Tuesday, January 30, 2007

Points are Deductible

"Points” paid to secure a home loan to buy or improve your principal residence are tax deductible; even if the Seller pays them for you, according to the IRS. A mortgage discount point is equal to 1% of the loan amount. Points are sometimes paid to get a more favorable interest rate and can be paid by either the Buyer or the Seller in a transaction.
Discount points are deductible in full in the year paid if they meet the following criteria:
· They are paid to buy your primary home.
· Your settlement statement identifies the amount as points.
· The amount is computed as a percentage of your loan.
· The amount is not more than is generally charged in your area for a similar size loan. Any additional amount will be treated as interest paid in advance and not deductible.
You may also choose to amortize the discount points over the life of the loan. They are immediately deductible even if financed over the life of the loan.

Points paid to refinance your existing home must be deducted over the life of the loan.

Always consult a tax specialist before taking these deductions.

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