Write-Offs
To Remember
Deductions in the Loan Process
Write-offs
are the government's way of rewarding taxpayers when they've
done something the government likes. And to judge by the
write-offs, the government likes it when people borrow money
to buy a house. There are write-offs aplenty, many of which
people often forget.
Make
sure your clients take advantage of every break the IRS
will give. Here are a few they tend to forget:
Points:
According to the IRS, origination fees charged as points
must be paid for the use of money, (for example, to obtain
a lower interest rate) in order to be tax deductible.
Origination fees that constitute a "service fee"
are not tax deductible. The question must be asked, "Does
the fee apply to the use of money, or is it a service
charge?"
Discount
points are paid to secure a lower interest rate. IRS Publication
936 lists a general rule that states, "You generally
cannot deduct the full amount of points in the year paid.
Because they are prepaid interest, you generally must
deduct them over the life (term) of the mortgage."
However, there are conditions which, if met, make discount
points tax deductible in the year they are paid. (For
more details on points and deductions, see http://www.irs.gov/publications/p936/ar02.html#d0e942.)
Pre-payment penalties:
Unforeseen circumstances often cause borrowers to pull
out of their mortgages sooner than expected. Fortunately,
pre-payment penalties are tax deductible, which helps
ease the pain.
Pro-rated
real estate taxes:
Even if the seller sent the tax collector the check, chances
are the buyer paid a pro-rated portion of the taxes for
the year at closing. Be sure they know to deduct their
fair share.
Pro-rated
mortgage interest:
Depending on when in the month the home sale closes, buyers
pay either a hefty or a tiny amount of pro-rated mortgage
interest for that month. Big or small, they can write
that off. The Final Closing/Settlement Statement will
show just how much they're due.
Home
construction loan interest:
As long as the construction period doesn't last more than
two years before they make the new place their "principal
residence," they can write off the interest for that
construction loan.
It pays to pay attention—all these
write-offs can add up to some serious savings when tax
time comes around.
Call me if you
or your clients would like more information on this subject. Derek Beisner, Premier Lending
Group
949-637-9939 Derek@DerekBeisner.com
