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The Online Advisor - May 1999
IRS gives taxpayers a break on deducting mortgage points
The IRS recently issued a private letter ruling that lets taxpayers make a choice in deducting points paid on a home mortgage. They can either be deducted in full in the year the home is purchased or pro rata over the life of the loan.
The ruling came as a result of a situation in which a couple purchased a home late in the year. Their deductions, including the mortgage points, totaled less than the standard deduction for the year. So they took the standard deduction on their tax return and got no tax benefit from the points they paid. The couple then asked the IRS if they could deduct the points over the life of their loan. The IRS said yes. Because the couple itemized their deductions thereafter, they were able to enjoy a tax benefit from the mortgage points.
If you take the standard deduction in the year you purchase a home, keep this ruling in mind. By amortizing the mortgage points over the loan's life, you'll enjoy a tax break that would otherwise be lost.