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for the most part closing costs are deductable, but only on a purchase, and only onyour primary residence. Points are not deductable: - on second or third homes etc.
- on refinances
- if the points are being paid in lieu of normal costs associated with closing, i.e. appraisal, title fee's etc.
It is widely said that origination points are not deductable but, discount points are. Both Origination and Discount points can be deductable but they have to meet the following criteria set forth by the IRS: - Your loan is secured by your main home. (Generally, your main home is the one you live in most of the time.)
- Paying points is an established business practice in the area where the loan was made.
- The points paid were not more than the points generally charged in that area.
- You use the cash method of accounting. Most individuals use this method.
- The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees and property taxes.
- The funds you provided at, or before, closing plus any points the seller paid, were at least as much as the points charged. The funds you provided do not have to have been applied to the points. They can include a down payment, an escrow deposit, earnest money and other funds you paid at, or before, closing for any purpose. You cannot have borrowed these funds from your lender or mortgage broker.
- You use your loan to buy or build your main home.
- The points were computed as a percentage of the principal amount of the mortgage.
- The amount is clearly shown on the settlement statement (such as the Uniform Settlement Statement, Form HUD-1) as points charged for the mortgage. The points may be shown as paid from either your funds or the seller's.
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