Encore Partners
  • About Us
    • Who We Are
    • Client Testimonials
    • Careers
  • Services
  • Insight
  • Contact
  • Client Portal
  • Client Payments
  • Menu Menu

Blog Posts:

Real Estate Transactions

Homebuyers: Can you deduct seller-paid points?

Homes have always been the foundation of our lives, but due to the pandemic, it is even more true that THERE IS NO PLACE LIKE HOME.

More than any other time, now our homes are office, school, playground, gym, restaurant, theater, bar, vacation lodge and everything else and their importance has magnified.

In fact, despite the COVID-19 pandemic, the National Association of Realtors (NAR) reports that existing home sales and prices are up nationwide, compared with last year.

If you’re buying a home, or you just bought one, you may wonder if you can deduct mortgage points paid on your behalf by the seller. Yes, you can, subject to some important limitations described below.

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 normally the buyer’s obligation. But a seller will sometimes sweeten a deal by agreeing to pay the points on the buyer’s mortgage loan.

In most cases, points a buyer pays are a deductible interest expense. And IRS says that seller-paid points may also be deductible.

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 in order to close the sale.

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 — and when — 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 for up to $250,000 ($500,000 for a married couple filing jointly) of gain on the sale of a principal residence.

Some limitations

There are some important limitations on the rule allowing a deduction for seller-paid points. The rule doesn’t apply:

  • To points that are allocated to the part of a mortgage above $750,000 ($375,000 for marrieds filing separately) for tax years 2018 through 2025 (above $1 million for tax years before 2018 and after 2025);
  • To points on a loan used to improve (rather than buy) a home;
  • To points on a loan used to buy a vacation or second home, investment property or business property; and
  • To points paid on a refinancing, home equity loan or line of credit.

We can review with you in more detail whether the points in your home purchase are deductible, as well as discuss other tax aspects of your transaction.

Newsletter Signup

    Connect With Us

    Categories

    • Encore Culture
    • Events
    • News
    • Tax Tips – Business
    • Tax Tips – Individual

    Search

    Recent Posts

    • Employers should be wary of ERC claims that are too good to be trueJanuary 13, 2023 - 8:00 am
    • [Important] 2022 Tax Information Letter to ClientsJanuary 6, 2023 - 8:00 am
    • 2023 Q1 tax calendar: Key deadlines for businesses and other employersDecember 19, 2022 - 8:00 am
    • Important Estimated Tax Payment Deadlines for Q4December 13, 2022 - 8:00 am

    Get the latest tax and finance news

    right in your inbox

    5 + 2 = ?

    Encore Partners Logo

    Main Office
    4350 Executive Drive
    Suite 260
    San Diego, CA 92121
    858.549.7100

    Beverly Hills Office
    9595 Wilshire Blvd,
    Suite 900
    Beverly Hills, CA 90212
    310.300.8480

    © Encore Partners LLP 2021 – all rights reserved

    site design by digitalstoryteller.io

    © Encore Partners LLP 2021 – all rights reserved
    site design by digitalstoryteller.io

    Tax Saving Opportunity – Excess Business LossesBusiness Tax restructuringEncore Thrive and SoarThank you – What a Busy Season! Scroll to top

    This site uses cookies. By continuing to browse the site, you are agreeing to our use of cookies.

    Accept All CookiesRefuse Cookies

    Cookie and Privacy Settings



    How we use cookies

    We may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.

    Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.

    Essential Website Cookies

    These cookies are strictly necessary to provide you with services available through our website and to use some of its features.

    Because these cookies are strictly necessary to deliver the website, refusing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.

    We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.

    We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.

    Google Analytics Cookies

    These cookies collect information that is used either in aggregate form to help us understand how our website is being used or how effective our marketing campaigns are, or to help us customize our website and application for you in order to enhance your experience.

    If you do not want that we track your visit to our site you can disable tracking in your browser here:

    Other external services

    We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.

    Google Webfont Settings:

    Google Map Settings:

    Google reCaptcha Settings:

    Vimeo and Youtube video embeds:

    Other cookies

    The following cookies are also needed - You can choose if you want to allow them:

    Privacy Policy

    You can read about our cookies and privacy settings in detail on our Privacy Policy Page.

    Accept settingsHide notification only