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Blog by Niman Singh

Fremont, California

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TaxTip about Seller-Paid Points

Posted at Property Management Software by Niman Singh

May. 8, 2008

Categorized in: Property Management Software

Tagged with: points, real estate professionals, taxtips

Starred by: 1 Member

Many people get confused about how to treat points, so I hope this post is helpful. In this blog, I am focusing particularly on what to do when the Points are Pre-Paid by the SELLER during a property SALE. For Points paid by the Buyer, wait for my next blog... For treatment of points after refinancing, wait for the blog after that....

A point is interest that has been pre-paid in an effort to "buy down" the fixed interest imposed on a mortgage.

In a property sale, if Points are Pre-Paid by the SELLER:

If you are the SELLER:

Seller-paid points are a selling expense that reduces the amount realized by the seller. When a seller pays the points, it lower the taxable gain on the sale for the seller.

If you are the BUYER: Treat the points as if you paid them.
For a Home Purchase	For a Rental Purchase
1. Reduce basis of acquired property 2. Deduct all points as mortgage interest on Schedule A	1. Reduce basis of acquired property 2. Deduct points over the life of the loan on Schedule E

Keep in mind, this post is regarding points paid on the sale of property. Points paid during a refinance are treated differently. As always, consult with a tax advisor to be on the safe side.

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