March 28, 1994
Rules Changed for Deducting Seller-Paid Points
WASHINGTON - The Internal Revenue Service today announced
that individuals may claim an income tax deduction for "points' paid in connection
with the individual's purchase of a home, even if the points are paid by the seller of the
property (so-called "seller-paid points"). The new rule is available for
individuals who have purchased homes after December 31, 1990.
This deduction represents a change in the Service's previous position regarding
seller-paid points, which had been viewed as nondeductible by the buyer. The seller of the
property should be viewed as an adjustment to the purchase price of the home. The seller
is treated as having paid the amount of the seller-paid points to the buyer, who in turn
is treated as having used this cash to pay the points charged by the lender. Additionally,
the cost of the home is reduced by the amount of the seller's payment for federal tax
Individuals who are entitled to a deduction for points paid in 1993 and who have not
already filed their tax return should claim the deduction by including the amount paid on
line 9a of Schedule A of their 1993 Form 1040 if the points were reported to the
individual on Form 1098, or on lime 10 if the points were not reported on Form 1098.
Individuals who have already filed their 1993 tax return and whose who are entitled to
claim a deduction for points pain in either 1991 or 1992 should file an amended return on
Form 1040X, and should write "seller-paid points" in the top right-hand corner
of the form. Taxpayers filing amended returns also are instructed to attach to the return
a copy of the settlement statement (often referred to as the "HUD-1") they
received at the time of the closing.
The new treatment of seller-paid points will require lenders to include the amount of
these payment on the Form 1098 information returns required to be provided to the Service
and to taxpayers. In order to allow lenders sufficient time to prepare for this additional
reporting requirement, however, the Service has waived the information reporting
requirement for seller-paid points before 1995.
Revenue Procedure 94-27, containing more information, will be published in Internal
Revenue Bulletin 1994-15 dated April 11, 1994.
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