This is a very common question at tax time, and there is a lot of confusion as to what is deductible.
The interest that is paid by the borrower during the time of closing is reported on the escrow statement. But, please note that this interest paid by you at time of closing is usually reported on a 1098 Int by the mortgage company, so you should have a copy of the 1098.
Property Taxes paid by Borrower
There should also be an amount that includes property taxes paid by the borrower at time of the closing statement. This is an amount that is sometimes excluded from the 1098 Int that the mortgage company has sent, because the payment of these taxes is usually held in a Trust account by your attorney. He will disburse these funds to the local tax authority independently. So please check carefully that you have accounted for all of these amounts, that is property taxes paid from the escrow statement.
The next common item that is deductible are points. However, these points have to be paid from your funds with a check at time of closing. Only then, are the points deductible and included as interest paid on the 1098-Int under Points paid. The points that are paid at time of closing that are added to the outstanding loan are deducted over the life of the loan! Thus, $3,000 points paid for a 30 year loan, that are added to the outstanding loan, the taxpayer can deduct $3,000/30 or $100 per year!
The escrow costs, filing fees, attorney fees and other miscellaneous expenses are not deductible. These are added to the basis of the home.
Last edited by TaxGuru : 03-14-2007 at 09:08 AM.