Can Homeowners Deduct Seller-Paid Points as the Real Estate Market Improves?
The recent drop in interest rates has created a buzz in the real estate market. Potential homebuyers may now have an opportunity to attain their dreams of purchasing property. “The recent development of lower mortgage rates coupled with increasing inventory is a powerful combination that will provide the environment for sales to move higher in future months,” said National Association of Realtors Chief Economist Lawrence Yun.
If you’re in the process of buying a home, or you just bought one, you may wonder if you can deduct mortgage points paid on your behalf by the seller. The answer is “yes,” subject to some significant limitations described below.
Basics of points
Points are upfront fees charged by a mortgage lender, expressed as a percentage of the loan principal. Points, which may be deductible if you itemize deductions, are usually the buyer’s obligation. However, a seller sometimes sweetens a deal by agreeing to pay the points on the buyer’s mortgage loan.
In most cases, points that a buyer pays are a deductible interest expense. And seller-paid points may also be deductible.
Suppose, for example, that you bought a home for $600,000. In connection with a $500,000 mortgage loan, your […]
