are loan origination charges tax deductible
Here's a relevant page from Publication 530 of the IRS tax code, which deals with mortgage-related tax deductions. http://www.irs.gov/publications/p530/ar02.html. The flowchart below will help you determine which fees and points are tax-deductible, and which ones are not. Note: This is the 2013 version of the IRS flowchart. If you are reading this article after its publication date of July 2013, visit the link above to see if there's an updated version. Loan origination fees come in two flavors. Some lenders use the term for closing costs such as appraisal fees, title fees, legal expenses and prepaid property taxes, none of which is deductible. You only get a deduction when the fees -- also called maximum loan charges or discount points -- represent prepaid interest. Mortgages have costs and one of those costs is the loan origination fee.. The loan origination fee is usually a percentage of the loan amount, generally expressed as points.. For example, one point on a $150,000 loan would be $1500. One and a half points on the same loan amount would be $2250. On VA and FHA loans, points are often broken down into two categories: loan origination fee (which is usually one point) and discount points (which are also a percentage of the loan balance). Both are deductible. The loan origination fee must be expressed as points in order for it to be tax deductible. They are typically paid up front, as part of the borrower's closing costs (as opposed to being rolled into the loan). The mortgage origination fee makes up the bulk of the lender's up-front profit. Many of the other closing cost fees you pay at closing will go toward other people besides the lender. Unlike loan origination fees, most other fees you pay at the closing of a mortgage loan are nondeductible. Nondeductible closing expenses include appraisal fees, title insurance and attorney fees. However, you can deduct any prepaid interest you pay at closing. Considerations. Your lender may charge you for both deductible and non-deductible loan origination fees. The settlement statement you get at closing should clearly identify the prepaid interest so you can sort out the two types of fees. If you are obtaining a mortgage to purchase a new home, the origination fees you pay are fully deductible in the year that you pay them. However, if your mortgage was a refinance loan, you must typically spread the deductions over the life of the loan. If your lender is charging you a mortgage origination fee much higher than 1%, you should ask them why. This would be considered an above-average cost in today's market, and would therefore require some investigation on your part. You should also keep an eye out for something called the mortgage broker fee. The term origination fees refers to any expenses you pay to the lender to compensate him for providing the loan. Most lenders charge a basic origination fee equal to a certain percentage of the loan balance. Lenders may also include points in their origination fee, which are one-time prepaid interest payments you make in exchange for a lower annual rate. In most cases, you must pay these costs at settlement. In general, you can deduct the mortgage origination fee if it was used for a home that is your primary residence. Or, as the IRS says: Your loan is secured by your main home.. There are some other stipulations as well, so you should read this section of the tax code for yourself.
Yes, but for maximum loan charges or discount points.