Points

[Pacun]

Please see attached the entire HUD-1 (3 pages). Jainen....please take a look and let me know your thoughts.

bcolleen...Thanks for the tip on the property taxes.

Mortgage Interest: 41.40

Mortgage Insurance: 1,519.88

Points: 1,900.50

Taxes: 174.89

Sometimes banks include this information on the 1098. What don't you share the information provided on the 1098?

Interest:

Taxes:

Points:

Insuraance:

[grandmabee]

Please see attached the entire HUD-1 (3 pages). Jainen....please take a look and let me know your thoughts.

bcolleen...Thanks for the tip on the property taxes.

you should scratch off the name and address

[Janitor Bob]

you should scratch off the name and address

Yes...I forgot to black out name and address...pretend you did not see it. When I'm done I'll delete the attachment. The 1098 ONLY lists interest of $41.00 and points of $756....This is one reason for my confusion...not sure if I should deduct the $1,900.50, or the $756...or both?

[Pacun]

Ask your client if they have another 1098. Maybe the loan was sold to another bank. It is almost impossible that they didn't pay any interest for 6 months.

[Janitor Bob]

He had another 1098 with interest of $1,500, but it was for the property that he sold...nothing else for the new property...just the $41.00

[Pacun]

Go with the information on the 1098 about the points and close your case.

[Janitor Bob]

The problem is that when the client closed on the home, the banker told him that "almost all" of the closing costs would be deductible on his tax return. I did the return only claiming the $756 in points stated on the 1098. Client is disappointed with the amount they owe and wants a detailed explanation of why only $756 is deductible points. Unfortunately, I do not have a good explanation. I want to make sure this is done correctly and need to explain to him what exactly is deductible as "points"

I am leaning towards taking the $1900.50 from the HUD-1 and list the difference between this and the $756 from the 1098 as "points not included on 1098"

I also assume the the $2,000.00 closing costs paid by seller is not deductible as points.

[Margaret CPA in OH]

I didn't do deep research but QF summary for Sch. D on settlement costs state that, for a principal residence, loan origination fees or "points" paid by the seller are deductible by the buyer but the basis must be reduced by that amount. It refers then to the discussion of points but I think that has been reasonably well covered in this thread.

[Janitor Bob]

I didn't do deep research but QF summary for Sch. D on settlement costs state that, for a principal residence, loan origination fees or "points" paid by the seller are deductible by the buyer but the basis must be reduced by that amount. It refers then to the discussion of points but I think that has been reasonably well covered in this thread.

Here is what I am going to deduct and just hope it is correct:

Mortgage interest $41.00

Mortgage Insurance: $1,519.88

County taxes: $174.89

Points: $1,900.50....$756 from 1098 and $1,144.50 from HUD

Points paid by seller $2,000.00

[Terry D EA]

JB do you still need help with this?

[Terry D EA]

For some reason your last post didn't show and after I asked if you needed help, there it was. The only thing I am questioning here is the points paid by the seller. These are not deductible to the buyer as this was not a cost he/she incurred.

[Terry D EA]

After looking at the Hud 1, you are correct on everything except the 2,000.00 closing costs paid by the seller. This amount was added to the buyer's loan and again, not a cost he/she incurred as part of the settlement charges.

You should tell your client that you are deducting everything permissible by the IRS code. Hopefully that will satisfy her/him. You could look up the PUB on this and have it handy to substantiate your position. Most of the time, when a client is not happy about the amount they are getting or paying, it is due to misunderstanding on their part. However, this doesn't apply in every situation but for the most part, the majority of them. Hope this helps you.

[Janitor Bob]

Thanks Terry D. I was not sure about that $2,000.00. This client is not actually unhappy. He is just one of those clients that does not understand taxes, but is smart enough to ask questions and do internet research....so I always have to be prepared to justify every number on every line of his return. I almost always can, but it is still a pain.

[Terry D EA]

No problem

[Margaret CPA in OH]

Terry and JB, please reread what I wrote quoting Quickfinders. For $2000 and a reduction in basis in the residence, it may be worth a few extra minutes of research. While QF isn't the final word on all things tax, I would be surprised that this would stand were it not true. Could be wrong, but I don't have time or the client needing the $2000 deduction now to further research. I would, though, if otherwise. QF references Pus. 523, 527, 544 and 551. You may wish to check... or not. Your client, your time.

[Kea]

I've also included seller paid points. That's how I learned it. (But, I don't have any cites for that off the top of my head.)

[Janitor Bob]

Terry and JB, please reread what I wrote quoting Quickfinders. For $2000 and a reduction in basis in the residence, it may be worth a few extra minutes of research. While QF isn't the final word on all things tax, I would be surprised that this would stand were it not true. Could be wrong, but I don't have time or the client needing the $2000 deduction now to further research. I would, though, if otherwise. QF references Pus. 523, 527, 544 and 551. You may wish to check... or not. Your client, your time.

Thanks Margaret! for a $2,000.00 deduct for client, I will certainly investigate this further....and at some point, I may even conclude this never-ending post...but not yet!

[Pacun]

Thanks Margaret! for a $2,000.00 deduct for client, I will certainly investigate this further....and at some point, I may even conclude this never-ending post...but not yet!

Now I am confused. "2000 deduction"??? Deduction of basis? We are concerned about deductible expenses for 2010, not deduction of basis. Closing costs are not points.

[rfassett]

Absent an assumption that the issuer of the 1098 got it right, I think your ONLY course of action is to contact the lender (or have your client do it) and ask what makes up the $1,900.50 "Origination charge". Could be that they pulled out the proper amount and put it on the 1098 and the rest of it had nothing to do with points. I would not ASSUME there were $1900.50 plus the 1098 amount paid for points. In whatever is decided, there was enough "cash" at closing, between the buyer and the seller, to cover ALL of the closing costs, so you are not limited in that regard. Your ONLY question seems to be "what makes up the $1,900.50" and you can not answer that with the info you have. We can only guess.

[Jim Oh Bkkr]

Absent an assumption that the issuer of the 1098 got it right,

Am I the only person here that finds it odd that the 1098 lists Interest @ 41.00, (same as the accrued interest @ closing)? The loan info shows there should be 3 payments due in 2010, and the interest on those payments (based on loan info) oddly enough equals about 750.00.

Also Bob, if you do the math on the closing statement, your client, (buyer), is receiving the 174.00 for property tax NOT paying it. This is also (probably) wrong as it should be a reimbursement for 1/1/10 through 8/28/10 not 7/1/10 -(The period of 2010 that the Seller is liable for).

Jim

[Margaret CPA in OH]

Now I am confused. "2000 deduction"??? Deduction of basis? We are concerned about deductible expenses for 2010, not deduction of basis. Closing costs are not points.

Pacun, please reread my posts #33 and #40. The term is REduction of basis of the buyer when DEducting points or origination fees paid by the seller. If you have access to Quickfinders, please read in the summary section for Schedule D on Settlement Costs on Sale or Purchase of Real Estate. If you have access to Kleinrock 1040 Express Answers for 2010, look on page 4-37 on the Settlement Cost Table where it states the Points (loan origination) is deductible on Sch. A by the buyer even if paid by the seller. Check the pubs. listed in post #40.

I did not look at the attachment provided by JB. I just looked at the reference material.

[rfassett]

Am I the only person here that finds it odd

No, Jim. Someone up the thread also mentioned this - and I concur, this can not possibly be all of the info. The loan could have been sold immediately at closing and there should be another 1098 but JB says the client did not give him another one on this property. So I agree, there should be additional interest, but even if there is another 1098, it should not taint the points issue.

[Janitor Bob]

Now I am confused. "2000 deduction"??? Deduction of basis? We are concerned about deductible expenses for 2010, not deduction of basis. Closing costs are not points.

By $2,000 deduction, I meant that I am trying to decide if this is deductible as seller-paid points on client's Sch A

[Pacun]

By $2,000 deduction, I meant that I am trying to decide if this is deductible as seller-paid points on client's Sch A

No. They shouldn't be deductible in 2010 because those are closing costs and not points.

[Margaret CPA in OH]

JB, I finally took the time to look at the HUD-1 page 2 that you had attached and I don't see where the seller paid $2000 in points or origination fees. This discussion was pointed towards points although in rereading some entries you did state closing costs of $2000 were paid by the seller. That may be shown on page 1, I don't know. As Pacun notes, closing costs not specifically identified as comprised of points or origination fees would not be deductible. I should have looked at the form before but tried to lead you to do some research on your own, too.

From the document you attached, the seller did not pay either points or origination fees. Sorry for all the confusion all the way around. But I think we all had a great time putting in our 2 cents even if mine wasn't worth that much!