Refinancing points

[Tom Gross]

>Now wait a second. As I see it, the IRS just stated how they would
>*like* things to be. How does the tax code read? I'm pretty
>sure that the relevant section says "prepaid interest is deductable".
>In *any* loan situation, "points" are prepaid interest. Period.
>

According to my 1985-tax-year J.K. Lasser's, in the fine print,
if "points" are pre-paid interest they are deductable in the year
they are paid, but only if paying pre-paid interest is a common
practice in your area (whatever that means). If they are
"origination fees" they have to be deducted over the life of
the loan. (My own loan had one point of 2 and a half called
an origination fee, but I deducted it all because that's the
custom in my tribe). And of course we now know that points for
refinancing can't be deducted up front. Or rather you CAN deduct
the points, but you MAY not.

I agree that points for refinancing should be fully deductable in
the year they are paid given the deductability of mortgage interest,
but I think deductability of loan interest in general is a bad thing,
made even worse by special-casing home mortgages with tax reform.
One of the ironies of allowing the deduction of mortgage interest is
that it's supposed to make housing more affordable, when in fact all
it does is drive housing prices up. I would be interested in hearing
arguments in favor of preserving the mortgage interest deduction.

>
>Can the IRS just issue wish lists, and affect the tax code?

Pretty much. It may be confusing, but it keeps a lot of lawyers,
tax accountants, and real estate professionals in business. My
advice is to find a cheap, aggressive tax accountant who doesn't
tell you what he's doing. Or you can save money by getting all
your advice from the net.

Tom Gross
Apollo Computer, Inc.
Chelmsford, MA