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You must report certain points paid for the purchase of the payer of record's principal residence on Form 1098. You must report points if the points, plus other interest on the mortgage, are $600 or more. For example, if a borrower pays points of $300 and other mortgage interest of $300, the lender has received $600 of mortgage interest and must file Form 1098.
Report the total points on Form 1098 for the year of closing regardless of the accounting method you use to report the points as icome for federal income tax purposes.
The lender of record or a qualified person must file Form 1098 to report all points paid by the payer of record incomnnection with the purchase of the principal residence. If a designation agreement is in effect for a mortgage, only the person designated in the agreement must file Form 1098 to report all points on that mortgage.
Reportable Points: Report on Form 1098 points that meet all the following conditions.
- They are clearly designated on the Uniform Settlement Statement (Form HUD-1) as points; for example, "loan origination fee" (including amounts for VA and FHA home loans), "loan discount,""discount points," or "points."
- They are computed as a percentage of teh principal loan amount.
- They are charged under an established business practice of charging points in the area where the loan was issued and do not exceed the amount generally charged in that area.
- They are paid for the acquisition of the payer of record's principal residence, and the loan is secured by that residence. You may rely on a signed written statement from the paer of record that states that the proceeds of the loan are for the purchase of the payer of record's principal residence.
- They are paid direcly by the payer of record. Points are paid directly if either condition below applies:
- The payer of record provides funds that were not borrowed from the lender of record for this purpose as part of he overall transaction. The funds may include down payments, escrow deposits, earnest money applied at closing, and other funds actually paid over by the payer of record at or before closing
- The seller pays points on behalf of the payer of record. Points paid by the seller to the interest recipient on behalf of the payer of record are treated as paid to the payer of record and then paid directly by the payer of record to the interest recipient.
Exceptions: Do not report as points on Form 1098 amounts paid:
- For loans to improve a principal residence
- For loans to purchase or improve a residence that is not the payer of record's principal residence, such as a second home, vacation, investment, or trade or business property even though the borrower may be entitled to amortize points paid for he purchase of a second home, vacation home, etc. and deduct them over the life of the loan;
- For a home equity or line of credit loan, even if secured by the principal residence;
- For a refinancing, including a loan to refinance a debt owed by the borrower under a land contract, a contract for deed, or similar forms of seller financing;
- In lieu of items ordinarily stated separately on the Form HUD-1, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes; and
- To acquire a principal residence to the extent the points are allocable to an amount of principal in excess of $1 million.
Construction Loans: Amounts paid on a loan to construct a residence (construction loan) or to refinance a loan incurred to construct a residence are reportable on Form 1098 as points if they:
- Are clearly designated on the loan documents as points incurred in connection with the loan, such as loan origination fees, loan discount, discount points, or points;
Are computed as a percentage of the stated principal loan amount;
Conform to an established business practice of charging points in the area where the loan is issued and do not exceed the amount generally charged in the area;
Are paid in connection with a loan incurred by the payer of record to construct (or refinance construction of) a residence that is to be used, when completed, as the principal residence of the payer of record;
Are paid directly by the payer of record; and
Are not allocable to an amount of principal in excess of $1 million.
Amounts paid to refinance a loan to construct a residence are not points to the extent they are allocable to debt that exceeds the debt incurred to construct the residence.