I paid the FHA upfront fee at closing in December 2009. I couldn't itemize my 2009 taxes, so I didn't do anything about it last year. Now this year I am itemizing and wondering what I do with the 4000 dollar FHA upfront fee I paid in 09. The loan origination fee was paid by the seller, but I believe I can still put that in line 12 of schedule A 2010 (but maybe only amortized over the loan's life)? Neither fee was included on any 1098. At closing I paid over 6000 down payment, but the seller took care of some closing costs as well, like the origination fee and other closing fees to the loan. Thus my understanding is that I should add the FHA upfront fee and loan origination fee together divide them by 360 (payments in life of loan) and then multiply that number by 12 (payments made this year). Is that a correct way to proceed?

“but I believe I can still put that in line 12 of schedule A 2010 (but maybe only amortized over the loan's life)? Neither fee was included on any 1098.”----> When points are paid on the purchase of a principal residence ( or to improve the taxpayer’s primary residence), then they are often reported on 1098 Form. The points are fully deductible in the year paid and are reported on Sch A of 1040 line 10, along with mortgage interest reported on Form 1098. The deductible portion of points not reported on Form 1098 are reported on Sch A line 12.
“Thus my understanding is that I should add the FHA upfront fee and loan origination fee together divide them by 360 (payments in life of loan) and then multiply that number by 12 (payments made this year). Is that a correct way to proceed?”---->No; assume that you purchased your home in May of 2009 and financed the home with a 20-year mortgage. You also prepaid all of the $9,240 in mortgage insurance premium required at the time of closing in May. Since the $9,240 in mortgage insurance premium is allocable to periods after 2009, You must allocate the $9,240 over the shorter of the life of the mortgage, 20 years in this case, or 84 months, NOT 360 months. Your adjusted gross income (AGI) for 2009 is $76,000. You can deduct $880 ($9,240 ÷ 84 × 8 months) for qualified mortgage insurance premiums in 2009. For 2010, you can deduct $1,320 ($9,240 ÷ 84 × 12 months) if your AGI is $100,000 or less. You can treat amounts you paid during 2009 for qualified mortgage insurance premium as home mortgage interest. You can deduct mortgage insurance premiums on Schedule A (Form 1040), line 13, not on line 12.
As the seller pays points to assist the purchaser,you, you may deduct the value of the points paid; you generally cannot deduct the full amount of points in the year paid. Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. If the buyer deducts points paid by the seller, the buyer must reduce the sales basis of the property (increase the amount of profit) when the home is sold; the rules apply to owner-occupied prime residences only. For instance, to get a lower mortgage rate, you ( or seller) paid points of $3,000 with a 30 year loan( and you buy the property on Apr 30, 2010), then you can deduct $3,000 evenly over the life of the loan; $3,000/360 mo*8=$67 in the first year and in the second year you can deduct $100; $3,000/360*12=$100.
Please visit the IRS website here; Publication 17 (2010), Your Federal Income Tax.

I just want to make sure I have this correct. Your answer was very clear and I thank you. I want to make sure. I paid not only the 4200 FHA upfront fee at closing, but I also pay a monthly mortgage insurance premium fee of 100 a month. My 1098 stated only the 100 a month fee total for the year on line 4 of the 1098. I included that on line 13 already. According to your answer, I think you stated I should take the 4200 upfront fee and divide it by 84 (shorter of 84 month and 360 month loan term) and then multiply by payments in 2010 - (12 payments). Now with that number I should put it with the monthly fee number I already have in line 13 of schedule A? That upfront FHA fee wouldn't go in line 12? Also, the loan origination fee paid by the seller that I will divide by 360 (life of loan) and then multiply by the 2010 payments (12) goes on line 12 right? Of course, it isn't on any 1098 either. Is there any instance where I don't get to deduct that loan origination fee? I know it was separate of other fees, and I put down 6500 at closing, more than the 2200 loan origination fee. I thank you so much for your time and expertise and patience.

“According to your answer, I think you stated I should take the 4200 upfront fee and divide it by 84 (shorter of 84 month and 360 month loan term) and then multiply by payments in 2010 - (12 payments).” ---->Correct; If you paid a lump-sum premium for insurance provided by FHA or a private mortgage insurer that also covers years after 2008, you must determine the portion of the premium that pays for insurance for 2008 by dividing the total premium by the stated term (number of months) of your mortgage, or 84 months, whichever is shorter.
“ Now with that number I should put it with the monthly fee number I already have in line 13 of schedule A? “---->Correct; you put your FHA upfront fee ( annual ) with the amount on Box4 of 1098.
“That upfront FHA fee wouldn't go in line 12? “---->No; you must report Points Not Reported on Form 1098 on Sch A line 12. That upfront FHA fee’d go in line 13.
“Also, the loan origination fee paid by the seller that I will divide by 360 (life of loan) and then multiply by the 2010 payments (12) goes on line 12 right? Of course, it isn't on any 1098 either.”---->Correct.
“Is there any instance where I don't get to deduct that loan origination fee? “---->I guess so. But, I am not sure as I have no any idea about your situation in detail.
Please visit the IRS website here for further info; Publication 936 (2010), Home Mortgage Interest Deduction
“ I know it was separate of other fees, and I put down 6500 at closing, more than the 2200 loan origination fee.”-----> Closing costs are made up of a laundry list of various charges. They include things like lenders fees, real estate appraisals costs, private mortgage insurance, homeowners insurance, recording fees, title searches and title insurance, as well as many other possible costs. The unfortunate truth is that most of these fees are not deductible except PMI as said above. There are a few exceptions however. These depend on when exactly you buy your house. For example, if you have to pre-pay any mortgage interest as part of your closing costs, that interest will be tax deductible. You may have to prepay if you close on any day other than the first of the month. This is typically the day your future mortgage payments will be due and if your home loan closes on the 15th perhaps, then your lender will require you to prepay interest for the 15 days before the next month begins. Since this is still interest, even though it is included in your closing costs you can deduct it from your yearly tax returns.

Considering the number I put into line 13 on schedule A is going to differ from what is reported on my 1098 from the bank (it just contains the monthly MIP), is there a good chance I will be audited? I will be having extra dollar amounts on line 13 because of the FHA upfront payment which isn't anywhere but my settlement statement. Same with the loan origination fee. That will go on line 12 because it wasn't reported to me on a 1098.

“is there a good chance I will be audited?”---->No; the tax law requires you to put that amount on Sch A line 13. However, to determine the deductible amount not included in box 4 of Form 1098, you can contact the mortgage insurance issuer.
“Same with the loan origination fee. That will go on line 12 because it wasn't reported to me on a 1098.”---->Correct. Also, you can report any points not reported on Form 1098 on Sch A line 12.

Please see the Sch A ;http://www.irs.gov/pub/irs-pdf/i1040sca.pdf