Altering the contract of a house purchase to change the way finance charges are
My wife and I entered into a contract with a homebuilder (who is also the financer) to have a new home built. Recently the homebuilder requested that we delete the following sentence from the contract: ''Buyer and Seller agree that the Finance Charge will be recognized for federal income tax purposes in equal parts over the life of this contract.'' The homebuilder says that the change will give us a larger deduction in the early years of our mortgage than what we could have claimed under the language of the existing contract. They say this change is needed because of a discontinued accounting procedure they used to use. Should we agree to this change?
1 Answer from Attorneys
Re: Altering the contract of a house purchase to change the way finance charges
Without reviewing the contract, I cannot tell you
whether you can deduct the entire finance charge
in the year of closing. It is likely that you
can take this deduction, but this must be checked.
The IRS is making finance companies pay tax on
these types of finance charges earlier, many times
in the year of closing, and they are simply revising
the contract to reflect this tax treatment.
Frankly, I do not see how this change could hurt
you.
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