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vburek
522 Posts |
 Posted - 07/15/2008 : 12:27:36 PM
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on a purchase loan, if the seller pays points for the buyer to buy down the rate, who gets the deduction? I was under the impression the buyer gets the deduction on their taxes but want to make sure.
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MandTDean
244 Posts |
Posted - 07/15/2008 : 12:40:05 PM
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| Since points are just prepaid interest charges, it would be reported on the buyers year end interest statement. |
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64GTO
141 Posts |
Posted - 07/15/2008 : 2:30:04 PM
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| How is the buyer going to benefit from a tax deduction for an expense they did nor incur? As with a temporary rate buydown the buyer would not receive a tax deduction for the prepaid interest. It's a cost of doing business, in this case selling a home. Any tax benefit would go to whoever pays. |
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vburek
522 Posts |
Posted - 07/15/2008 : 2:35:35 PM
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| So, if seller is giving a 3% seller concession of lets say $9000, assume a sales price of $300,000. Lets assume closing costs and prepaids are $6000. that would leave another point that can be used to buy down rate. I was under impression the buyer gets to deduct. Even though seller is paying via the concession, i thought seller can deduct cause they could have lowered sales price. Any experts on this subject please chime in. |
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annachille
2 Posts |
Posted - 07/15/2008 : 6:58:41 PM
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Hello all...far from being an expert but I have been preparing taxes for awhile and have been a mtg processor for a long time also. Most "closing costs" are NOT deductible. BUT any mtg interest paid (pre-paid interest, points, origination, buy downs, etc) is deductible to the buyer even thou the seller may "pay" for them. As would be property taxes that the buyer "paid" for on the HUD. The seller is looking at the bottom line - if the seller is selling his primary home the tax consequences aren't like they used to be. As long as he isn't selling a million dollar home he purchased for $10,000...for him it is the cost of doing business in the mortgage world this industry has created. It becomes part of the adjusted basis of the home, he would include those costs as selling expenses. He would also get to include the balance of the closing costs that he wasn't able to deduct when he purchased the home in the adjusted basis. Just my 2 cents...
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MandTDean
244 Posts |
Posted - 07/15/2008 : 7:09:20 PM
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quote:
Originally posted by 64GTO
How is the buyer going to benefit from a tax deduction for an expense they did nor incur? As with a temporary rate buydown the buyer would not receive a tax deduction for the prepaid interest. It's a cost of doing business, in this case selling a home. Any tax benefit would go to whoever pays.
Ummm...OK. Assuming this was correct, what form would that be reported on? In other words, how would a lender credit the seller or other interested party for paying those costs to the IRS?
A buyer DOES receive a tax deduction for a temporary interest rate buydown because the total interest paid does not deviate. A temporary interest rate buydown is no different than a permanent interest rate buydown,(points). |
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MandTDean
244 Posts |
Posted - 07/15/2008 : 10:50:37 PM
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quote:
Originally posted by csadams
Something to think about...
When I sold my primary in 2006 (which I bought in 2000 for 252k less) I willingly paid over 8k in seller concession. I made darn sure that I was paying (and it was separated in my seller column on the HUD) items that I would get a deduction for. I paid every cent of the buyer's points and VA funding fee, per my lawyer's and CPA's advice.
I wrote off every penny.
Definitely! These go against the capitalized cost of the acquisition. Your $8,000 in buyers costs was a reduction in any profit you made on the residence regardless of where it was applied. Making line item notations on the HUD-1 makes no difference on your taxes though. You could have lump summed these as "Seller credit to buyer" and still had the same tax penalty/benefit.
I think we are getting off track here with the original question though. Vburek wanted to know who gets to write off points for a rate buydown. The purchasor gets to do that no matter who pays. |
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rtrefflich
3382 Posts |
Posted - 07/15/2008 : 11:47:52 PM
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| The buyer can deduct any seller paid points during a purchase, even buy down points. |
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