Points paid on Mortgage

[sami]

Taxpayer sold their old home which was their primary residence and purchased a new home as a primary residence in a different state with a new mortgage and paid points in the amount of $31,000 on the mortgage of 688K. He paid points close to 4.58%. I am I want to clarify if the points paid in such a large amount and reported on form 1098 should be deducted on schedule A in full in year of purchase or be amortized? If I amortize the points they would not qualify to itemize in future years because their standard deduction will be higher than their itemized deduction and will not get any tax benefit. On the other hand, if I deduct the points on schedule A, it will show a large itemized deduction for 2023 and I do not want it to have any future issues with this return.

Any guidance will be helpful. Thanks

[kathyc2]

See Pub 936. One of the requirements to deduct all in year paid is points paid weren't more than points generally charged in that area.

[Rapid Robert]

You're saying you already have a 1098 form showing the amount as points? Points are simply pre-paid interest, so there should be some evidence somewhere that the loan rate is lower than the normal rate for the area. There are various other loan origination fees that are not points but are sometimes confused for them on closing statements. Nevertheless, with a 1098 showing points, it's hard to see why you wouldn't include it on Schedule A per IRS guidance.

"If I amortize the points they would not qualify to itemize in future years because their standard deduction will be higher than their itemized deduction and will not get any tax benefit."

There are several false assumptions here. First, surely you are aware that the standard deduction will drop back to half of what it is now, with full deduction of SALT, when the Temporary Cuts and Jobs Act changes expire in less than two years.

Then, you and your client need to understand that anytime you take the standard deduction, you are winning because you are getting a larger deduction than what you actually spent. Itemizing is usually worse, because due to numerous limitations and exclusions, you rarely get a full tax deduction commensurate with what you paid.

[FEDUKE404]

With current mortgage interest rates, one would think the annual interest paid on a $688k mortgage, and appropriate property taxes (even if SALT limited), would on their own exceed the standard deduction.

Am I missing something?

FE