In response to a new government regulation the mortgage industry has adopted a new Good Faith Estimate and updated the HUD-1 settlement statement you receive at closing, whether it’s a real estate purchase, a refinance or cash out. The problem: no one communicated between the government and the IRS.
When you prepare your taxes there is a line item that asks if you did a refinance or purchase transaction and whether or not you paid you paid points, origination or other fees that are a potential write-off. Well, the form has changed to combine many fees (lender fees, origination, processing, etc.) and call them ‘origination’. The intent of the government was to make the process more transparent and enable the home buyer to compare fees from one lender to another. In my opinion it does not accomplish what it set out to and has only made it more difficult for the home buyer.
But long and short, when you do your taxes this year you will be asked that question and you will have to look at line 803 of your HUD-1 which will probably be in the range of $2,500 to $4,400. Most of the time origination is a lot lower, especially if you’re using me, the Frisco Mortgage Guy, at $1,875.
I’ve discussed this with several CPAs and there is no consensus on how they are going to handle the issue on this year’s taxes. If the IRS template is used and you write the whole number on line 803, my question is: what happens if they later change that and come back and adjust it? Are you going to have to amend your returns? Or, if you send in your return using the lower number (just the true origination), are you really just cheating yourself? Perhaps the definition is the whole number. No one really knows. If you know, please share it with me.
Thanks for reading.