[Anonymous]

Hello. I am studying for REG and my review materials aren’t the “freshest on the market”… so I was hoping someone out there could help me. My notes state that refinancing points (like on a home loan) must be amortized over the period of the loan. However, I was working on a simulation that asked if “Points on 30-year mortgage for the purchase of the principal residence paid on June 30 of the current year” could be deducted. I assumed (based on my notes) that this would have to be amortized. But the answer stated “Points paid, on a mortgage to buy or improve the primary residence, may be deducted in the year paid”. Do points have to be amortized in a refinancing situation only? Or not at all…? Help!

[Tax lady]

Per the U.S. Master Tax Guide:

“A cash basis TP cannot take a current deduction for prepaid interest. Instead, the TP must deduct prepaid interest over the period of the loan. Points on a home mortgage loan for the purchase or improvement of, and secured by, a principal residence are deductible in the year paid.”

I agree, the verbiage is a little tricky. I would just go with the fact that prepayment of interest (points) are deductible in the current year.

REG 8/15/14 (73); 11/13/14 (82)-expired 🙁
AUD 5/30/15 (80)
BEC 11/28/15 (75)
FAR 7/30/16

Studying with CPAexcel and Ninja notes/MCQ's/Flashcards

[Anonymous]

If there is one section of this exam that outdated review material should be avoided at all costs, it would be REG. I would strongly recommend you get some current review material, the examiners love to throw old tax law into this test as a wrong choice.

[Pinback14]

My understanding is that points incurred when purchasing a principal residence can be deducted in the year of purchase. Refinance points are generally amortized over the life of the loan. An exception is for refinance proceeds that are used to substantially improve the home can be deducted.

F - 96
A - 99
R - 95
B - 95

[Anonymous]

@ Tax Lady and @ Pinback14 – Thank you! Your combined comments cleared this up for me. 😉

[Author]

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