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If I bought my first home this year, which items on the HUD-1 form can I enter as deductions? Can I deduct my mortgage insurance premium and origination / processing fees?

You should report deductible expenses on Schedule A. The only expenses you can deduct are mortgage interest or real estate taxes. You can't deduct any service fees.

You can fully deduct points you paid on a loan to finance the purchase of a main home in the year you paid them if all of these apply:

  • You used the mortgage to buy or build a main home that secures the mortgage.
  • The points paid must be based on a percentage of the principal amount of the mortgage.
  • The points must be a reasonable amount. Paying points must be an established practice for the area where the mortgage is made.
  • You must pay the points from your own funds -- not from loan proceeds. If the points are tied to the mortgage, they must be spread over the life of the loan.
  • The points paid aren't in lieu of other fees, like:
    • Appraisal fees
    • Title fees
    • Attorney fees
  • The points paid must be clearly shown on the settlement statement (like Form HUD-1).
  • You must use the cash method of accounting.

You must deduct loan-origination fees that are considered points over the life of the loan. You can't deduct loan-origination fees in lieu of service fees.

You can only deduct mortgage insurance premiums paid or accrued on a contract issued after Dec. 31, 2009, and prior to Jan. 1, 2014. Treat the premiums as qualified residence interest. Deduct them on Schedule A. You must amortize prepaid mortgage insurance premiums over the shorter of:

  • The term of the mortgage
  • 84 months

You can only deduct prepaid real estate taxes that you actually paid to the taxing authority. You can't deduct prepayments placed in an escrow account until they're actually paid to the taxing authority.

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