Homeowners affected by the IRS's 1995 announcement allowing buyers to deduct points paid by the seller are instructed to file an amended tax return for the year in which the home was purchased. If they're entitled to a refund, they will get a refund based on the filing of an amended return. The amendment form, called 1040X, can be ordered by calling the IRS directly at 1-800-TAX-FORM. At the top of the form, write "seller paid points,". Form instructions tell people to attach a copy of their settlement statement, commonly called the HUD-1 form.
People who purchased homes after Dec. 31, 1990, can deduct points paid by the seller. This deduction previously was reserved only for points actually paid by the buyer. However, many deals between buyers and sellers were taking place outside of escrow. Some buyers were paying the points but could not take credit for it because the seller wanted to use the deduction to reduce capital gains.
In the year of the (original) return, the buyer would have paid tax on what could be a couple thousand dollars... The IRS made the change so it would be the same no matter how people were doing it - it would be the same for everybody.
