Discussion:Points amortization

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Discussion Forum Index --> Tax Questions --> Points amortization

DR BRISKET (talk|edits) said:

21 March 2006
I have a client who refinanced his home in 2003. The refinancing included $2,520 in points that I set up to be amortized over the length of the loan which was for 30 years. Presently, there is still nearly $2,400 in unamortized points. The client made payments on the note through mid-year, then he turned it back to the mortgage company as he could no longer pay on it. According to my client, the foreclosure firm has found a buyer for the home, and it will be sold in 2006, and the proceeds will be sufficient to clear the remaining mortgage. My question is: can my client deduct the remaining $2,400 in points in 2005?

Dennis (talk|edits) said:

21 March 2006
Depends, I think, whether disposition is 2005 or 2006. If he exchanged deed for mortgage balance 2005. If he gets cash in 2006, it's a 2006 disposition.

DR BRISKET (talk|edits) said:

21 March 2006
I don't think the client will receive any cash. My understanding of a foreclosure is if there are sufficient proceeds to clear the mortgage on a foreclosure sale, the debtor is merely relieved of the indebtness--he would receive no cash whatsoever if the proceeds exceeded the mortgage balance. If a sale does not generate sufficient funds, the mortgage company can still go after the debtor for the difference. All my client told me was that he turned his home back to the lender in the fall of 2005.

Dennis (talk|edits) said:

21 March 2006
The amortization is over the life of the loan. If your position is that the loan continued to exist after he turned the house in then you have to wait.

Skhyatt (talk|edits) said:

21 March 2006
If a taxpayer refinances a mortgage loan for the second time or pays the loan off early, any unamortized points relating to that first loan are deductible in the year that loan is paid off. Internal Revenue News Release 2003-127, 11-3-03. Mortgage ending early. 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. A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Pub. 530

Dennis (talk|edits) said:

21 March 2006
Ah yes, but is the event turning over the house, the house being sold, or the 1099-C being issued when the statute of limitation runs out?

Skhyatt (talk|edits) said:

21 March 2006
Good question. I would say that turning the house would not be a qualifying event. An event such as a sale or foreclosure that would, I assume end the mortgage, would qualify and as you said earlier, he would have to wait until 2006 for the house to sell.

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