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Author: tjfields Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120792  
Subject: Re: Home Loan Origination Fee Date: 1/21/2002 12:49 PM
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If the origination fee is like points, it is deductible and is shown as mortgage interest on Schedule A. If this is a purchase, you can deduct the points, otherwise they must be amortized over the life of the loan.

I think it is (fairly) straightforward that any points paid on line 802 (Loan Discount) of the HUD statement are deductible, as they are explicitly pre-paid interest. However, what is less clear in my mind is the treatment of the points on line 801 (Loan Origination) of the HUD statement.

There is little clarity in the 1040 Schedule A instructions: "Points paid for other purposes, such as for a lender's services, are not deductible." and defers interpretation to Publication 936.

Publication 936 has a list of 9 criteria (which I will not reproduce here - go to http://ftp.fedworld.gov/pub/irs-pdf/p936.pdf) of which perhaps the most "damning" is "The points were computed as a percentage of the principal amount of the mortgage." All of the rest of the criteria seem somewhat standard to meet.

This begs the question - how does the end consumer know this information? I know line 801 on my HUD is some percentage of my principal, but how do I know how this was calculated?

It was my understanding at the time I filed my 2000 taxes that points paid on line 801 were not deductible, as they were not prepaid interest. Now I'm not so sure, and may just have to file an amended return.

Any clarity from the truly knowledgeable?

T.J.
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