Points


E

Ed Durall

Let's say you close on a new principal residence late in the
year, and you pay some points. The points meet all the
conditions to be deducted in full, but you can't itemize
that year. Everything I've read indicates you may amortize
the points over the life of the loan. Do you start
amortizing in the year of the purchase? If so, how is that
done? Amortization of points is normally done on Schedule
A. But if there's no Schedule A, how is it handled?

You elect to amortize the points, but even when you've paid
a full year's mortgage payments and real estate taxes, you
still don't have enough to itemize. What happens to the
points?

I've read a lot of information about this, but I can't seem
to get full clarification on how to handle it. One source
says to consult Chapter 5 of Pub. 535. That pub says to
treat it as an OID. I can't seem to get that to work.

If anybody can shed some light on this, I'd appreciate it.

Ed
 
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H

Herb Smith

Let's say you close on a new principal residence late in the
year, and you pay some points. The points meet all the
conditions to be deducted in full, but you can't itemize
that year. Everything I've read indicates you may amortize
the points over the life of the loan. Do you start
amortizing in the year of the purchase? If so, how is that
done? Amortization of points is normally done on Schedule
A. But if there's no Schedule A, how is it handled?
You have a deduction for 12/360 of the points paid (assuming
you have a 30-year mortgage and owned the house for 12
months of the year). If you can't itemize on Schedule A that
year, you lose the deduction.
You elect to amortize the points, but even when you've paid
a full year's mortgage payments and real estate taxes, you
still don't have enough to itemize. What happens to the
points?
If the interest payments, property taxes, and amortized
points total LESS than the standard deduction, you "lose"
all of them.
 
D

David Woods, EA, ChFC, CLU

Ed Durall said:
Let's say you close on a new principal residence late in the
year, and you pay some points. The points meet all the
conditions to be deducted in full, but you can't itemize
that year. Everything I've read indicates you may amortize
the points over the life of the loan. Do you start
amortizing in the year of the purchase? If so, how is that
done? Amortization of points is normally done on Schedule
A. But if there's no Schedule A, how is it handled?
It's always done on Sch. A. If you don't itemize, well
them's the breaks.
You elect to amortize the points, but even when you've paid
a full year's mortgage payments and real estate taxes, you
still don't have enough to itemize. What happens to the
points?
No tax benefit.
 
M

MTW

Ed said:
If anybody can shed some light on this, I'd appreciate it.
Points are going to be subject to the same "allowed or
allowable" concept that applies to depreciation. In other
words, you are deemed to have taken it, beginning when the
asset is placed in service, regardless of whether any tax
savings actually result.

In cases I've had where the points never provided any tax
benefit until the year of payoff (when, say, a larger
mortgage/more expensive house was acquired), I have
nevertheless only deducted (upon payoff) what would have
been the unamortized balance of the points at that time. I
guess what I'm saying is that I'm not sure if one can really
elect NOT to be subject to amortization IF you did not
deduct the points in full in the year of purchase. Or, in
other words, failing to claim the deduction in full subjects
you to amortization, like it or not.

Different rules MIGHT apply in the case of a business,
rental or investment property.

MTW
 
H

Harlan Lunsford

Ed said:
Let's say you close on a new principal residence late in the
year, and you pay some points. The points meet all the
conditions to be deducted in full, but you can't itemize
that year. Everything I've read indicates you may amortize
the points over the life of the loan. Do you start
amortizing in the year of the purchase? If so, how is that
done? Amortization of points is normally done on Schedule
A. But if there's no Schedule A, how is it handled?

You elect to amortize the points, but even when you've paid
a full year's mortgage payments and real estate taxes, you
still don't have enough to itemize. What happens to the
points?

I've read a lot of information about this, but I can't seem
to get full clarification on how to handle it. One source
says to consult Chapter 5 of Pub. 535. That pub says to
treat it as an OID. I can't seem to get that to work.
We went down this road before, maybe two, three years ago.

Points on new residence are ONLY deductible in the year you
buy the house. No amortizing; according to IRS, not a
choice.

So, buy the house in December, no payments that year, and
points not enough to put you into itemizing, you're out of
luck.

ChEAr$,
Harlan Lunsford, EA n LA
 
A

Arthur Kamlet

Ed Durall said:
Let's say you close on a new principal residence late in the
year, and you pay some points. The points meet all the
conditions to be deducted in full, but you can't itemize
that year. Everything I've read indicates you may amortize
the points over the life of the loan. Do you start
I'd put it more strongly: Points, by default, are
amortzable over the life of the mortgage. However, if you
meet all the tests, you can elect to deduct the points in
full in the year paid.

If you did not have enough itemizable deductions to file
schedule A and you do not elect to deduct the points in
full, then you are treated as if you did take amortze them.

Example: Points= $3600 on a 30 year loan, paid in November.

You do not elect to deduct the full 3600 in the year paid.

So you treat the points as if you had deducted 2 months
worth of points in that year even if you never filed a
schedule A, and you have 358 months remaining in which to
amortize that 3600. At $10/month, you would assume $20 of
the 3600 were taken in the year paid. The next year you
would have a $120 points deduction on schedule A.
amortizing in the year of the purchase? If so, how is that
done? Amortization of points is normally done on Schedule
A. But if there's no Schedule A, how is it handled?
See above. Assume you did itemize the two months @
$10/month.
You elect to amortize the points, but even when you've paid
Technicaly amortization is not an election; taking the full
deduction is, if you meet all the tests.

You indicate this election simply by entering the full
amount of ponts paid on schedule A in the year paid.
a full year's mortgage payments and real estate taxes, you
still don't have enough to itemize. What happens to the
points?
You "lose" the two months in my example, but get to take the
other 358 months at $10/month in future years.
I've read a lot of information about this, but I can't seem
to get full clarification on how to handle it. One source
says to consult Chapter 5 of Pub. 535. That pub says to
treat it as an OID. I can't seem to get that to work.
It is interest you pay. Don't be concerned about OID.

__
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
 
A

A.G. Kalman

Harlan said:
Ed Durall wrote:
We went down this road before, maybe two, three years ago.

Points on new residence are ONLY deductible in the year you
buy the house. No amortizing; according to IRS, not a
choice.

So, buy the house in December, no payments that year, and
points not enough to put you into itemizing, you're out of
luck.
I don't have the citation handy but here's a statement from
the IRS that says you can amortize:
http://tinyurl.com/6k9zt
 
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D

David Woods, EA, ChFC, CLU

Harlan Lunsford said:
Ed Durall wrote:
We went down this road before, maybe two, three years ago.

Points on new residence are ONLY deductible in the year you
buy the house. No amortizing; according to IRS, not a
choice.

So, buy the house in December, no payments that year, and
points not enough to put you into itemizing, you're out of
luck.
What is your authority for this? §163 and a tax court
ruling from I believe 1997 would completely disagree with
you in that you CAN amortize points if you do not deduct
them in the year of purchase.
 
A

Arthur Kamlet

Harlan Lunsford said:
Ed Durall wrote:
We went down this road before, maybe two, three years ago.

Points on new residence are ONLY deductible in the year you
buy the house. No amortizing; according to IRS, not a
choice.

So, buy the house in December, no payments that year, and
points not enough to put you into itemizing, you're out of
luck.
Very slimmed down Pub 17 for 2003, page 166. Points:

General rule: You generally cannot deduct the full amount of
points in the year paid. Because they are prepaid interest,
you generally must deduct them over the life (term) of the
mortgage.

Exception: You can fully deduct points in the year paid
if you meet al of the following [9] tests.

So the default is if you have a house and are allowed to
deduct points, you generally must amortize them. Only if
you meet the 9 tests can you elect to deduct them in full in
the year paid.

The election is to deduct in full; amortizing is not an
election, it is the default condition. You make the
eleciton to deduct in full by, um, deducting in full.

__
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
 
H

Herb Smith

Harlan Lunsford said:
We went down this road before, maybe two, three years ago.

Points on new residence are ONLY deductible in the year you
buy the house. No amortizing; according to IRS, not a
choice.
Sorry, Harlan, there IS a choice. Points can ALWAYS be
amortized, but if you meet certain tests, you CAN elect to
deduct them in the year of closing. You do this merely by
claiming them on your Schedule A. No Schedule A? (not enough
to itemize) then you are SOL for that year. I believe this
is all explained in Pub 936.
So, buy the house in December, no payments that year, and
points not enough to put you into itemizing, you're out of
luck.
But the next year, you MAY be able to deduct 12/360 of the
points (30-year mortgage). Same for any year in the future
that you qualify to itemize your deductions.
 
H

Harlan Lunsford

Sorry, Harlan, there IS a choice. Points can ALWAYS be
amortized, but if you meet certain tests, you CAN elect to
(snipped....)

Okay, I stand corrected. That road I referred to , must
have been a long, long time ago. Pre 1997 even.

Thanks, all.

ChEAr$,
Harlan Lunsford
 
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R

rick++

Let's say you close on a new principal residence late in the
year, and you pay some points. The points meet all the
conditions to be deducted in full, but you can't itemize
that year.
You might be able to itemize by accelerating some 2005
deductables into 2004, e.g. property taxes, state taxes,
mortgage payments. But you have to this by Dec.
 

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