Tuesday, December 26, 2006

Real Estate Settlement Statements-Tax Deductions**


Some of the items shown on the Settlement Statement when you buy or sell a home may be tax deductible either all at once or by amortization. The HUD settlement statement was not designed for tax purposes, rather to calculate amounts due from the buyer to the seller on settlement day. Yet the settlement statement contains important tax information.

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Lines 106 and 107 on the Settlement Statement are taxes deductible by the buyer.
Lines 510 and 511 are taxes deductible by the seller.
Lines 210 and 211 are taxes NOT deductible bythe buyer
Lines 406 and 407 are taxes NOT deductible by the seller

Click to view a settlement statement http://www.hudclips.org/sub_nonhud/html/pdfforms/1.pdf

Line 801 and 802, Loan Origination fees-- are deductible as interest by the buyer
Deduct it on Schedule A if it is your residence, Amortize it on Sch E if you buy it to rent
The amounts in both the Buyer’s column and sellers column of Lines 801 and 802 are deductible by the buyer.
If you refinance a mortgage, you must amortize the points over the life of the loan unless the funds are used to substantially improve your main home.

Line 901 Interest is deductible by the buyer if it is in the buyer’s column.
Line 901 Interest is deductible by the seller if it is in the seller’s column.

Lines 803 thru 811 Appraisal fees, etc. can be amortized if you are buying rental property, otherwise it is not deductible by the buye., Lines 803 thru 811 reduces the amount realized by the seller.
Lines 1001 thru 1008 do not contain deductible items. Some items are shown as taxes, but are “reserves” deposited with the lender, not deductible taxes.

Link to IRS forms and publications:
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This information is not intended to be advice to the recipient. In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal Tax advice contained in this Blog was not intended or written to be used and cannot be used for the purposes of avoiding penalties.


Anonymous said...

This was extremely helpful for me as a first time homebuyer. Thank you for including which lines on the statement could could as deductions.

Anonymous said...

Agreed! This information was VERY helpful and much appreciated. Thanks for the walk through of the settlement statement!

Lou said...

Same here! Thanks for the help! Great info as a first-time home buyer. None of this information was readily available from our mortgage company. Thanks again!

Kalpesh said...

It helped me a lot.

JB said...

"Line 901 Interest is deductible by the seller if it is in the seller’s column."

Does this still apply to 2009 tax law? TTax has me enter Name/Address of buyer since I didn't get a 1098 and it feels like an audit flag.

Great info btw. Thanks.

taxxcpa said...

Re JB's comment:
Line 901 is still deductible by the seller up to but not including the date of the sale.
If you are audited, show the auditor the HUD form.

JB said...

When reading pub 936:

"You can deduct home mortgage interest if all the following conditions are met:

You are legally liable for the loan.

There is a true debtor-creditor relationship between you and the lender.

The mortgage is a secured debt on a qualified home in which you have an ownership interest. "Secured debt" and "qualified home" are explained later.

You cannot deduct interest you pay for someone else if you are not legally liable to pay it...."

That to me sounds like I as seller can't deduct line 901 for buyer's prepaids. And you stated:

"...up to but not including the date of the sale."

The buyers prepaids will be for the day of sale up to the first of the next month - so AFTER the sale - logically. So what do you mean there, exactly?

Also what about line 902 if seller paid - I read buyer can deduct 902 but wondering if seller can as well?

One more question - as seller, is line 511 deductible if ptax is paid in arrears in my state?

Thank you!

Anonymous said...

You're the man! You figure the IRS could lay it out this simply??


KeemB said...

Oh my God! Thank you sooooo much. This answered ALL my questions as a first time home buyer!!! Appreciate it.. God bless you