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Closing costs deductible?

I'm trying to refinance my principal (and only) residence in Upstate New York, and it's proving unexpectedly expensive. Current rate: 5-

3/8%; new rate: 3-3/8%. I'm planning to sell in 36 months, but the payback period appears to be about 44.

But, if any of these closing costs are deductible, either annually during my remaining time in the house, or (preferably) in this year, when the refi happens, that might change the decision.

loan origination charge (1% of amount financed) processing fees, $470 underwriting fees, $425 appraisal fee, $475 credit report, $150 reinspection fee, $125 abstract or (of?) title search fees, $310 attorney fee, $850 recording fees, $170 transfer tax, $1156 (I don't know what relation this has to the value of the house or the loan, if any.)

(I don't list property taxes, because those are a wash between the existing mortgage and new mortgage. )

I had to explain to the branch manager why lower interest means higher taxes; in my case about 20% Federal and New York. Obviously considering taxes pushes out the payback period; but in any closing costs are deductible that would reduce the payback period. He understood it when I explained it, but the fact that I had to explain it does not inspire confidence.

Reply to
Stan Brown
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The only thing currently deductible is the loan origination fee, and only if you are refinancing with a different lender. Otherwise, it's amortized over the life of the mortgage.

Ira Smilovitz, EA

Reply to
ira smilovitz

I disagree with Ira; the loan origination fee is not deductible (as interest) on a refinance; it's amortized over the life of the new mortgage, but deductible (as interest) when you sell or refinance. However, if you had amortized points from your previous mortgage, they might be deductible when you refinance, if the loan is with a different lender.

I'd have to research the transfer tax. In Los Angeles, a similar tax (0.1% of the value of the property, when transferred), was sometimes deductible as a property tax. I haven't had any clients with property in Los Angeles (city) in the past 15 years, so I don't know the current law.

-- Arthur Rubin, CRTP, AFSP, Brea, CA

Reply to
Arthur Rubin

Arthur is right. I had the wrong points in mind. If you were amortizing the points on the original acquisition mortgage, you can deduct the remaining amount if you refinance with a different lender. The new points must be amortized unless you use a portion of the new mortgage to improve your home.

Ira Smilovitz, EA

Reply to
ira smilovitz

The transfer tax would not be deductible. A real property tax is an annual tax based on value. Transfer taxes are fees for services. They are not annual and are often not based on value.

Reply to
adjunct

Actually in California transfer taxes are based on value. And it's not really a fee for service - the service is recording the deed to transfer title. There already is an additional fee (charged by the page) for recording a deed.

Still, the court cases I have seen uphold the IRS position that transfer taxes are not deductible, but are instead added to basis, even when the transfer tax is based on the value of the property.

Reply to
Stuart Bronstein

The only transfer tax I am aware of in La or for that matter in any county up here in the nine North Bay counties is a Documentary Transfer Tax. It is assessed whenever real property is conveyed to another party. I have never seen a transfer tax on a refi. I am not aware of any transfer tax in LA that is not the Documentary Transfer Tax.

Reply to
Alan

In California there should be no transer tax on a re-fi - first of all there's no transfer of real property, technically. Even if it were, the reconveyance of a mortgage once it's paid off is exempt by law from being considered a change of ownership. I'd think it would be the same for giving real property as security for a loan in the first place.

Sorry, I'd forgotten we were talking about a re-fi.

Reply to
Stuart Bronstein

I happen to live in the same county in New York as the guy who asked the original question. (We should have lunch some day.)

NYS has a real estate transfer tax of 0.4% payable by the seller, and an extra 1% "mansion tax" payable by the buyer if it's residential property worth over $1M. There is also a mortgage recording tax which varies by county but is 1% here on the amount of the mortgage, minus $10K if it's on a one- or two-family house.

In a refinance, there's no transfer and there may or may not be a new mortgage to record. As I recall (it was a while ago) when I refinanced with the same bank, they treated it as an amendment to the existing mortgage. In this case it's a different bank.

Reply to
John Levine

Thanks to everyone who answered, especially for the confirmation of "no transfer tax because there's no change in ownership".

I think that was a simple blunder by my lender's attorney, who should have advised the lender to include mortgage tax in the estimate.

Moderator: if it's not too late, please reject the article I sent a few minutes ago. The question has already been answered.

Reply to
Stan Brown

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