Major life milestones often have a major tax impact. Changes in your marital status, having a baby or adopting a child can have significant impact on your taxes. This is the place to ask questions about dependents, real estate, and other various scenarios that play a significant role in what taxes you pay.
02-06-2017 08:24 PM
Welcome to the H&R Block community.
Loan guarantee fees paid to acquire your home mortgage (usually called points and found on lines 801 and/or 802 of your HUD-1) are deductible as an itemized interest deduction on Schedule A.
Hopefully this helps you out.
Senior Tax Advisor (Tampa, FL)
02-08-2017 11:40 AM
I've got some clarification on this for you from the IRS. Below are the rules for points (which are often referred to as origination/guarantee fees). Note that if the fee was for a speicific servies associated with the loan then that is a financial cost, it's not points, and it's not deductible.
The one thing I didn't mention yesterday is that unless you meet all of the qualifications described below then your points must be deducted over the life of the mortgage instead of all at once.
PUB 530 (Information from Homeowners):
"The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points also may be called loan origination fees, maximum loan charges, loan discount, or discount points.
A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. See Points paid by the seller , later.
Your loan is secured by your main home. (Generally, your main home is the one you live in most of the time.)
Paying points is an established business practice in the area where the loan was made.
The points paid were not more than the points generally charged in that area.
You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them. Most individuals use this method.
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.
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 are not required to have been applied to the points. They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. You cannot have borrowed these funds.
You use your loan to buy or build your main home.
The points were computed as a percentage of the principal amount of the mortgage.
The amount is clearly shown on the settlement statement (such as the Uniform Settlement Statement, Form HUD-1) as points charged for the mortgage. The points may be shown as paid from either your funds or the seller's."
02-27-2018 07:19 AM
Hello I posted the following question yesterday and I think I did not use the correct terminology. I have a USDA rural development Home loan and I pay an annual mortgage insurance fee that is calculated on the principal balance once per year. Is this fee tax deductible? Also is the home insurance (home insurance for fire, flood etc.)you pay thru your escrow tax deductible?
02-27-2018 11:20 AM
Welcome to the Community! To me, this sounds like PMI, which was very recently extended into 2017, so it is deductible if you itemize and don't make too much money. The IRS may not yet have the forms ready since it was so late that the "extenders" (which includes PMI) was actually extended into 2017.
Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs (DVA), the Federal Housing Administration (FHA), or the Rural Housing Service (RHS), or their successor organizations, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006).
Mortgage insurance provided by the DVA is commonly known as a funding fee. If provided by RHS, it is commonly known as a guarantee fee. Either fee can be included in the amount of the loan (and amortized) or paid in full at the time of closing.
Subject to the AGI limitation discussed below, fees paid in the current year for a qualified mortgage insurance contract issued by the DVA or RHA in the current year are fully deductible. Note: Not yet extended past 2017, so it may not be deductible next year, depending on Congress.
If your adjusted gross income ("AGI") is more than$100,000 ($50,000 if married filing separately), but not more than $109,000 ($54,500 if MFS) the amount of mortgage insurance premiums that are otherwise deductible is reduced. The deduction is phased out completely if the taxpayer's AGI exceeds $109,000 ($54,500 if MFS). These amounts are not adjusted for inflation. See Line 13 in the instructions for Schedule A (Form 1040); complete the Mortgage Insurance Premiums Deduction Worksheet to figure the deductible amount.
Note: The deductible amount is reduced by 10% for each $1,000 ($500 if MFS), or fraction thereof, over the bottom of the phaseout range.
Example: Fred and Joan are married taxpayers filing jointly. Their AGI is $107,200 and they paid $1,200 in private mortgage insurance. Because their AGI is in the phaseout range, they cannot deduct the full $1,200. Instead, they can deduct $240, calculated as follows:
$107,200 - $100,000 = $7,200 (rounded up to the next $1,000 increment, or $8,000)
$8,000 / $1,000 = 8
8 × 10% = 80%
$1,200 × 80% = $960 (the nondeductible portion of the premium paid)
$1,200 - $960 = $240 (the allowable deduction)