RULES ON DEDUCTING MORTGAGE POINTS APPLY TO VA AND FHA LOANS.

Rev. Proc. 92-12A

SECTION 1. PURPOSE

This revenue procedure clarifies sections 3.01 and 3.05 of Rev. Proc. 92-12, 1992-3 I.R.B. 27, and adds a new section 6 to that revenue procedure. Section 3.01 is restated to clarify that the reference to "loan origination fees" includes amounts designated as loan origination fees on Veterans Affairs (VA) and Federal Housing Administration (FHA) loans. Section 3.05 is clarified by adding section 4.05, which provides that points paid by a seller in connection with the acquisition of a principal residence are outside of the scope of the deduction allowed by Rev. Proc. 92-12. A new section 6 is added to clarify that Rev. Proc. 92-12 applies to FHA and VA loan origination fees that meet the requirements of that revenue procedure.

SEC. 2. BACKGROUND

Section 3 of Rev. Proc. 92-12 provides that the amounts described therein will be treated as deductible points under Rev. Proc. 92-12. Section 4 of Rev. Proc. 92-12 lists certain amounts to which the revenue procedure does not apply.

SEC. 3. APPLICATION

01 Section 3.01 of Rev. Proc. 92-12 is restated to read as follows:

01 DESIGNATED ON UNIFORM SETTLEMENT STATEMENT. The Uniform Settlement Statement prescribed under the Real Estate Settlement Procedures Act of 1974, 12 U.S.C. sections 2601 et seq. (i.e., the Form HUD-1) must clearly designate the amounts as points incurred in connection with the indebtedness, for example as "loan origination fees" (including amounts so designated on Veterans Affairs (VA) and Federal Housing Administration (FHA) loans), "loan discount," "discount points," or "points."

02 Section 3.05 of Rev. Proc. 92-12 is clarified by adding the following subsection to section 4:

05 Points paid by the seller of a principal residence to or on behalf of the buyer as part of the overall transaction. In applying section 3.05, these amounts are deemed not to have been paid directly by the taxpayer. If the seller pays any amount to or on behalf of the buyer, and the buyer and the seller do not explicitly allocate the amount to points, the amount is allocated, to the extent possible, to expenditures other than points.

03 A new section 6 is added to Rev. Proc. 92-12 to read as follows:

SEC. 6. EFFECT ON OTHER DOCUMENTS

Rev. Rul. 57-541, 1957-2 C.B. 319, and Rev. Rul. 67-297, 1967-2 C.B. 87, which provide for the treatment of loan origination fees on FHA and VA loans, will not apply to cash basis taxpayers who satisfy the requirements of this revenue procedure with respect to loan origination fees paid during taxable years beginning after December 31, 1990.

SEC. 4. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 92-12 is clarified. Section 3.01 will be restated as above and sections 4.05 and 6 will be incorporated in Rev. Proc. 92- 12 when it is published in the Cumulative Bulletin.

SEC. 5. EFFECTIVE DATE

This revenue procedure is effective for points paid by cash basis taxpayers during taxable years beginning after December 31, 1990.

DRAFTING INFORMATION

The principal author of this revenue procedure is James Atkinson of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Mr. Atkinson on (202) 377-9589 (not a toll-free call).