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j-l-horchler
New Member

I refi my mortgage in 2020. My closing docs with the new lender show over 7K in origination charges but on 1098 for the new lender it shows $0 for points. Is that right?

 
2 Replies
DianeW777
Expert Alumni

I refi my mortgage in 2020. My closing docs with the new lender show over 7K in origination charges but on 1098 for the new lender it shows $0 for points. Is that right?

You must have had to pay points, also known as loan origination fees on this refinanced loan. 

 

Since this is a refinanced mortgage a calculation of the loan origination fee (points) will need to take place to determine the amount you are allowed each year. Any of the loan proceeds that were refinanced from the original lender must be divided by the number of months or term of the loan.  This amount can be deducted each year as part of your mortgage interest deduction. 

 

However, if you use part of the refinanced mortgage proceeds to substantially improve your main home and you meet the first six tests listed under Deduction Allowed in Year Paid, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. You can deduct the rest of the points over the life of the loan.

 

Deduction Allowed in Year Paid

You can fully deduct points in the year paid if you meet all the following tests. (You can use Figure B as a quick guide to see whether your points are fully deductible in the year paid.)

1. Your loan is secured by your main home. (Your main home is the one you ordinarily live in most of the time.)

2. Paying points is an established business practice in the area where the loan was made.

3. The points paid weren't more than the points generally charged in that area. 

4. You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them. 

  • Most individuals use this method.

5. The points weren't paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes.

6. The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. The funds you provided aren't required to have been applied to the points. They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. You can't have borrowed these funds from your lender or mortgage broker.

 

In addition, if the loan is a home equity, line of credit, or credit card loan and the proceeds from the loan are not used to buy, build, or substantially improve the home, the points are not deductible.  See IRS Publication 936 for more information.

  • When your return is Open, Search (upper right) Type points > Press Enter > select the Jump to link

 

 

Mike9241
Level 15

I refi my mortgage in 2020. My closing docs with the new lender show over 7K in origination charges but on 1098 for the new lender it shows $0 for points. Is that right?

not all origination fees are points. items like title insurance, transfer stamps, recording fees, title expenses are not points. payments made to the lender to get a loan are points, to the extent they're made for use or forbearance of money (usually shown on the closing statement as x% of mortgage principal,  

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