Origination charges not reported on 1098

Forum|Forum|6 years ago
June 6, 2019
2 replies
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I took out a construction loan to build a house in 2015. My HUD-1 Settlement Statement looks as follows:

Line 801. Origination Charge                 $3525.70
Line 802. Points                                      $9430.00
Line 803. Adjusted Origination charge  $12955.70

However, on the 1098 the lender sent me it only has the $9430 reported in Box 2. The origination charge does not include any non-deductible items such as appraisal fees, etc. My first question is, do I deduct the $12,955.70 even though the 1098 doesn't reflect that number?

IRS pub 530 says to report home mortgage interest not reflected on the 1098 on line 12 of Schedule A. The online software does not allow me to separate the $3525.70 and the $9430. How do I enter this info into the software so it is reported on both Line 11 and Line 12?

Thanks

TurboTax Deluxe Online

Best answer by DavidD66

If you paid Points/Loan Origination that qualifies, you can deduct them even if they aren't reported on you 1098. Pay close attention to item number eight below.

According the IRS

"You can fully deduct points in the year paid if you meet all the following tests.

Your loan is secured by your main home. (Your main home is the one you ordinarily live in most of the time.)
Paying points is an established business practice in the area where the loan was made.
The points paid were not more than the points generally charged in that area.
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.
The points were not 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.
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 are not 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 cannot have borrowed these funds from your lender or mortgage broker.
You use your loan to buy or build your main home.
The points were computed as a percentage of the principal amount of the mortgage.
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."

See IRS Publication 936, Home Mortgage Interest Deduction for more information.

DavidD66Answer

If you paid Points/Loan Origination that qualifies, you can deduct them even if they aren't reported on you 1098. Pay close attention to item number eight below.

According the IRS

"You can fully deduct points in the year paid if you meet all the following tests.

Your loan is secured by your main home. (Your main home is the one you ordinarily live in most of the time.)
Paying points is an established business practice in the area where the loan was made.
The points paid were not more than the points generally charged in that area.
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.
The points were not 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.
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 are not 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 cannot have borrowed these funds from your lender or mortgage broker.
You use your loan to buy or build your main home.
The points were computed as a percentage of the principal amount of the mortgage.
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."

See IRS Publication 936, Home Mortgage Interest Deduction for more information.

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sirrydukebeezAuthor

Thanks for the fast response. A quick calculation tells me that the $3525.70 is exactly .75% of the loan amount so I'm going to deduct the entire amount shown on the HUD statement. Thanks again.

Oregon-CPA

Points and origination charges are not the same thing. If they were, they'd be on the same line of the HUD-1. Points are prepaid interest (which gets you a lower interest rate for the life of the loan), reported to you on line 802 of the HUD-1 and also in box 2 of the 1098. An origination charge is a fee you pay to the lender for the service of creating/providing the loan, reported on line 801 of the HUD-1 and not included anywhere on the 1098.

Points are deductible because they're essentially equivalent to mortgage interest. Origination charges are not; that would be like deducting the appraisal fee or inspection fee.

Now, if your lender made a mistake and didn't include the points on line 802 or on the 1098, that's a different story. In your case, it's very clear that that's not what's going on. The points (2% of the loan) are deductible, the origination fee (0.75% of the loan) is not.

DavidD66

According to IRS Publication 936: Home Mortgage Interest Deduction:

"The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points."

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