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.
from fanniemae.com:
"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:-)