I've got a couple quick questions about deductions this year with the closing costs for the house.
Anyone out there a tax consultant?
Anyone out there a tax consultant?
Any tax consultants out there?
- Thread starter pj_rage
- Start date
Matt? 
op:
op:
Matt does mortgages right? He might know the answer though. Let me know if you know anything about it, Matt.
The basic problem here is that there were MANY closing costs (which is typical, I think) one of which was points for our first loan, in the amount of $5360. We put down $3739.55, $3000 earnest deposit, and $739.55 due at closing. The seller credited $10,000 toward closing costs. The combination of our money and their credit paid all the closing costs including the points.
I'm trying to figure out if we qualify to claim all the $5360 for 2006. Since our amount out of pocket was less than the total cost of the points, I think we need an exception. I realize that if/when we claim the full $5360 that we need to factor the difference from what we paid (difference is $5360 - $3739.55 = $1620.45) into the cost basis when we sell the house, but I'm not sure if we meet all the "requirements" to claim all $5360 for the year.
I've read publications 530 and 936, but I'm still confused. I guess I just don't know how the IRS breaks down who paid what. Since the $10,000 was a "closing cost credit" and it was marked that way, I don't know if I have to assume that it all went to pay points first, or if I can assume that our $3739.55 went toward points.
I can provide more detail if necessary, but I think if anyone is familiar with the two publications they probably can answer my questions.
EDIT: And I guess an additional question... should I claim the points?
The basic problem here is that there were MANY closing costs (which is typical, I think) one of which was points for our first loan, in the amount of $5360. We put down $3739.55, $3000 earnest deposit, and $739.55 due at closing. The seller credited $10,000 toward closing costs. The combination of our money and their credit paid all the closing costs including the points.
I'm trying to figure out if we qualify to claim all the $5360 for 2006. Since our amount out of pocket was less than the total cost of the points, I think we need an exception. I realize that if/when we claim the full $5360 that we need to factor the difference from what we paid (difference is $5360 - $3739.55 = $1620.45) into the cost basis when we sell the house, but I'm not sure if we meet all the "requirements" to claim all $5360 for the year.
I've read publications 530 and 936, but I'm still confused. I guess I just don't know how the IRS breaks down who paid what. Since the $10,000 was a "closing cost credit" and it was marked that way, I don't know if I have to assume that it all went to pay points first, or if I can assume that our $3739.55 went toward points.
I can provide more detail if necessary, but I think if anyone is familiar with the two publications they probably can answer my questions.
EDIT: And I guess an additional question... should I claim the points?
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Ok, I think I answered my own questions.
The two requirements that confused me were:
5. "The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes"
6. "The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. The funds you provided do not have to have been applied to the points. They can include a down payment, and escrow deposit, earnest money, or other funds you paid at or before closing for any purpose. You cannot have borrowed these funds from your lender or mortgage broker."
I think basically 5 is saying that all other fees (besides points) have to have been paid, and 6 is saying that the points have to have been paid. Since the combination of the seller's closing cost credit and our earnest money/closing money covered all of these fees AND points, I think we are OK. I'm guessing these two requirements are designed to prevent people who rolled these fees into their loan (or something, somehow?) from claiming all the points in one year.
I think we can feel free to claim all points for 2006 because we meet these two requirements, and the rest. (Well, I'm assuming two that I don't know how to research, such as "points are an established business practice" and "the points paid were not more than the points generally charged in that area," but I believe that since they were 1% of the loan, that that is what is generally charged, and I believe it is an established business practice in this area.
The two requirements that confused me were:
5. "The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes"
6. "The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. The funds you provided do not have to have been applied to the points. They can include a down payment, and escrow deposit, earnest money, or other funds you paid at or before closing for any purpose. You cannot have borrowed these funds from your lender or mortgage broker."
I think basically 5 is saying that all other fees (besides points) have to have been paid, and 6 is saying that the points have to have been paid. Since the combination of the seller's closing cost credit and our earnest money/closing money covered all of these fees AND points, I think we are OK. I'm guessing these two requirements are designed to prevent people who rolled these fees into their loan (or something, somehow?) from claiming all the points in one year.
I think we can feel free to claim all points for 2006 because we meet these two requirements, and the rest. (Well, I'm assuming two that I don't know how to research, such as "points are an established business practice" and "the points paid were not more than the points generally charged in that area," but I believe that since they were 1% of the loan, that that is what is generally charged, and I believe it is an established business practice in this area.
I'm not a tax consultant but points, mortgage interest, and property taxes are deductable using itemized deductions in schedule A. From my understanding it doesn't matter whether the seller paid these for you or not you can still deduct them
TurboTax Basic ($20) has been my tax advisor for many years...:rockon:
TurboTax Basic ($20) has been my tax advisor for many years...:rockon:
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