Can I deduct discount points on a new construction home when paid by seller through rebate?

In your situation, you generally can't deduct points that were paid by the seller through a builder incentive. The IRS is pretty specific about this - you can only deduct points that YOU actually paid for out of pocket. When the builder offered you that $37k incentive and you chose to apply it to points, that's considered the builder/seller paying those points, not you. That's why your 1098 shows $0 in Box 6 - the lender is correctly reporting that you didn't personally pay those points. Think of it this way: if you had taken that $37k as a reduction in home price instead, you wouldn't have gotten the immediate tax benefit of the points, but you would have had a lower mortgage amount. The IRS doesn't want to give you both benefits.

I went through this EXACT same situation last year with my new build from DR Horton. I spent hours researching because I thought I should be able to deduct those points! I finally found a solution using taxr.ai (https://taxr.ai) - it's a service where you can upload your closing documents and tax forms, and they analyze everything to determine exactly what's deductible. They explained that while seller-paid points usually aren't deductible by the buyer, there are specific circumstances where builder incentives might be treated differently. They helped me understand that what matters is how the transaction was structured on the HUD-1 or Closing Disclosure, not just what's on the 1098.

Just wanted to follow up and say I tried taxr.ai after seeing it mentioned here. My situation was with a Taylor Morrison home where they "paid" $8k in points through their mortgage company incentive. I was shocked to find out I COULD claim about 60% of those points! The key was in how my specific purchase agreement and closing disclosure were worded. Even though my 1098 showed $0 in Box 6, there was specific language in my closing documents that showed I had effectively paid for a portion of those points through the home's purchase price. The service explained exactly which IRS rules applied to my situation and gave me the confidence to take the deduction. They even provided documentation I could use if audited. Definitely worth checking out if you're in this situation with new construction!

Hey all, I've been dealing with the exact same headache trying to reach the IRS to get a straight answer on this builder-paid points issue. After 4 attempts and hours on hold, I found a service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in under 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that in most cases, points paid by the builder through incentives aren't deductible by the buyer. However, she explained that there are exceptions based on how the transaction is structured in the closing documents. She walked me through exactly what language to look for in my documents that might allow for deduction.

I'll admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it anyway because I was desperate to resolve my builder points question before filing. The service connected me to an IRS tax law specialist in about 15 minutes (after weeks of failed attempts on my own). The specialist reviewed my situation and confirmed that in my case, because of specific language in my purchase agreement that treated the builder incentive as a price reduction rather than a credit, I could actually deduct a portion of the points. She walked me through exactly which forms to file and what documentation to keep. Saved me way more than the service cost, and I now have official IRS guidance I can rely on if questioned. Total game-changer for resolving complex tax questions quickly.

Just a quick tip from a former loan officer - check your Closing Disclosure very carefully, specifically the Seller Credits section. If the points were applied as a general seller credit rather than specifically allocated to points, you might have a case for deducting them. The key is whether the incentive was applied as a "specific" credit for points or as a "general" credit that you then allocated. It's a small distinction that can make a big difference tax-wise.

Has anyone ever been audited for claiming points that were technically paid by the builder? I'm in a similar situation and tempted to just claim them since it seems like such a gray area, but worried about consequences.

I actually went through an IRS audit last year for this exact situation with my Pulte home from 2021. I had claimed about $4,800 in points that were technically paid through a builder incentive program, similar to your situation. The auditor was surprisingly reasonable about it. She explained that what really matters is the economic substance of the transaction, not just who technically wrote the check at closing. In my case, I was able to show that I had negotiated a higher purchase price specifically to get the incentive that covered the points, which meant I was effectively paying for them through my mortgage. The key documentation that saved me was my purchase agreement which showed the original list price, then the "adjusted" price that included the incentive value, and email correspondence with my sales rep discussing how we were using the incentive for rate buydown. The auditor accepted this as evidence that I had constructively paid for the points. That said, she did mention that not all builder incentive situations would qualify - it really depends on how your specific transaction was structured and documented. I'd definitely recommend keeping very detailed records and maybe getting professional advice before claiming the deduction if you're unsure.