What Loan Origination Fees Are Tax Deductible?

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.

References

• What is Tax Deductible When Buying a Home