Tax Tips: Points Paid by the Seller

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

One point is 1% of the mortgage, and can usually lower the interest by .25%.

In a property SALE (not refinance), if Points are pre-paid by the seller, then:

Treatment by seller - do not deduct these fees as an interest expense. Seller paid points are a selling expense that reduces the amount realized by the seller.

Treatment by buyer - reduce the basis of the property by the amount of the seller-paid points, and treat the points as if the buyer paid them.
(For a Home Purchase - Deduct all points as mortgage interest on Schedule A, For a Rental Purchase - Deduct points over the life of the loan on Schedule E)

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