Are you leaving too much on the table?

I received a phone call from one of the agents I work with who is representing a seller requesting my opinion on another lender’s closing costs.    The seller had agreed [photopress:MPj04331500000_1_.jpg,thumb,alignright] to “pay up to $10,000 towards buyers closing costs.

Sell Pays – Buyer Deducts – Get out those HUD-1's

[photopress:tax_1_2.jpg,full,alignright] When the Seller Pays the Buyer’s Closing Costs, the Buyer still gets to deduct those that are tax deductible.  Discount points to buy down the interest rate, may be a selling point for the seller, if interest rates are holding people back from purchasing.  Back in oh…about 1994 or so when the market was weak, sellers were offering to “buy down the rate”, and the IRS passed a rule saying seller paid discount points were tax deductible by the buyer, even though the seller paid them.

I have had accountants argue this point with me, saying it is not so.  But it is.  Those of us in the business back then remember it well, as it was retroactive, and we pulled all of our old HUD 1’s out and sent them to our clients with the new law, so they could file revised returns.

“The amount is clearly shown on the settlement statement (such as the 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.”  This quote is from an IRS site.  The actual rule is not as clear as this consumer friendly explanation. 

Of course, consult an accountant about this, and also about the real estate taxes you may have paid to the seller as reimbursement, and not to the County direct.  Get out those HUD 1’s and bring them to your tax preparer along with your income and expense reciepts, if you purchased a property this year.  And if the seller paid your closing costs, make sure you have those costs itemized on the HUD 1.

Any closing costs that are tax deductible, not all are, are deductible by the buyer, even if the seller is the one who is paying them for the buyer.