Is it true that one of them (loan origination fee or Loan discount fee) is tax deductible and the other one is not? My lender first offered me Loan discount fee at 1%, then switched to loan origination fee at 1.25% telling me that it is better for me because I can deduct it. (of course he had other reasons for that too).
I’m not a Tax Accountant but I do believe that both scenarios is tax deductible. To my understanding, both are tax deductible over the life of the loan… not in one lump sump.
I would look into this further and consult your Tax Accountant. I wouldn’t want you to encounter a situation where the LO is getting a full 1 pt. to himself and using the other .25 to buy down the rate.
They are both deductible- on a purchase, you can deduct the entire amount the year you purchase the property, in a refi, you have to split the deduction evenly over the life of the loan.
Like the last poster, I am not a tax professional, so the best idea would be to consult a CPA.
I talked to my accountant and looked at several websites. I got mixed results. Some sources imply that Loan origination fee and Loan discount fee are pretty much the same fees, but they are different in nature.
"The loan origination fee covers the administrative costs of processing the loan. It is often expressed in points. "
“Discount points are additional funds borrowers pay to lenders at closing to get a lower interest rate on their mortgage.”
It looks like both of those fees can be deducted in the first year if buying a main home. If buying a second home or investment property they should be deducted over the loan length.
But the acountant is saying he’d deduct either one of them at once.
Finally I went to the Irs.gov website - which made this issue even more complex - they are asking dozens of questions.
The conclusion I came to so far:
- to be IRS-safe I should deduct either fee over the loan term.
- LO will come up with a nice explanation for you in order to increase their fee:-)