Certified Relocation Professional (CRP) Practice Exam

What is the effect of points paid by a transferee to a mortgage lender on their taxable income?

1. Affect the transferee's taxable income

2. Do not affect transferee's taxable income

3. Are usually grossed up by the employer

4. Are considered to be a MIDA relocation benefit when reimbursed by the employer

The correct answer is: Do not affect transferee's taxable income

The correct response recognizes that points paid by a transferee to a mortgage lender do not directly affect the transferee's taxable income. Points, also referred to as loan origination fees, are typically prepaid interest. Although they may have implications for deduction on the transferee's taxes, they do not count as income. When points are paid, they are considered part of the overall cost of the loan rather than income to the taxpayer. As a result, transferees do not report these points as income on their tax returns, which means that their taxable income remains unaffected by the presence of points. In the context of the other options, points are not normally grossed up by the employer, as any reimbursement of limits that can impact taxation must be approached with the awareness that points do not constitute taxable income. Additionally, while there might be consideration of points as a potential benefit in terms of relocation assistance, they are not classified under MIDA benefits simply due to reimbursement. Thus, understanding that points do not enter into the calculation of taxable income is crucial for comprehending how these financial elements are treated in the context of relocation benefits.