What Loan Origination Fees Are Tax Deductible?

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There are many tax advantages to home ownership in comparison with renting. Knowing what fees are tax deductible can save a lot of time and headache when tax time rolls around.

Loan Origination Fee

  • This is the fee a lender charges to process the loan paperwork and is typically 1 percent of the loan. This is not a tax deductible expense.

Discount Points

  • Points paid by buyers or sellers to reduce interest rates or buy down other mortgage terms are treated as pre-paid interest and are tax deductible. Points are equivalent to 1 percent of the loan amount and can often be confused with the loan origination fee.

Property Tax

  • Any pre-paid property tax items a buyer has to pay for at closing are tax deductible. Typically, a buyer will pay for a minimum of three months of property taxes upfront.

Pre-Paid Interest

  • All mortgage interest is tax deductible. When closing on a property, home buyers are required to pay mortgage interest up front for each day left in the month.

Limitations

  • In some cases, borrowers make too much money to be eligible for all deductions. Check with your accountant to discuss income limitations for real estate tax deductions.

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