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Petitioner next argues that she is entitled to claim a
deduction under section 163 of $1,250 for prepaid interest
(points) that she paid in connection with the purchase of her
house, and that she is entitled to amortize and deduct a portion
of the remaining $1,250 payment of points as a rental expense on
Schedule E. Respondent argues that petitioner is not entitled
to claim any deductions for the $2,500 payment of points.
In order to deduct points paid in the connection with debt
acquired for the purchase of a principal residence, petitioner
must elect to itemize her deductions. Secs. 63(b), 163(h)(2)
and (3). Petitioner claimed the standard deduction and did not
itemize. Therefore, she is not entitled to deduct $1,250 of the
points paid in connection with the debt acquired to purchase her
principal residence.
Neither is petitioner entitled to deduct the full amount of
the $1,250 of points paid in connection with her purchase of
residential rental property. Section 461(g) provides that in the
case of a cash basis taxpayer the prepayment of interest is not
deductible in the year of payment, but must be capitalized and
deducted ratably over the term of the loan to the extent that the
interest paid represents the cost of using the borrowed funds
during each tax year in the term. Petitioner has not presented
any evidence as to the term of, or rate of interest on, the
$125,000 mortgage loan.
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