For example, if taxes are due on May 1 each year, and the closing happens on any other date, then there will be an adjustment on the sale to take from the seller and give to the buyer, or vice-versa. These either have to be added to or subtracted from the real estate tax figure on the 1098, depending on whose tax return you are actually doing. Sometimes you might also see a figure on a miscellaneous blank line indicating "rents" which has to be dealt with as well.

[Uncle Sam]

As stated above, pay particular attention to the pro-rating of real estate taxes not only on Lines 106/107-406/407 but also on Lines 210/211 & 510/511. These entries will usually be the same on both sides of the form. It depicts the transfer of credits for real estate taxes when the closing is outside of the exact date that the taxes are due, which is almost always the case. For example, if taxes are due on May 1 each year, and the closing happens on any other date, then there will be an adjustment on the sale to take from the seller and give to the buyer, or vice-versa. These either have to be added to or subtracted from the real estate tax figure on the 1098, depending on whose tax return you are actually doing. Sometimes you might also see a figure on a miscellaneous blank line indicating "rents" which has to be dealt with as well.

The "rents" = amount from a tenant that was prepaid to the previous property owner. That should be picked up as rental income on Schedule E. Also on the statement would be an amount for any security deposit from a tenant.

[MariaR08]

Thanks!

Thank you all for the responses and advise!

I just completed my client's return and I feel pretty confident I picked up everything correctly!

~Maria