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From: jdt@houxj.UUCP (J.TAIS)
Newsgroups: net.invest
Subject: Re: The 3% rule
Message-ID: <590@houxj.UUCP>
Date: Wed, 12-Feb-86 10:04:17 EST
Article-I.D.: houxj.590
Posted: Wed Feb 12 10:04:17 1986
Date-Received: Fri, 14-Feb-86 01:12:36 EST
Organization: AT&T Information Systems, Holmdel NJ
Lines: 37
Keywords: Misinformation corrected

Someone writes:
> Contrary to statements made by others, points paid for REFINANCING are
> not deductable all at once, but must be amortized over the life of the
> loan.  The IRS is very specific about this point.  See Publication 19
> among others.  Thus it might pay to get a slightly higher rate in lieu
> of points.  Or deduct it anyway and assume they won't find out.

Wrong.  A few days ago I posted the following to net.taxes; clearly it needs
to be posted here too:

Another misinformed person in net.taxes writes:
> This used to be true, but is no longer.  Your friend and mine,
> the IRS, has added a note in the instructions explaining that
> these points are interest, but must be deducted over the
> life of the loan, which for a house is typically 30 years.  

According to the rules,
"You may deduct the amount you pay as points in the year of payment if the 
loan is used to buy or improve your principal home and is secured by that
home.
This exception will only apply if--
1.  The payment of points is an established business practice in the area where
the loan was made, and
2.  The points paid did not exceed the number of points generally charged in
this area."

"Your Federal Income Tax", IRS, pp. 128.

BUT if you don't qualify for this exception you have to spread the points out
over the life of the loan.  Say, if you had a vacation home.  I assume rental
property points would always qualify for deduction on the basis of "expense
of producing income."

Order IRS publication #17, "Your Federal Income Tax".  It's free.

John Tais, AT&T Information Systems, Holmdel NJ 07733
ihnp4!houxj!jdt    (201) 949-4799    HO 2J-236