Loan Origination fees

[Kram BergGold]

I am beginning to see many settlement statements for home purchases with origination fees of like $600. In no way are these a % of the loan unless you consider .00346 a percentage of the loan. I have a collegue who insists these are deductible points. I have my doubts. Any other opinions?

[MRPLOW]

The 1098 is worthless for deducting points or loan origination fees, almost always wrong and under reported.

Always ask for the HUD-1 statement. Use that.

[Gary2]

The 1098 is worthless for deducting points or loan origination fees, almost always wrong and under reported.

Always ask for the HUD-1 statement. Use that.

I'm guessing that the original post was about the HUD-1. I've seen them too, and also with hybrid amounts (e.g. the line says $250 plus 0.25 point as origination fee). Just the latter is deductible.

[joanmcq]

I've been seeing negative points & loan fees.

[JohnH]

I also saw one this week which had a round figure for the points, but there was an accompanying letter stating the percentage of the loan that it represented. (It was a cash-out refi with the new loan balance rounded up to an even figure). Maybe Wells Fargo decided that they needed to clarify the matter.

[taxitc]

Loan Origination fees

I have one this morning. A HUD-1. All it says is "Loan Origination Fee". $625.00
If other items on the closing statements are spelled out, what is one to assume?

[JohnH]

I'd check to see if it works out to a percentage of the principal amount (to an even .25). If not, then it probably isn't deductible/amortizable. If it does work out to an even amount, dig a little deeper. Usually the "Good Faith Estimate" will provide a clue.

[taxitc]

No Clue. Tried that.

[JohnH]

What do you mean no clue?

Either it calculates out to a 1/4% figure or it doesn't.
If it doesn't then it isn't points.
If it does, then you have some more digging to do.

Just be sure you are using the exact loan principal and the exact points.
If you don't have that info, the client owes you some more paperwork

[taxitc]

What I meant by "NO CLUE" was there was no % noted on the close statement OR on the HUD-1 OR good faith est. When I get time today, I will go further. Question???
Where is the 1/4 pt coming from in this thread? Current std practice? Thanks for the reply.

[JohnH]

Points almost always calculate out to 1/4% or a multiple thereof. ( for example, 2.50%, 3.75%, 1.25%, 3.00% etc). I don't recall ever seeing the calcualtion carried out past 1/4 of 1%. Maybe someone else has.

So knowing that it doesn't calculate to 1/4 of 1% is a pretty good indication that it isn't points.

Knowing that it does calculate out means it's either points or it's a conicidence. Your job then becomes the simple matter of finding out which of those is the correct understanding.

[Burke]

I have one that came in today. HUD-1 says "origination fee = $4,466.61" on a loan of $137,000.
Further detail attached to HUD-1 shows $695 "underwriting fee" and "points to mtgr" = $3,771.61, for a total of $4,466.61. This was a 15-yr mtge. Comes out to approx 2.75%.
I have been telling clients for years that all I need is the HUD-1, now I am finding well, maybe not.

[Gary2]

Points almost always calculate out to 1/4% or a multiple thereof. ( for example, 2.50%, 3.75%, 1.25%, 3.00% etc). I don't recall ever seeing the calcualtion carried out past 1/4 of 1%. Maybe someone else has.

So knowing that it doesn't calculate to 1/4 of 1% is a pretty good indication that it isn't points.

It's a pretty good indication that it isn't all points. It's possible that it's a sum of points and fixed fee. If you can't find it on the closing docs, look at the original application.

[MRPLOW]

We need clarification on this issue...
I'm not convinced yet that just because the points or loan origination fees are not an exact .25%(or a multiple) of the loan we may not deduct them

Is there any case law which states that points or loan origination fees must be an exact .25% of the loan in order to be deductible.

I have one where the points are 1.33%, which according to some here would be not be deductible. However the HUD-1 statement clearly list this as "Our origination charge includes origination point (% or)". I'm not sure what would be a more official paper trail then the HUD-1 statement, if the IRS wouldn't accept the HUD-1, then what would they accept? And if for some reason the HUD-1 is wrong, I don't see how the Taxpayer or preparer would be able to know. This would seem to be a bank/US Dept of Housing problem.

[JohnH]

There's no rule about the even percentages - I was only relating my personal experience. If you've seen .33% on one, and the HUD-1 or loan documents stated that this percentage was applied to the balance to calculate the points, then you're fine.

The rule is that the points must have been computed as a percentage of the mortgage. (See page 4-12 of The TaxBook). So if the points are to meet that test, there must be a place somewhere in the loan docs which reveals this. Incidentally, there are 8 other tests as well.