points on form 1098

[POCAHONTAS]

Client purchased home in February 2007, refinanced in October 2007, the settlement statement clearly states points paid, but the points are not reported on form 1098 box 2. How do I figure if the points are included in box 1 of form 1098 as part of mortgage interest??
thanks for any help

[BP.]

Which settlement statement, the purchase or refi? If on the refi, you could probably tell from the 1098 whether they were included or not, because there'd only probably be 1-2 payments made on that loan in 2007. Just see if the interest reported looks like about 1-2 payments' worth, or more (the points.) The 1098's usually just include points on a purchsae, not usually not on a refi.

[POCAHONTAS]

firstly thank you so much for taking the time to answer my question
the purchase settlement statement has points and the refi settlement statement also has points. Also there are 3 mortgage interest statements. two of them have all the details on the back but the last one has no details, and is from a different company and is a 1098 substitute. I am aware of the fact that mortgage companies do change hands, and after going over the settlement statements I also noticed that there was also mortgage interest paid as part of the loan for certain period, perhaps there is a website where I could learn how to read settlement statements and have a better understanding.
thanks

[S T]

Refinance Mortgages

Usually, the Mortgage companies know whether or not to state the points on fhe form 1098, and they are usually stated separately. They know whether or not from all of the multitudes of paperwork, whether or not the points should qualify as a deduction, say on the purchase of a taxpayer's primary home.

If a refinance, usually the points will not be indicated on the form 1098, and you will have to go to the Escrow settlement statement to find. The reason for this is that points on a refinance on primary home, lets say, are not deductible in full the year of refinance, they must be amortized over the term of the loan, effective with the date of refinance. Exception might be if the funds were used for major home improvements.



Sandy

[POCAHONTAS]

so does that mean that if on a purchase of a home the points are not indicated on form 1098, the points cannot be deducted or
if the points are stated on the settlement statement separately they can be deducted
thanks

[S T]

Points

See TTB 4-11 and 4-12 Deductible points paid at closing to "purchase" a home are generally reported on Form 1098 and are entered as mortgage interest on line 10, Schedule A. Deductible points that are not reported on Form 1098 are entered on line 12, Schedule A.

Then, See TTB 4-12 "Points paid to refinance a mortgage. Points paid to refinance a mortgage are deductged ratably over the life or term of the mortgage, unless the funds are used to substantially improve the main home.

And then see the other points, as well on TTB 4-12

Sandy

[FEDUKE404]

Easy way to remember

Points are immediately deductible on acquisition debt only. (In an ideal world, they appear on the Form 1098, otherwise you have to go sniffing around the closing statement for them where they frequently lurk as LOF.)

Points in most cases for re-fis are amortized over the life of the loan. It's frequently hardly worth the effort to track.....until the owner re-re-fis or sells the home. Most good tax programs track the numbers for you, and then with a "x" for year of end of the re-fi give you the entire unused amount as a deduction.

FE

[POCAHONTAS]

Sandy
thanks for the info, I did read the tabs you mentioned in TTB prior to posting my query, and did comprehend the info, but unfortunately, confusion for me began when another tax preparer(who has had 30+ years experience and is also an EA) advised that points are not always reported on the 1098 and she has frequently found extra unreported interest and points on the settlement statement. She also said that sometimes the mortgage interest shown on the 1098 will include point which should have been reported in box 2 of 1098. So keeping that in mind I began my quest for finding those unreported points and interest for my client. If this tax lady is correct then I am back to square one. I hope I have clarified the issue.
thanks

[Roland Slugg]

Don't listen ...

... to that other preparer with 30+ years of experience, for she is incorrect on each point you mentioned.

1) Points are reported on F-1098 only in the case of a home purchase, not a re-fi.

2) Points are never included on the line for "interest" on F-1098.

3) The so-called "additional" interest amounts found on settlement statements are: (1) On a purchase escrow, the accrued interest from date of funding to the 1st of the following month; (2) on a sale escrow, the accrued interest from date the last payment was paid to the lender to the date the loan is paid off; and (3) on a re-fi escrow, you will find both (1) and (2) and for both the old loan(s) being paid off as well as the new loan being taken out. In all cases these so-called "additional amounts" will be included on the lender's F-1098, on the "interest received" line. Don't add them to the F-1098 amounts, or you will be counting them twice.

4) If points were paid and do not appear on F-1098, it means the lender believed the loan was not for the purchase of the borrower's primary residence. You will find those points stated on the escrow's settlement statement, and, as several others have pointed out above, may be amortized over the life of the new loan. Any remaining unamortized portion may be deducted in the year that loan is paid in full.

IMO it is a good idea for tax preparers to become very familiar with escrow/settlements statements and learn how to handle each and every type of item appearing thereon. FWIW I can tell you that I always prepare a little 2-column summary of each escrow statement I see, sort of like a mini trial balance, grouping like items into categories. Such a summary can be extremely helpful in many ways. I do this for all escrows ... purchase, sale and re-fi.