A

Anonymous

Question

What deductions (which lines) are eligible for my tax return from my closing statement as first time home buyer?

Forum|Forum|7 years ago
June 6, 2019
7 replies
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We bought a new home which was built from scratch in 2016, and closed on the first week of December. The Lender sent us a 1098 form, that shows the mortgage insurance premium, points paid, mortgage interest, but nothing about the property tax and others deductions. So need help to know which ones from my closing statement are eligible.

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Carl11_2

Employee

You need more than just the 1098-Mortgage Interest Statement. You should have also received a document at the closing titled "Final Closing Statement" or an official HUD-1 closing statement with line numbering past 1200. Which do you have?
Also be aware that all those 'first time home buyer" credits you may have been incorrectly informed about, went away back in 2012.

A

Anonymous

Hello Carl, thanks for responding. I do have the Final Closing Disclosure Statement. I separately also received the Deed with a detailed amount paid to the county tax collector.

Carl11_2

Employee

THen just work it through when you come to it. You'll find that you can't deduct what you may think. That "first time home buyers" stuff went away a few years ago. You'll deal with this in the Your HOme section under the deductions and credits tab. Just indicate that you did own a home in 2016, and you'll be asked for your deductible stuff Basically, all you get really is mortgage interest and property taxes. WHere you have to be careful is that you don't double-dip without realizing it.
The closing statement will have on it the interest you paid at the closing. That interest covers the period from the closing date, until you made the first statement.
The 1098 *should* only have the interest on it that was included with each payment. The two interest amounts added together would be your total deductible mortgage interest paid in 2016. But here's where you have to be careful. If the 1098 includes the interest reported on your final closing statement, you'll be "double-dipping" if you add the two together. So if you're not sure, you may need to confirm with the lender that the 1098 does NOT include the interest reported on your final closing statement.
Now for the property taxes, the same holds true. Just re-read the above replacing "interest" with "property taxes".
Generally, the only property taxes paid in 2016 will be on the final closing statement. But if more were paid "IN 2016" from your escrow account, the lender will sometimes report that to you on the 1098 somewhere, clearly labeled as property taxes, or real estate taxes.

A

Anonymous

Hello Carl, thank you for explanation. Most of what you've said I got them, because already knew them.
What I'm looking for is a kind of breaking down with specific line from the closing statement. For example, I read this article that says: "The buyer of a principal residence may deduct interest, loan origination fees (typically referred to as “points,” also note that the IRS allows the buyer to deduct these even if they came out of the seller’s funds) and real estate taxes. The buyer can also increase their basis in the property for amounts paid to attorneys in connection with obtaining the property, commissions, title fees, survey fees, recording of deed fees, pre-sale real estate taxes, back interest owed by the seller and paid by the buyer, transfer taxes, tax service fees, title policy fees, title insurance and utility service installation." ... When I looked on the IRS site, they say :"Items added to basis.   You can include in your basis the settlement fees and closing costs you paid for buying your home. A fee is for buying the home if you would have had to pay it even if you paid cash for the home.
  The following are some of the settlement fees and closing costs that you can include in the original basis of your home.
Abstract fees (abstract of title fees).

Charges for installing utility services.

Legal fees (including fees for the title search and preparation of the sales contract and deed).

Recording fees.

Surveys.

Transfer or stamp taxes.

Owner's title insurance.

Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions."...

So to wrap it up, when  I look on my closing statement which looks like this – <a rel="nofollow" target="_blank" href="http://files.consumerfinance.gov/f/201207_cfpb_sample-closing-disclosure_no-seller.pdf">http://files.consumerfinance.gov/f/201207_cfpb_sample-closing-disclosure_no-seller.pdf</a> – I see things under Loan Costs such as (lines where fees are marked paid by borrower and I suspect being deductible but not 100% sure and needed confirmation)

> Origination Charge
A. 02 - Origination Fee

> Services Borrower Did Not Shop For
B. 01 Appraisal Fee
B. 02 Credit Report/AUS
B. 03 Flood Det.
B. 04 Flood Life of Loan Coverage.
B. 05 Mortgage Insurance Paid in Cash (Already reported in 1098)
B. 06 Tax Certification Fee
B. 07 Upfront Mortgage Insurance Premium (Already reported in 1098)

> Services Borrower Did Shop For
C. 01 Title-Abstract or Title Search
C. 02 Title-Deed Prep. fee
C. 03 Title-Express Mail/Courrier Fee
C. 04 Title-Lenders Title Policy
C. 05 Title-Settlement or Closing Fee
C. 06 Title-Title Examination Fee
C. 07 Title-Title Insurance Binder

> Other Costs - Taxes and Other Gov. Fees
E. 01 Recording Fees
-Deed:
-Mortgage:
E. 02 Transfer Taxes to W. Clerck of the C.

> Prepaids
F. 03 Prepaid Interest (Already reported in 1098)

> Initial Escrow Payment at Closing
G. 03 Property Taxes

> Other
H. 04 One time supplemental Tax to W. C Clerk

O

Opus 17

Employee

Giving you a line by line rundown isn't going to change anything. We don't know the circumstances, and although the form is supposed to be uniform, we can't guarantee that your bank prepared it correctly.

In general:

> Origination Charge
A. 02 - Origination Fee

Might be deductible points even if not in the points line, IF it was a percentage of the loan amount, and if it was paid by you and not the seller and if it was not specified as going to other fees or services -- but that fact might be in other bank paperwork.

B. 05 Mortgage Insurance Paid in Cash (Already reported in 1098)
B. 07 Upfront Mortgage Insurance Premium (Already reported in 1098)

These are the same thing whether paid in cash or rolled into the mortgage balance. Deductible in 84 equal monthly installments, unless this was a VA loan in which case deductible in the year you close. Check the math on your 1098 to make sure these are correctly included and allocated.

F. 03 Prepaid Interest (Already reported in 1098)

Deductible interest. Not always included in the 1098. Check your mortgage statement to be sure. F. 04 prepaid property taxes would also be deductible if you paid them.

The disclosure you linked to is oddly missing some critical information. Compare with this disclosure form instead http://www.consumerfinance.gov/owning-a-home/closing-disclosure/

Page 3 of that web site shows lines K08 and K09, property tax adjustments for items the seller paid in advance. You can deduct these adjustments as property taxes as if you paid them to the city or county.

All items under G (prepaid to escrow) are not deductible since they are your money until actually paid to someone else.

Everything else is part of the ultimate purchase price of the property (cost basis).

A

Anonymous

Thanks Opus. It's getting a lil bit clearer... So the according to this publication, looks like some others cost basis can be deducted? or did I read it wrong?

<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p530/ar02.html#en_US_2016_publink100011939">https://www.irs.gov/publications/p530/ar02.html#en_US_2016_publink100011939</a>

" The only settlement or closing costs you can deduct are home mortgage interest and certain real estate taxes. You deduct them in the year you buy your home if you itemize your deductions. You can add certain other settlement or closing costs to the basis of your home.
Items added to basis. You can include in your basis the settlement fees and closing costs you paid for buying your home. A fee is for buying the home if you would have had to pay it even if you paid cash for the home.
The following are some of the settlement fees and closing costs that you can include in the original basis of your home.
Abstract fees (abstract of title fees).

Charges for installing utility services.

Legal fees (including fees for the title search and preparation of the sales contract and deed).

Recording fees.

Surveys.

Transfer or stamp taxes.

Owner's title insurance.

Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions."

PS: Did not work with bank for loan, rather a private online company.

O

Opus 17

Employee

Anything you pay as part of the purchase transaction that is not deductible as described below, is considered to be part of the purchase price and is added to your basis--except for amounts deposited into escrow. (That is still your money until it is eventually paid to someone else.)

You may want to double check your 1098 for PMI and the daily interest at closing. If your loan was sold to another lender, those amounts may end up not being properly reported, since they were paid to the original lender.

Most closing costs are not deductible. Instead, they are added to the cost of the house and may reduce your capital gains when you sell. These closing costs are deductible in the year you closed (2016):

1. Daily mortgage interest from the day you closed to the end of the month. Shown on your closing document, this interest may not be included on your 1098. You can add it if it wasn't included.

2. Property taxes. Generally, the seller has prepaid a year's worth of property taxes and you will give a credit to the seller for the amount of tax that is allocated to the days you will own the home. That property tax credit is deductible as if you paid it directly to the city or county.

3. Mortgage insurance premiums. If you paid a lump sum premium for mortgage insurance from the VA or the Rural Housing Authority (called a funding fee) that is deductible in the year you close. Other lump sum mortgage insurance premiums must be spread out over 84 months and deducted when you make your monthly mortgage payment. (If you made 5 payments in 2016, deduct 5/84th of the lump sum). These allocated amount are supposed to be included on your 1098 but if they aren't, you can add them yourself. You will need to keep track of the 84 month allocation because Turbotax does not. Also, mortgage insurance also has an income limit so not every one will qualify.

4. Mortgage "points." Origination fees or points are considered a form of mortgage interest and must be deducted over the life of the loan, unless you meet certain tests. If you paid points, turbotax will ask you questions to see if you can deduct them all at once (in the year you closed) or if you have to spread them out. Origination fees are considered points if they are a percentage of the loan amount (not a flat fee) and if they are not assigned to any specific services like document processing, attorney fee, or other specific costs.

A

Anonymous

Thank you Opus, I got the above one, since I knew it.

Here is my concern. Please would you read. thanks

What I'm looking for is a kind of breaking down with specific line from the closing statement. For example, I read this article that says: "The buyer of a principal residence may deduct interest, loan origination fees (typically referred to as “points,” also note that the IRS allows the buyer to deduct these even if they came out of the seller’s funds) and real estate taxes. The buyer can also increase their basis in the property for amounts paid to attorneys in connection with obtaining the property, commissions, title fees, survey fees, recording of deed fees, pre-sale real estate taxes, back interest owed by the seller and paid by the buyer, transfer taxes, tax service fees, title policy fees, title insurance and utility service installation." ... When I looked on the IRS site, they say :"Items added to basis.   You can include in your basis the settlement fees and closing costs you paid for buying your home. A fee is for buying the home if you would have had to pay it even if you paid cash for the home.
  The following are some of the settlement fees and closing costs that you can include in the original basis of your home.
Abstract fees (abstract of title fees).

Charges for installing utility services.

Legal fees (including fees for the title search and preparation of the sales contract and deed).

Recording fees.

Surveys.

Transfer or stamp taxes.

Owner's title insurance.

Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions."...

So to wrap it up, when  I look on my closing statement which looks like this – <a rel="nofollow" target="_blank" href="http://files.consumerfinance.gov/f/201207_cfpb_sample-closing-disclosure_no-seller.pdf">http://files.consumerfinance.gov/f/201207_cfpb_sample-closing-disclosure_no-seller.pdf</a> – I see things under Loan Costs such as (lines where fees are marked paid by borrower and I suspect being deductible but not 100% sure and needed confirmation)

> Origination Charge
A. 02 - Origination Fee

> Services Borrower Did Not Shop For
B. 01 Appraisal Fee
B. 02 Credit Report/AUS
B. 03 Flood Det.
B. 04 Flood Life of Loan Coverage.
B. 05 Mortgage Insurance Paid in Cash (Already reported in 1098)
B. 06 Tax Certification Fee
B. 07 Upfront Mortgage Insurance Premium (Already reported in 1098)

> Services Borrower Did Shop For
C. 01 Title-Abstract or Title Search
C. 02 Title-Deed Prep. fee
C. 03 Title-Express Mail/Courrier Fee
C. 04 Title-Lenders Title Policy
C. 05 Title-Settlement or Closing Fee
C. 06 Title-Title Examination Fee
C. 07 Title-Title Insurance Binder

> Other Costs - Taxes and Other Gov. Fees
E. 01 Recording Fees
-Deed:
-Mortgage:
E. 02 Transfer Taxes to W. Clerck of the C.

> Prepaids
F. 03 Prepaid Interest (Already reported in 1098)

> Initial Escrow Payment at Closing
G. 03 Property Taxes

> Other
H. 04 One time supplemental Tax to W. C Clerk

Carl11_2

Employee

After a day of looking, I finally found my info from two years ago. Don't know how helpful it will be though.

There are over 15 different versions of the HUD-1 out there. I am assuming you have the most current one, which you can see at http://www.hud.gov/offices/adm/hudclips/forms/files/1.pdf Pay attention to line NAMES, and not just the line numbers only. Note that you only claim those items with an amount in the "Paid from borrower's funds at settlement" column.

Abstract & Recording Fees - 1201

Legal Fees - may not be on the HUD-1. If you hired legal representation, then it's whatever you paid the lawyer. If they are on the HUD-1, then it will be a write-in, probably in the 1300 section.

Title Search - Line 1101 unless entered as a separate write-in, in the 1100 section.

Owner's Title Insurance - Line 1103. (Note that Lender's title insurance is not deductible for the buyer)

Doc Prep - Usually included as "a part of" the origination charge on line 801. Otherwise, will be a write-in in the 800 block.

Land Surveys - Usually a write-in in the 1300 block.

Title Insurance - Line 1101

Transfer or Stamp Taxes - Lines 1202-1206