- 20 -
(1940). Payments for a lender's services in connection with a
loan are generally capital expenditures and must be amortized
over the life of the loan. Goodwin v. Commissioner, 75 T.C. 424,
440-441 (1980), affd. without published opinion 691 F.2d 490 (3d
Cir. 1982).
Points are amounts paid by a borrower for loan processing.
Cao v. Commissioner, T.C. Memo. 1994-60, affd. without published
opinion ___ F.3d. ___ (9th Cir., Feb. 29, 1996). Fees paid for
loan processing can be for the use or forbearance of money or for
a lender's services. Id. Points paid for the use or forbearance
of money are deductible as prepaid interest. Id.
A cash basis taxpayer must generally amortize prepaid
interest over the life of the loan. Sec. 461(g)(1). However,
points are immediately deductible if they are paid for
indebtedness incurred in connection with the purchase or
improvement of the taxpayer's principal residence and the loan
is secured by the home. Sec. 461(g)(2).
Petitioners deducted $4,457.50 for points on their 1992
return. Mr. Frank testified that this amount includes $1,980
from refinancing their Whitecliff Drive residence, $250 from a
line of equity on Whitecliff Drive, and $2,227.50 from buying
their new residence at Luann Court. Petitioners lost the records
for all three transactions. They did not contact the bank to get
the relevant documents or otherwise try to reconstruct the
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011