Deducting point on a "refinanced" mortgage - is this refinancing per IRS?


B

botony

My sister and I inherited our deceased parents' home in
equal shares. I am considering buying out her share. I have
been living in the house for several years.

After looking around for a mortgage to partially fund the
buyout, it appears that the lenders want to treat the
potential mortgage as a refinance because of my 50% equity
in the home. (Note - there is no mortgage on the home now.)

Now, I have read that the IRS does not allow a full
deduction for points in the year in which the points were
paid if a person refinances his mortgage.

My question is, for tax purposes, given my situation, how
can I treat the points? I am getting a refi mortgage but I
am not refinancing. Or, perhaps, in the IRS view, I am
refinancing? Or, do I ask the lenders if they send out Form
1098 to report the points and if they do not, then I will
have to amortize the points? Obviously, I prefer to be able
to deduct everything in the year of payment.

Thanks in advance for any insight.
 
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H

Harlan Lunsford

My sister and I inherited our deceased parents' home in
equal shares. I am considering buying out her share. I have
been living in the house for several years.

After looking around for a mortgage to partially fund the
buyout, it appears that the lenders want to treat the
potential mortgage as a refinance because of my 50% equity
in the home. (Note - there is no mortgage on the home now.)

Now, I have read that the IRS does not allow a full
deduction for points in the year in which the points were
paid if a person refinances his mortgage.

My question is, for tax purposes, given my situation, how
can I treat the points? I am getting a refi mortgage but I
am not refinancing. Or, perhaps, in the IRS view, I am
refinancing? Or, do I ask the lenders if they send out Form
1098 to report the points and if they do not, then I will
have to amortize the points? Obviously, I prefer to be able
to deduct everything in the year of payment.
They can call it anything they want, but they will send out
a form 1098 end of year (assuming interest paid is over
600$). And since there is no mortgage at present on the
house, this will be a primary mortgage in eyes of IRS, and
therefore points fully deductible.

ChEAr$,
Harlan Lunsford, EA n LA
 
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A

A.G. Kalman

My sister and I inherited our deceased parents' home in
equal shares. I am considering buying out her share. I have
been living in the house for several years.

After looking around for a mortgage to partially fund the
buyout, it appears that the lenders want to treat the
potential mortgage as a refinance because of my 50% equity
in the home. (Note - there is no mortgage on the home now.)

Now, I have read that the IRS does not allow a full
deduction for points in the year in which the points were
paid if a person refinances his mortgage.

My question is, for tax purposes, given my situation, how
can I treat the points? I am getting a refi mortgage but I
am not refinancing. Or, perhaps, in the IRS view, I am
refinancing? Or, do I ask the lenders if they send out Form
1098 to report the points and if they do not, then I will
have to amortize the points? Obviously, I prefer to be able
to deduct everything in the year of payment.

Thanks in advance for any insight.
As long as the proceeds of the loan are used to buy your
sister's half and/or improve the property, the interest paid
on the loan is deductible as acquisition debt. As it would
be classified as acquisition debt, the reasonable points you
pay to acquire that loan would also be deductible in the
year paid.
 
Last edited by a moderator:

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