Points not claimed upon early payoff

[mactoolsix]

We have a new client. Previous returns show refinance points being paid over the life of the loan. The loan was paid off several years ago. The previous preparer missed taking the deduction for the balance of the points, instead continuing the yearly deduction.

Pub 936 & 530 both state "If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends." Nothing is said about what may be done if the T/P did not take the balance of points deduction. I feel since it says "you can deduct," the T/P could continue to take the same deduction until the balance of points paid is exhausted. Another EA feels the deduction should be dropped and the T/P simply would lose out on deducting the balance of points paid.

Opinions?

Thanks,
Mike

[JohnH]

That's a very interesting question. I have just always assumed that it was a "use it or lose it" situation with the unamortized points. That is, if they are eligible to be written off in the year the loan is paid off, they must be deducted in that year or the deduction is lost forever. But I don't actually have a cite or reason for that assumption.

With all the back-to-back refi's from the past couple of years, this could be a question that will come up more and more in future years. I'll be interested in hearing the final word from others on this question.

[Burke]

I have not dealt with this particular situation before, but I don't see a good reason why he couldn't continue taking the deduction over the original life. The IRS is coming out ahead. I assume the pay-off happened over 3 yrs ago so no amendment possible? I have never seen any rule which says the write-off in the year mtge is eliminated is mandatory.

[Kram BergGold]

Possible Scenario

Maybe the new loan was with the same lender. In this case, an immediate write off is not allowed. You just continue the amortization. If within the SOL and new loan was not with same lender I might amend. Otherwise I would just continue the amortization.

[mactoolsix]

New loan

Maybe the new loan was with the same lender. In this case, an immediate write off is not allowed. You just continue the amortization. If within the SOL and new loan was not with same lender I might amend. Otherwise I would just continue the amortization.

This is true, however there is no new loan. T/P paid off the mortgage and did not refi. Loan was repaid about 5 years ago, and the remaining points amortization is about $3,000 or $330 @ year. Would hate to just delete this.

Thanks,
Mike

[Kram BergGold]

Keep amortizing

The opportunity to deduct the points passed 5 years ago. You can't amend, so I suggest you just keep amortizing.

[ChEAr$]

The opportunity to deduct the points passed 5 years ago. You can't amend, so I suggest you just keep amortizing.

Disagree. If there is no current loan in place on which points were paid, amortizing the expired points won't fly.

[Gene V]

Not sure

What the Pubs. Say about points, if you don’t qualify to deduct the points in the year paid, then you can amortizes the points over the life of the loan.

From Pub. 17, chapter 23
Mortgage ending early. If you spread your deduction for points over the life of the mort-
gage, you can deduct any remaining balance in the year the mortgage ends.

Notice it say can deduct, doesn't say you have too. I'm assuming you continue deducting the points.

Like I say, I'm not sure

[ChEAr$]

I don't think the writers at IRS really understand the difference between words like "can", "may", must". Anyway.....

If one disposes of a business asset in 2008 and neglects to tell preparer about it, is it right to continue taking depreciation on it in subsequent years?

Same with points. No loan in place, no deduction.