Washington -- With the holiday gift-giving season in full swing, here's an innovative way to raise cash -- $500, $1,000 or more with virtually no effort -- to help you defray some of the season's expenses.
And get this: The source of this ready cash is none other than the biggest Grinch of all -- the Internal Revenue Service. All you have to do is fit this description:
L * You bought a home between Dec. 31, 1990, and Jan. 1, 1994.
* You financed it with a mortgage or deed of trust that included "points." A point is equal to 1 percent of the mortgage amount, constitutes interest paid in advance, and is collected by the lender at or before settlement.
* The seller of the home you purchased -- whether a builder or a private individual -- paid for some or all of the points on your mortgage.
* You assumed, correctly at the time, that the points paid by the seller were not deductible on your federal tax return. So you never wrote them off.
Say, for example, that in December 1991 you bought a new house with a $200,000 first mortgage. As a marketing strategy, the builder agreed to pay the 2 points the lender quoted on your loan. That knocked a nice 2 percent -- $4,000 -- off your total bill when you went to settlement.
When you filed your 1991 tax return the next April, you ignored the $4,000 in points. After all, the builder put down that money, not you.
So now here you are three years later looking at big Christmas gift bills and wondering how you're going to pay them all? Write to the Grinch and ask to deduct that $4,000 in points retroactively. And if you meet all the criteria, the Grinch will duly send you a check early in 1995. All absolutely free.
What's going on here? The transformation of the IRS from Grinch to Santa stems from a change in tax policy adopted earlier this year, but still unknown to huge numbers of homebuyers who could benefit.
Before the change, points on home mortgages paid by sellers were nondeductible for federal tax purposes. Now, within certain guidelines, they are fully deductible. But for what the IRS calls "transition period" homebuyers -- people who closed on a new or resale residence between Dec. 31, 1990, and Jan. 1 of this year -- the IRS says it's willing to send refunds for seller-paid points that they never deducted.
But their legal right to do so has a strict time deadline.
For instance, in the case of the $200,000 loan closed in December 1991, the taxpayers have only until next April 15 -- three years after they filed their 1991 return (April 15, 1992) -- to make the claim.
Besides the definitions on seller-paid points noted above, several other rules apply:
* The points should be clearly identified on your "HUD-1" standard settlement statement that you received at closing.
* The fees should be computed as a percentage of the amount you borrowed.
* The total amount of points should not exceed established business practice norms in your area.
You should know that the amount of the seller-paid points you deduct will be subtracted from the tax "basis" or cost of your home.
To stake your claim pick up a Form 1040X at a library or post office. Write "seller-paid points" at the upper right corner of the form, attach a copy of your HUD-1, and mail to the IRS.
Kenneth R. Harney is a syndicated columnist. Send letters care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071.