Discussion:Mortgage points

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Discussion Forum Index --> Tax Questions --> Mortgage points


Shaunna (talk|edits) said:

11 October 2006
I just want to verify that if a person who takes out a mortgage and incurrs points on a home that is to be remodelled and then resold, theoretically within a year, that the buyer must amortize the points - so if they purchase the house on 06/30 then they would only get 1/2 the points that year. Is this correct?

Death&Taxes (talk|edits) said:

11 October 2006
I believe the points should be amortized over the length of the mortgage, but writing off the balance in the year the property is sold. On a 15 year mortgage they would take 1/30th this year, and 1/15th per year until year of sale. I will leave it those more attuned as to whether the points are part of the cost of the house, or are deducted separately.

Shaunna (talk|edits) said:

11 October 2006
I probably should mention that the note was for 1 year and in June 2006 was extended for another 6 months. Pro Series is giving them the entire amount even though the date in service is June 30. So, I want to know if I should change the amount. Also, how do I classify these points for amortization? Are they considered 197 intangible? I don't think so but I can't seem to find the another code that fits.

1040man (talk|edits) said:

11 October 2006
If you are using ProSeries ... just fill out the "Other Points worksheet" with your info and it will work for you.

JR1 (talk|edits) said:

October 11, 2006
If this is a residence, btw, and the initial acquisition mortgage,then it IS deductible up front regardless of what they plan to do with it.

Jdugancpa (talk|edits) said:

11 October 2006
Try this link for amortization code section.

http://www.taxalmanac.org/index.php/Discussion:Amortize_Code_Section

Shaunna (talk|edits) said:

11 October 2006
Jdugancpa - so are you suggesting that I use Section 263? Also, JR1, this is a home remodel and sell not a purchase of the client's residence, which is why I am wanting to clarify these seemingly small but yet possibly big issues.

Does 263 sound right?

Captcook (talk|edits) said:

11 October 2006
I usually go with 461(g).

Chautauqua (talk|edits) said:

11 October 2006
On a new purchase mortgage, taxpayer can elect to expense or amortize points over the life of the loan.

On a refinance, points paid must be amortized unless the loan is incurred to finance home improvements and points are paid from separate funds.

When amortized, the unamortized points are written off if and when the loan is extinguished (paid off, home sold, foreclosure or refinanced).

Shaunna (talk|edits) said:

11 October 2006
So, then I will amortize in 2005 but in 2006 if they refinanced and did not just allow more interest on the loan, the points will go away.

Recap: client is a partnership who purchased house to remodel and resell. incurred mortgage and points on 06/30/05. I now know that on 06/30/06 the loan was extended (words from client) for another 6 months because they have not yet sold the house, it is on the market but has not sold yet. I will then take 1/2 of the points in 2005 - or do I take 1/3 due to my current knowledge - and amortize in 2005.

Does this seem right?

Jdugancpa (talk|edits) said:

11 October 2006
Shauna, the conclusion of the thread I linked to was that 263 is not the appropriate section. 461 is the correct section.

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