Want to be sure I understand this correctly. TTB, 4-12 talks about points. Under "Points paid to purchase a home" number 6, there has to be money paid at closing, correct? Often times the lender will allow you to roll over all closing costs, including points into the loan. If everything is rolled into the loan, then the points are not deductible. Am I reading that correctly? Also, does the same thing apply to a refinance?
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I think so
I've never treated it that way, because things "paid" often include deductible items with borrowed money and, tax classes have been telling us forever to charge expenses to credit cards in order to secure deductions.
But after reading this, I'm inclined to agree with you. Under 6) it states "The funds cannot have been borrowed from the lender or mortgage broker."
In spite of the above-mentioned strategies of borrowing money to secure deductions, you will recall that finance charges cannot be deducted until actually paid. I believe points would fall into the category of finance charges, as they are classified as "interest" for purposes of itemizing deductions.
The instructions for Form 1098 - Box 2 "Points" specifically state that the entry in this box is the amount of points actually paid by the buyer and seller. See also Pub 936, page 5, which also puts on the same prohibition. -
Pub 936
seems pretty clear on this. The points must be paid directly or out of pocket and not from the borrowed funds. Still may have the option to deduct the points over the life of the loan.Comment
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I disagree
In Lasser's 2007 page 330 there is a paragraph about points withheld from the principal. So any downpayment or escrow deposit if equal to or greater than the points allows you to deduct the points on a primary residence. So unless it is a zero down loan, points to buy the home will almost always be deductible. Points to improve may not be if they are rolled into the loan. This paragraph was the result of a law change 5-10 years ago.Comment
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I think that is what I was trying to say in my first post. If there is a downpayment, as you said, then yes, the points are probably deductible. But, if there is no downpayment, no cash out of pocket at all, and the points are simply rolled into the loan, then I don't believe they are deductible in full. They may still be amortized over the life of the loan.Comment
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Correct
I agree with you.Comment
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Dno't forget, points are only deductible if there is an "acquisition" issue underlying the loan. Otherwise they are amortizable over the loan period. Any refi in the future allows the unamortized points to be expensed and any new points can be deducted or amortized as the case may be.This post is for discussion purposes only and should be verified with other sources before actual use.
Many times I post additional info on the post, Click on "message board" for updated content.Comment
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Also, in a refi with the same loan company, the points cannot be written off, but have to keep on being amortized.Comment
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