Don’t Forget These Write-offs!

When there is a real estate transaction, there will usually be write-offs. Make sure you claim every one you are entitled to.

POINTS
If there are origination fees, and if they are paid for the use of money, the IRS considers them tax-deductible. If the fees are classified as a service fee, then they aren’t.

For details, including how much you can deduct in the year the points are paid, check out IRS Publication 936.


PREPAYMENT PENALTIES
Sometimes borrowers simply must refinance or sell their property even though a nasty prepayment in involved. If this happens, the prepayment penalty IS tax deductible.

REAL ESTATE TAXES
Property taxes are deductible.

MORTGAGE INTEREST
The year-end statement from the mortgage lender will detail exactly how much interest was paid during the year, and it is all deductible.

MORTGAGE INSURANCE
Recently enacted legislation enables mortgage borrowers to deduct the cost of mortgage insurance. There are limitations, so be sure and check out the fine print of the new law.

HOME CONSTRUCTION LOAN INTEREST
Interest on a construction loan is deductible during a period of two years before the new residence is inhabited by the borrowers.

OTHER CLOSING COSTS
Some of the settlement fees (the charges you would pay no matter if you were paying all cash or financing the property) may be added to the cost basis of the property. Common ones include title abstract fees, recording fees, transfer or stamp taxes, owner’s title insurance. These may apply to seller or buyer.

DOUBLE-CHECK
Don’t overlook the need to verify the applicability of these to your individual situation.