For tax purposes, when can a borrower typically deduct discount points in the year they are paid?
Correct Answer
A) Only if the loan is for a primary residence purchase
Under IRS rules, discount points are generally deductible in the year paid when used to purchase a primary residence, provided certain conditions are met. For refinances or other purposes, points typically must be deducted over the life of the loan. MLOs should advise borrowers to consult tax professionals for specific guidance.
Why This Is the Correct Answer
Under IRS rules, discount points are generally deductible in the year paid when used to purchase a primary residence, provided certain conditions are met. For refinances or other purposes, points typically must be deducted over the life of the loan. MLOs should advise borrowers to consult tax professionals for specific guidance.
More Mortgage Knowledge Questions
A borrower is comparing two loan offers: Loan A has no points and 4.5% interest rate, Loan B has 2 points and 4.0% interest rate. The loan amount is $400,000. How much will the borrower pay upfront for the points on Loan B?
A lender charges a 1% origination fee on all loans. For a borrower obtaining a $250,000 mortgage, what is the maximum origination fee that can be charged without violating the points and fees test under the ATR/QM rule for a first-lien mortgage?
Under what circumstances can a Qualified Mortgage include a prepayment penalty?
A borrower is considering paying discount points to reduce their interest rate. Each point costs 1% of the loan amount and reduces the rate by 0.25%. On a $300,000 loan, how much would the borrower pay for 2 discount points?
A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
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