Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP
Posting-Version: version B 2.10 5/3/83 based; site hou2b.UUCP
Path: utzoo!watmath!clyde!burl!ulysses!mhuxr!mhuxt!houxm!hou2b!halle
From: halle@hou2b.UUCP (J.HALLE)
Newsgroups: net.invest
Subject: Re: The 3% rule
Message-ID: <705@hou2b.UUCP>
Date: Wed, 12-Feb-86 12:31:54 EST
Article-I.D.: hou2b.705
Posted: Wed Feb 12 12:31:54 1986
Date-Received: Fri, 14-Feb-86 01:21:45 EST
References: <590@houxj.UUCP>
Organization: AT&T Bell Labs, Holmdel NJ
Lines: 25

I repeat.  The points must be amortized.  And I will use your own words to
show this.
>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."
Refinancing is not included in this exception.  You are not buying your home.
You are not using the loan to improve your home.  Even if some of the proceeds
are used for home improvement, and there probably won't be that much if you
are considering a refinance to lower interest, only the proportion so used
could be expensed.  The purpose of the loan is lowered payments not home
improvement.  Thus the exception cannot apply, even if the last two criteria
are satisfied.  Except for rare cases, only a second mortgage might apply.

However, I'd deduct it anyway, even though I knew it was wrong.  I'd put this
violation in the same category as taking out a loan to buy tax frees.  How
are they going to know exactly what you did?  There is no obvious flag.  Even
an audit would probably ignore it.

Play it safe.  Get the first year interest raised to reduce your points to zero.