What are the tax implications if the seller pays the closing costs?
When a buyer’s closing costs are paid by a seller, the buyer may be able to deduct the expense. In the eyes of the IRS, a $250,000 home in which the seller pays $5,000 in closing costs and a $250,000 home in which a seller does not pay closing costs are the same thing. If a buyer includes $5,000 closing costs in the price of a sale instead of paying it up front, the sum can be deducted from taxes as part of the mortgage. This deduction includes any points the seller pays toward a mortgage. With a bank-owned property, the bank itself is the seller, and it is unlikely the bank will pay any closing costs, which would eliminate this potential deduction.
