{"id":17032,"date":"2024-10-21T19:27:35","date_gmt":"2024-10-22T00:27:35","guid":{"rendered":"https:\/\/www.sfw.cpa\/news-and-guides\/?p=17032"},"modified":"2024-10-21T14:27:36","modified_gmt":"2024-10-21T19:27:36","slug":"can-homeowners-deduct-seller-paid-points-as-the-real-estate-market-improves","status":"publish","type":"post","link":"https:\/\/www.sfw.cpa\/news-and-guides\/can-homeowners-deduct-seller-paid-points-as-the-real-estate-market-improves\/","title":{"rendered":"Can homeowners deduct seller-paid points as the real estate market improves?"},"content":{"rendered":"

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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. \u201cThe 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,\u201d said National Association of Realtors Chief Economist Lawrence Yun.<\/p>\n

If you\u2019re 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 \u201cyes,\u201d subject to some significant limitations described below.<\/p>\n

Basics of points<\/strong><\/p>\n

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\u2019s obligation. However, a seller sometimes sweetens a deal by agreeing to pay the points on the buyer\u2019s mortgage loan.<\/p>\n

In most cases, points that a buyer pays are a deductible interest expense. And seller-paid points may also be deductible.<\/p>\n

Suppose, for example, that you bought a home for $600,000. In connection with a $500,000 mortgage loan, your bank charged two points, or $10,000. The seller agreed to pay the points to close the sale.<\/p>\n

You can deduct the $10,000 in the year of sale. The only disadvantage is that your tax basis is reduced to $590,000, which will mean more gain if \u2014 and when \u2014 you sell the home for more than that amount. But that may not happen until many years later, and the gain may not be taxable anyway. You may qualify for an exclusion of up to $250,000 ($500,000 for a married couple filing jointly) of gain on the sale of a principal residence.<\/p>\n

Important limits<\/strong><\/p>\n

Some important limitations exist on the rule allowing a deduction for seller-paid points. The rule doesn\u2019t apply to points that are:<\/p>\n