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Many people get confused about how to treat points, so I hope this
post is helpful. In this blog, I am focusing particularly on what to do when the
Points are Pre-Paid by the SELLER during a property SALE. For Points paid by the Buyer,
wait for my next blog... For treatment of points after refinancing,
wait for the blog after that.... |
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A point is interest that has been pre-paid in an effort to "buy down" the fixed interest imposed on
a mortgage.
In a property sale, if Points are Pre-Paid
by the SELLER:
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If you are the SELLER: |
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Seller-paid points are a selling expense that reduces the
amount realized by the seller.
When a seller pays the
points, it
lower the taxable gain
on the sale for the seller. |
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If you are the BUYER:
Treat the points as if you paid them. |
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For a Home Purchase |
For a Rental Purchase |
1. Reduce basis of acquired property
2. Deduct all points as mortgage interest on
Schedule A |
1. Reduce basis of acquired property
2. Deduct points over the life of the loan on
Schedule E |
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| Keep in mind,
this post is regarding points paid on the sale of property.
Points paid during a refinance are treated differently. As always, consult with a tax advisor
to be on the safe side. |
To learn more about all the
different ways to save money on real estate investments, visit
our sites.
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Niman Singh |
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