Can You Deduct Mortgage Loan Origination Fees From Taxes?
Loan origination fees -- also called points, discount points, loan discount or premium fees -- are fees paid to take out a mortgage or to reduce the interest rate on one. The fees are typically expressed as a percentage of the loan amount, and they are tax-deductible under certain conditions.
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Requirements for Deducting Loan Origination Points
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The criteria for deducting loan origination points are laid out by the Internal Revenue Service. The loan must be secured by your primary residence. The points paid should be typical for the house's area. The loan proceeds must be used to buy, improve or build your home. You must use the cash accounting method for expenses.
"The loan origination fee must be expressed as points in order for it to be tax deductible," according to RealEstateABCc.com. The loan may not be inflated to include the points. The points must be clearly specified on the settlement statement, and they must not exceed the cash paid into the deal. Deductions can be limited by your adjusted gross income, according to your filing status.
Time Period for Deducting Points
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Points are deductible in the year a primary residence is purchased. Deduction of points on a second home or for refinancing a primary residence must be spread out over the life of the loan. However, multiple refinancing might accelerate the opportunity to deduct these points, because each refinancing effectively ends the life of the previous one. So any points remaining from the earlier loan may then be deducted in full.
For landlords, points associated with purchasing rental property may be deductible over the life of the loan, using the original issue discount rule.
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When Mortgage Points Are Not Deductible
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Points charged for services such as notary fees, property appraisals or mortgage preparation fees are not deductible.
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