Seller's credit in escrow

[Questionguy101]

It's getting very common these days for the seller to give credits to the buyer to cover part of the closing costs in the escrow. Is there a rule to apply the credits? Obviously, it would be more beneficial to the taxpayer if the credits are applied to the non-deductible items like the title insurance, escrow fee exactly, etc, and therefore the other expenses like loan origination fee can be considered paid by the taxpayer and become deductible. But does the IRS allow the taxpayer to make arbitrary allocation like that?

[Burke]

Did the buyer come up with any money at all? See bottom of buyers side of HUD-1. If he did not pay in at least as much as the points, then no ded in full. Must amortize. I feel the "sellers credit" is just a reduction in the sales price. You saw a lot of this in past years when banks wanted a higher sell price to justify the mtge. I am surprised it is still happening.

[Gretel]

. I feel the "sellers credit" is just a reduction in the sales price.

This was my first inclination also. Then I thought it must be a difference if buyer just gets a general credit or if seller actually pays closing costs of buyer. Maybe it is not.

If it is a difference then I would think the amount needs to be prorated between the different types of closing costs. Only exception are the points, which can be deducted by buyer anyway even if seller pays them all. What I don't know right of is if this also applies if cash brought to closing table does not cover this amount.