I sold my primary home and need to report capital gain on the sale.
In the settlement statement there are a loan origination fee and a lender credit that I am not sure how to report.
The loan origination fee in my case is lender service fees (application fee and underwriting fee). Per instructions for Schedule A, it is not deductible as interest.
The lender credit is a credit the lender offered to me to offset the loan origination fee and other fees in the loan application process.
Per Pub 523, selling your home, charges connected with getting a mortgage loan can’t be included in the Cost Basis. Both the loan origination fee and the lender credit in my case seems fill in this category, one is a positive number and the other is a negative number, in the almost same amount.
My question is how to report them. Can they both not be included in the Cost Basis? Can they both be included in the Cost Basis or only one can? If only the lender credit can be included in the Cost Basis, it seems it is not fair to me.
Thank you for your reply.
As the seller, expenses assocuated with your disposition of your original mortgage (that was paid off on the closing date of your sale) are a flat out deduction. I expect you to have loan related charges as the seller.
Expenses associated with your disposition of the property are added to the cost basis of the property. I would not expect you to have any charges associated with this. But you most certainly could!
I need to calculate the Cost Basis for the property.
THis is confusing. Now I'm not clear if you're the buyer or the seller. So I'll just answer the above question directly and straight to the point.
The only settlement or closing costs you can deduct on your tax return for the year the home was purchased or built are Mortgage Interest and certain Real Estate (property) taxes. That's it. They can only be deducted on the tax return for the tax year you closed on the purchase.
If you later convert the property to a rental or other qualified business use,(even if years after the initial purchase) then there are other fees on the HUD-1 that can be claimed in the year you convert the property to a rental or other qualified business use.
Thank you for trying to help me out! Let me explain a little bit more details so you can understand what I am talking about.
I sold my primary house last year with a gain that I need to pay capital gain tax.
Capital gain= selling price - selling expenses - total basis
The selling expenses are calculated based on the settlement statement when you sell your house.
The cost basis is calculated based on the settlement statement when you bought your house. Some settlement and closing costs can be included in the basis, some can not. I am specially talking about two fees in the settlement statement: loan origination fee and lender credit. I don’t know if I can include them in the basis in my situation.