Seller contribution in FHA transaction

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I may be entering into a home purchase soon with FHA financing (with the new limits). Supposedly the seller can contribute up to 3% in closing costs.

Now, is that 3% the seller will lose straight up or is there a tax incentive for seller contributions, especially in the case of an FHA. For instance, can the seller reduce his or her taxable income by the contribution amount?

gmakerley · Posted: Fri Mar 21, 2008 7:36 am Post subject:

sellers can contribute as much as 6% of the purchase price, but i have never heard of reducing taxable income by claiming a closing cost contribution. inasmuch as the sale of a home isn't going to have much impact on income to begin with, this would be a rather long s-t-r-e-t-c-h in income tax preparation techniques, i think.

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Basically, when a seller pays closing costs, it reduces the amount that they net, therefore lowering their "profit", and as a result reduces the amount they are taxed on.

So no, there are no tax incentives to paying closing costs...their incentive is selling their home. Very Happy

And George is right on it, seller can pay up to 6% in closing costs, AND if you combine it with down payment assistance, they can pay another 3%.

Why would they want to do this? Because they get the money back by adding it on top of the sales price...so they net the same amount. AND it increases their chances of selling their home when someone can buy it for a total of $350 out of their pocket.

kpatrick · Posted: Fri Mar 21, 2008 9:29 pm Post subject:

That was me above...why doesn't this site sign me in automatically? I know I checked the little box when I signed up? Errr. Rolling Eyes

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