Tax Deductions & Home Loans

Whether any cost of a home loan is income tax deductible must be determined by the owner using professional services of an income tax professional and the Internal Revenue Service.

Loan origination fees (Points on a Home Loan):
Such loan origination fees charged as points must be paid for the use of money (for example, to obtain a lower interest rate) in order to be tax deductible.

However, origination fees that constitute a “service fee” are not tax deductible.  If the fee applies to use of the money, it could be tax deductible.

Pre-payment penalties:
Sometimes borrowers get out of their mortgages sooner than expected.  Pre-payment penalties are tax deductible, which can help ease that pain.

Pro-rated real estate taxes:
Buyers usually pay a pro-rated portion of the property taxes for the year at closing.  Make sure you as buyer gets deduction for correct share amount.

Pro-rated mortgage interest:
Depending on when the home sale closes, buyers pay amount of pro-rated mortgage interest for that month, which can be used as tax deduction.  The Final Closing/Settlement Statement will show just how much they’re due.

Home construction loan interest:
As long as the construction period doesn’t last more than two years before they make the new place their “principal residence,” the owners can deduct the interest for that construction loan from income tax returns.

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This is for information only and not the providing of legal or tax services.  We recommend that you consult with a certified public accountant or income tax professional about possible tax deductibility of loan costs for your own situation.

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By Harrison K. Long – Professional real estate representative, REALTOR and broker associate, HomeSmart Evergreen Realty – 949-701-2515 (phone) –   ExploreProperties@gmail.com – CALBRE #01410855 – Now serving as an appointed director at the California Association of Realtors – also an attorney member of the California State Bar association #69137

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