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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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