April 29, 1994


RE:  Deduction for Seller-Paid Points

The purpose of this announcement is to informtaxpayers that the State Department of Taxation will follow theInternal Revenue Service's position regarding seller-paid points. The Internal Revenue Service is taking the position that taxpayersmay claim an income tax deduction for points paid in connectionwith the taxpayer's purchase of a home, even if the points arepaid by the seller of the property. A taxpayer is allowed adeduction for the seller-paid points, provided the taxpayer(buyer) reduces the basis of the property by the amount of theseller's payment. The new rule is available for taxpayers whohave purchased homes after December 31, 1990.

 Taxpayers who are entitled to a deduction for pointspaid in 1993 and who have not already filed their tax returnshould claim the deduction by including the amount paid on line 9aof Schedule A of their 1993 Form N-12 if the points were reportedto the taxpayer on federal Form 1098, or on line 10 if the pointswere not reported on federal Form 1098. Taxpayers who havealready filed their 1993 tax return and those who are entitled toclaim a deduction for points paid in either 1991 or 1992 shouldfile an amended return on Form N-188X, and should write "seller-paid points" at the top of the form. A copy of the settlementstatement (often referred to as the "HUD-1") received at the timeof the closing should be attached to the amended return.

Director of Taxation