Magazine article The CPA Journal

Mortgage Points - IRS Spells out the Rules

Magazine article The CPA Journal

Mortgage Points - IRS Spells out the Rules

Article excerpt

In general, points paid in connection with debt incurred in connection with the purchase or improvement of a principal residence are deductible in the year paid. As with any generalization, the exceptions to and the execution of the rule can be complex and confusing. (See "Winning the Deductibility Game on Points," The CPA Journal, February 1992, p. 24.) In Rev. Proc. 92-12, the IRS has summarized the requirements for deductibility from its perspective, to minimize possible disputes with taxpayers.

Beginning in 1991, the IRS will, as a matter of administrative practice, allow the deduction in the year paid if:

* The amounts are clearly designated points on the settlement statement. Labelling the amounts as "loan origination fees," "loan discount" "discount points," or "points" will qualify;

* The amounts are computed as a percentage of the loan;

* The amounts conform to what is normally charged in the area. Amounts labelled as points that are paid in lieu of amounts ordinarily stated separately (such as appraisal fees, inspection fees, etc. …

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