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In general.--If the taxable income of the taxpayer is
computed under the cash receipts and disbursements
method of accounting, interest paid by the taxpayer
which, under regulations prescribed by the Secretary,
is properly allocable to any period–-
(A) with respect to which the interest
represents a charge for the use or forbearance of
money, and
(B) which is after the close of the taxable
year in which paid,
shall be charged to capital account and shall be
treated as paid in the period to which so allocable.
The parties do not dispute that petitioners prepaid interest
in 1998. Nor, apparently, do the parties dispute that the
prepaid interest should be amortized over the life of the loan.13
The only dispute is whether the period to which the interest
relates should be determined by the terms of the loan when it was
entered into--in this case, 30 years--or the actual life of the
loan, foreshortened as it was by petitioners’ subsequent
refinancing of March 2000.
The interest which petitioners prepaid “[represented] a
charge for the use or forbearance of money” for the entire
contractual term of the loan. For 1999, petitioners are
13 Under certain circumstances, points paid in connection
with the purchase or improvement of a principal residence may be
deductible. Sec. 461(g)(2). Petitioners have not alleged, and
we do not find, that they paid the loan origination fee in
connection with the purchase or improvement of their principal
residence. We therefore find that the exception of sec.
461(g)(2) does not apply. See, e.g., Kelly v. Commissioner, T.C.
Memo. 1991-605; Fox v. Commissioner, T.C. Memo. 1989-232, affd.
without published opinion 943 F.2d 55 (9th Cir. 1991).
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