How to write off items on HUD-1
At tax time, there are always a few people who like to quiz me about the deductibility of items on their real estate closing statements. When I look through the items listed on the long HUD-1 form, aka Settlement Statement, I am unusually amazed by the creative terms used by different loan agents or lenders. Some times, I have to control my impulse about telling them the possible bad deals because of the high POC (fee paid out of closing), or extra commission a lender pays the agent for bringing in that type of loan. (Click here to read more about mortgage ripped-off)
Home mortgage
Other than that, it is actually very straight forward about what items get to be written off for a home mortgage. On top of the mortgage interest you paid through out the year, you may write off all the points and interest listed on the closing statement in the first year of the loan. None of the other charges, yes, a lot of them on the form, are allowed as deduction and should be added as your property’s cost basis. When you refinance the mortgage, the rules are the same except that the points on the new loan should be deducted evenly over the terms of the loan.
Business or rental loans
For loans on business or rental properties, there are more expenses you can deduct from the closing statement, but you have to deduct them over the term of the loan. These expenses include points and other loan fees, lien service charges, title insurance premiums and endorsements, charges for document preparation, escrow fees, notary costs and courier charges. When you refinance the loan, the remaining balance of these expense can be written off at once.
