New GFE and Tax Write off of Points
So we should be getting our first HUD this afternoon under the New GFE/HUD-1 guidelines. The borrower called in this morning wanting to make sure that the origination would be clearly shown so that he can write it off on his 2010 tax returns. Per the IRS (http://www.irs.gov/taxtopics/tc504.html) "The amount is clearly shown as points on your settlement statement."
My understanding is that the HUD will mirror the New GFE, and just have the fees lumped together. If this is correct, then how will folks that get a mortgage in 2010 be able to write the origination fee off on their 2010 tax returns?
by OHlo61 January 21, 2010 11:13 AM
I think it would be funny as hell if everyone wrote off Box "A" "adjusted origination charges" - and taught these "ready, shoot, aim" idiots who are running this show a good lesson!
by MichiganTed January 21, 2010 11:23 AM
I was under the impression that the tax code only allowed you to deduct charges paid as discount points- payments made specifically to reduce the interest rate, or USDA/FHA/VA funding fees. Any fees paid to a mortgage broker as loan origination were NOT tax deductable.
Have I been wrong?
by XpressOH January 21, 2010 11:29 AM
I belive your assumption is correct XpressOH AND furthermore, it's a stoopid deduction because it has to be amortized over the life of the loan....hardly worth the hassle....unless you pay like 6 points on a 500,000 loan, which we all know is to be 30,000 from the ramblings of a certain lunatic who's been posting lately.
by ICD's No. 1 Groupie January 21, 2010 11:32 AM
"ready, shoot, aim"
That's a good one Ted!
1 page to 3 and provides less information w/o a signature.
by YSP1971 January 21, 2010 11:33 AM
Xpress, any and all points paid( not ysp) have always been deductible.
by frankenstyle January 21, 2010 11:41 AM
frankie, I believe you may have misunderstood Xpress' point.
Points are the ONLY thing are deductible in connection with a loan....a guy can't deduct ALL fees paid to obtain financing, i.e. credit, appraisal, origination fee, etc.
by ICD's No. 1 Groupie January 21, 2010 11:48 AM
The disclosure of origination fee on the new HUD-1 form is addressed in the HUD FAQ document.
Everyone would be well served to review that document. Find it at
Below is the relevant Q&A:
10) Q: The Internal Revenue Service (IRS) requires that reportable points be clearly designated on the HUD-1 Settlement Statement for purposes of preparing IRS Form 1098. As Line 801 on the HUD-1 discloses the total of all loan originator fees as well as the origination point(s), how can the origination point(s) be designated?
A: A loan originator may designate any origination point paid on page 2 of the HUD-1 in Line 801. The designation should follow ¨DOur Origination Chargeˇ¬ either by adding the language ¨DIncludes Origination Point" (_% or $__) or by placing an asterisk (*) and adding the language at the bottom of the page.
by oldbe January 21, 2010 11:50 AM
oldbe, good catch. I have read through the FAQ a couple times now, but must have missed that one.
ICD, per the link in my original post if you meet all of the following requirements you can deduct the points in full in the year they are paid:
1. Your loan is secured by your main home (your main home is the one you live in most of the time).
2. Paying points is an established business practice in your area.
3. The points paid were not more than the amount generally charged in that area.
4.You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them.
5. The points were not paid for items that usually are separately stated on the settlement sheet such as appraisal fees, inspection fees, title fees, attorney fees, or property taxes.
6. The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. You cannot have borrowed the funds from your lender or mortgage broker in order to pay the points.
7. You use your loan to buy or build your main home.
8. The points were computed as a percentage of the principal amount of the mortgage.
9. The amount is clearly shown as points on your settlement statement.
by OHlo61 January 21, 2010 1:24 PM
Points that do not meet these requirements may be deductible over the life of the loan. Points paid for refinancing generally can only be deducted over the life of the new mortgage. However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first six requirements stated previously, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. Points charged for specific services, such as preparation costs for a mortgage note, appraisal fees or notary fees are not interest and cannot be deducted. Points paid by the seller of a home cannot be deducted as interest on the seller's return, but they are a selling expense which will reduce the amount of gain realized. Points paid by the seller may be deducted by the buyer provided the buyer subtracts the amount from the basis, or cost, of the residence. Points you pay on loans secured by your second home can be deducted only over the life of the loan.
by ICD's No. 1 Groupie January 21, 2010 1:59 PM
ICD, I was just trying to point out that there are situations (purchases) that allow people to write the entire amount off in the year they are incurred.
by OHlo61 January 21, 2010 2:28 PM
I felt that we just needed to present the whole story. The list alone is a little misleading.
by ICD's No. 1 Groupie January 21, 2010 2:37 PM
by OHlo61 January 21, 2010 3:04 PM