POINTS on a HOME LOAN

The IRS has finally issued guidelines for deducting loan points when buying a home.

1. Points must be a stated percentage of amount borrowed- 1%; 3%, etc. and not represent just a flat fee.

2. Fees must conform to established business practices and be reflective of the residences location.

3. Points must be paid for the acquisition of principal residence and loan must be secured by that property.

4. Points must be paid for directly using non-borrowed funds. This is the greatest cause for disqualification since many homeowners want the loan to include points paid.

5. Points must be designated on the federal uniform settlement statement that most buyers/sellers receive at closing. The form is known as HUD-1.

NO- NOs include:

1. Points paid for refinancing home equity loans or lines of credit. These may only be written off pro rata over the period of the loan.

2. Home improvement loan points.

3. Second home, vacation, business or investment property points are never deductible. They are written off over the period of the loan.

4. Points paid for acquisition of a home loan over $1 million.