According to IRS pub 530, in the closing cost for the purchase of a rental house, "The buyer treats seller-paid points as if he or she had paid them. If all the tests listed earlier under Exception are met, the buyer can deduct the points in the year paid. If any of those tests are not met, the buyer must deduct the points over the life of the loan. The buyer must also reduce the basis of the home by the amount of the seller-paid points."

So my question is how about lender paid point? Can I deduct it over the life of the loan as long as I've reduced the basis of the rental house by the amount of the lender paid point? It seems to me the answer should be yes but I really can not find a good answer anywhere.

Your reply is greatly appreciated!

“So my question is how about lender paid point? Can I deduct it over the life of the loan as long as I've reduced the basis of the rental house by the amount of the lender paid point? It seems to me the answer should be yes but I really can not find a good answer anywhere.”========> On a loan to purchase an investment rental property , points (sometimes called loan origination fees or discount points) are tax deductible but not as a whole in the year the property is purchased. Points that are paid for a residence that is not your primary must be amortized over the life of the loan. You will do this in the same place that you set up depreciation for the rental property. If you sell the property and the loan is paid off or you refinance before the loan term is due then whatever points expense is left would be an interest expense tax deduction in that year

Thanks for your kind reply. I fully understand what you have said. But my main question is what if the lender paid point (origination fee)? In other words, the points are shown as negative number on HUD (which means that the lender, not the buyer, covers the cost for the point).

In other words, the points are shown as negative number on HUD (which means that the lender, not the buyer, covers the cost for the point).”====>” the amount shown on line 802 will be the difference between the initial loan amount and the total payment to the mortgage broker from the lender for a mortgage broker originating a loan in its own name ;the 801 was the normal fee charged by the lender and the negative one is a discount given by the lender.I guess yo may contact the escrow company for more info indetail.

My HUD line 801 (loan origination fee) shows as 0, and line 802 (credit or charge (point)) shows a credit - i.e. a negative number. So my question again is can I treat this lender paid point just like seller paid point - deduct it over the loan period after subtracting my house basis by this amount? Your two replies seem to me do not address my question directly.

Thank you!

If a lender pays points to assist the purchaser, the BUYER may deduct the value of the points paid; Points that are paid for a residence that is not your primary must be amortized over the life of the loan. You will do this in the same place that you set up depreciation for the rental property.