{"id":49657,"date":"2021-04-08T10:57:27","date_gmt":"2021-04-08T17:57:27","guid":{"rendered":"https:\/\/www.movoto.com\/blog\/?p=49657"},"modified":"2022-04-19T22:56:28","modified_gmt":"2022-04-20T05:56:28","slug":"is-your-loan-origination-fee-tax-deductible","status":"publish","type":"post","link":"https:\/\/www.movoto.com\/blog\/is-your-loan-origination-fee-tax-deductible\/","title":{"rendered":"Is Your Loan Origination Fee Tax Deductible?"},"content":{"rendered":"

Buying a home comes with tax benefits, but it\u2019s important to know what is and isn\u2019t tax deductible. Learn whether your loan origination fee is tax deductible.<\/span><\/i><\/h4>\n

One of the lesser known benefits of becoming a homeowner is the tax deductions<\/a> you will receive. However, knowing what homebuyer<\/a> costs qualify for a tax deduction<\/a> can be confusing. You undoubtedly signed a mountain of paperwork<\/a> at your closing, but do you really know what you signed?\u00a0<\/span>
\nAssuming you don\u2019t buy homes regularly, you aren\u2019t expected to know all the finer points\u2014that\u2019s what your real estate agent<\/a> is for. But now that you\u2019ve closed on your house, moved in, and have finally gotten settled, it\u2019s time to look at the future implications of your purchase.<\/span>
\nWhen it\u2019s time to file your taxes, you\u2019ll need to go back to your closing documents<\/a> to determine what your allowable deductions are and how you need to properly file them in your tax return. We\u2019re going to cover one piece of the closing cost puzzle\u2014the loan origination fee<\/a>.<\/span><\/p>\n

What is a loan origination fee?<\/span><\/h3>\n

A loan origination fee is what the mortgage lender<\/a> charges you for all the paperwork and documentation that\u2019s associated with your real estate transaction. The loan origination fee includes the fees associated with your loan as well as a fee that\u2019s paid to the loan officer who initiates and completes your loan transaction.\u00a0<\/span>
\nThis fee is only paid if and when the loan funds, therefore part of the loan origination fee serves as a commission to the broker who processed the loan. Loan origination fees are usually broken down into mortgage points, which are a percentage of your loan amount.<\/span><\/p>\n

How much is a typical loan origination fee?<\/span><\/h3>\n

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\nLoan origination fees vary based on your broker and how complicated your loan is, but typically they cost between 0.5% to 1% of the total value of the loan. Each percent is referred to as one \u201cpoint,\u201d however loan origination points shouldn\u2019t be confused with discount points, which are percentage points you can pay upfront to lower your interest rate.\u00a0<\/span>
\nStill, the IRS counts both origination fees and discount points as prepaid interest when you file your taxes, and they both appear under lender charges on the HUD-1 Settlement Statement and the Good Faith Estimate of your closing documents.<\/span><\/p>\n

Are loan origination fees tax deductible?<\/span><\/h3>\n

Loan origination fees are tax deductible when the fees reflect the prepaid interest on a loan. Additionally, if the seller pays a part of the interest for you, these fees are also tax deductible because you can claim a deduction for the points the seller paid.<\/span>
\nIf you want to deduct the points from your tax return in the same year you closed on your home, you have to use the loan to build or purchase your home and it has to be your primary residence. There are some additional stipulations, as well:<\/span><\/p>\n