Principal Residence Exception
An exception to the rule requiring points to be amortized applies to taxpayers who pay points in connection with the purchase or improvement of their principal residence (Sec 461(g)(2)). Under this exception, a taxpayer is allowed a current deduction of the full amount of the points paid. To qualify for the exception, both of the following must also apply:
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Charging points must be an established business practice in the geographic area where the loan is made;
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The points charged cannot exceed the number of points usually charged in the area.
Option to Amortize Points on Home Purchase - Letter Ruling 199905033 states that a home buyer may amortize home loan points instead of treating them as currently deductible interest. This ruling is helpful for the home purchaser who finds that a deduction of the points in the year of purchase is of no tax benefit (e.g., the taxpayer didn’t have enough deductions to itemize).