Points on a Refi

[taxriv]

Is it ever okay to take all the points in the first year on a regular re-fi rather than ratably over the life of the mortgage? The person paid $5,350 points on a 30 year refi for which she did for the better rate and also to get money for a new roof damaged by Sandy.

[taxea]

there are certain situations where the points can be taken in the first year. Read Pub 17 on points

[Burke]

It has to be financing obtained to buy or build your main home, generally. If you borrow to improve your home, you can deduct those points which are attributable to the improvement. Not sure whether repairing a damaged roof would fall under that category. See Tax Topic 504.

[FEDUKE404]

Does not appear to be acquisition debt

Possible wiggle room, but likely not on a simple refi.....my guess is the "home improvement loan" must be a new, additional loan and not refinancing an old loan. Perhaps in the eyes of the IRS quasi-acquisition debt or something similar ?

FE

Deduction Allowed in Year Paid

You can fully deduct points in the year paid if you meet all the following tests.

1.Your loan is secured by your main home. (Your main home is the one you ordinarily live in most of the time.)

2.Paying points is an established business practice in the area where the loan was made.

3.The points paid were not more than the points generally charged in that area.

4.You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them. Most individuals use this method.

5.The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes.

6.The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. The funds you provided are not required to have been applied to the points. They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. You cannot have borrowed these funds from your lender or mortgage broker.

7.You use your loan to buy or build your main home.

8.The points were computed as a percentage of the principal amount of the mortgage.

9.The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. The points may be shown as paid from either your funds or the seller's.

Note. If you meet all of these tests, you can choose to either fully deduct the points in the year paid, or deduct them over the life of the loan.

Home improvement loan. You can also fully deduct in the year paid points paid on a loan to improve your main home, if tests (1) through (6) are met.

[ddoshan]

Is it ever okay to take all the points in the first year on a regular re-fi rather than ratably over the life of the mortgage? The person paid $5,350 points on a 30 year refi for which she did for the better rate and also to get money for a new roof damaged by Sandy.

See FEDUKE point 6. Not likely the client paid any upfront cash in the ReFi.

[FEDUKE404]

About assuming

See FEDUKE point 6. Not likely the client paid any upfront cash in the ReFi.

Agreed, but I long ago learned "likely" is a poor choice of words or actions when dealing with taxes.

I assume a crafty individual could have "paid" the funds, not unlike those who play games with writing a check for annual IRA fees (but not of the asset-based type).

FE