One point is 1% of a mortgage, and can usually lower a mortgage interest by .25%. A point is interest that you have pre-paid in order to “buy down” the fixed interest imposed on the mortgage.
In a property sale, if points are pre-paid by the seller, then:
Treatment by seller – do not deduct these fees as an interest expense on Schedule E. Seller paid points are a selling expense that reduces the amount realized by the seller.
Treatment by buyer – reduce the basis of the property by the amount of the seller-paid points, and treat the points as if the buyer paid them. If your deduction is not limited, you can deduct all the points in the year the seller paid them. Otherwise, the buyer deducts the points over the life of the loan.
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