Las Vegas Homes and Real Estate News

Payment of points to finance home purchase deductible at tax time

BY EDITH LANK CREATORS SYNDICATE

Mar. 05, 2006

Q. We are buying a home, and plan to borrow $141,600. Our bank has offered us 6.125 percent on a 30-year conventional mortgage. Or, if we agree to pay some points ($4,100), we can buy down our interest rate to 5.5 percent. This would lower our monthly payment by about $70 a month, so I figure we would recoup this expense in about five years.

We plan to stay in this house for a long time, probably 20-plus years. Is paying the points ($4,100) a good thing? It seems to me to be a no-brainer, but I have not seen a definite answer anywhere. -- M.S.

A. No-brainer is just the right word. After you've been there five years, the $70 monthly savings will be all gravy. Do it by all means.

There's no catch, no hidden problem with a buy-down. Perhaps you've never seen this particular matter discussed, because, as is usual with financing matters, no one plan is best for everyone.

For starters, not all lenders and not all mortgage plans offer the opportunity. Then again, some borrowers are stretched to the limit when they're buying a home and simply wouldn't have the extra thousands available. Others may not be sure how long they'll stay in the house, so they don't want to gamble on getting back the extra cost.

It never makes sense to spend money just to get a tax deduction, but you may be pleased to hear that points you pay to finance the purchase of your own home are considered extra mortgage interest. They will be fully deductible on your tax return.

IRS acknowledges some

informal life estates

Q. You have written that it is better to inherit real estate, because you get a new stepped-up cost basis and may not have any taxable profit if you sell it soon after. On the other hand, if your mother writes it over to you, you take over her cost basis and might have capital-gains tax to pay later.

I heard that if the mother stayed in the house, you could claim you really inherited it. Do you know anything about that? -- L.R.

A. Yes, the IRS has ruled in some cases that when the donor continued living in the house and treated it as their own, there wasn't any gift. The government held, in that case, that the parent kept an informal life estate, so the house was actually inherited. A lawyer friend said one useful question is: What was the address on the death certificate?

Bank aloof in sale of

foreclosed home

Q. My question involves buying a property that was foreclosed on and is now for sale by the managing mortgage bank.

Through my broker, I put in an offer on this property. The managing bank, which is part of a conglomerate in another state, sent back a "counteroffer" in which they wrote an entirely new contract with the same price I offered but with language not holding them liable for anything. I understand this part, but here's what I don't get: They did not sign the counteroffer. The local broker that represents them said they expect me to sign it, and then, once they get it back and review it, they sign it.

This, theoretically, would be OK, but it pretty much puts it in limbo. The reason, the broker said, is so that they can look at other offers that might come in the meantime and not be obligated to take mine if they find a better one later.

It has been a week now, and they just haven't felt like returning the signed paperwork. Their attitude is, if you don't want the property on our terms, go look elsewhere.

Is this legal for them to do? How do I get around it? Interest rates are going up, and my home inspector doesn't just sit around waiting for things to do. Please advise. -- P.

A. I don't know that you can do anything to bring the bank to the bargaining table. Just hang in there. Maybe by the time this appears you'll have it settled.

You'd think they would jump at your offer. I believe banks don't like to hold on foreclosures. Property management isn't their business.

Their not wanting to be liable for anything is understandable, though, because a lot of real estate passes through their hands for just a short time. They don't know what problems the place might have.

You may be dealing with a committee here, so about all I can advise you to do is be patient.

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