Gary E. and Rebecca L. Hurley - Page 8

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          purchase or improvement of, and secured by, the principal                   
          residence of the taxpayer”.  Sec. 461(g).                                   
               Section 461(g)(2) provides two instances where a taxpayer              
          may deduct the entire amount of points paid to refinance a                  
          personal residence:  when the taxpayer refinances in order to               
          purchase a new home or refinances to make improvements to the               
          home.  Consequently, points paid when the taxpayer refinances a             
          personal residence simply or only for the purpose of obtaining a            
          lower payment are not deductible.  Kelly v. Commissioner, T.C.              
          Memo. 1991-605.  Respondent determined that, because petitioners            
          enjoyed a lower monthly payment after refinancing, they must                
          amortize the points over the life of their mortgage.  That fact             
          alone, however, is not decisive.  Petitioners contend that                  
          section 461(g)(2) applies because they refinanced to enable them            
          financially to complete certain improvements to their principal             
          residence, which they, in fact, completed.                                  
               Petitioners presented evidence at trial of numerous                    
          improvements they made to their principal residence between 1999            
          and 20034 totaling $18,735.  During that period, petitioners                
          saved $300 per month as a result of their lower mortgage payment,           
          for an approximate savings of $14,400, which enabled them to                

               4Petitioners again refinanced the mortgage on their                    
          principal residence sometime in 2003; however, only the                     
          improvements made pursuant to the 1999 refinancing and prior to             
          2003 are before the Court here.                                             

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