Points, because they constitute prepaid interest, with the exception of the purchase of the taxpayer’s primary residence, are deducted ratably over the term of the loan. The following are examples of how this rule applies:

Rental Property - Points paid for a purchase money trust deed (TD), the refinance of an acquisition loan, or an improvement loan for rental property are not currently deductible and must be amortized over the life of the loan.

Investment Property - Points paid for a purchase money TD or the refinance of an acquisition loan are not currently deductible and must be amortized over the life of the loan. In addition, the annual amount would be treated as investment interest on Schedule A.

Principal Residence - Points, if otherwise deductible, may be currently deductible if (1) the “principal residence exclusion” described below applies, (2) the manner of payment qualifies, and (3) the “other requirements” are satisfied.

Second Home - Points, if otherwise deductible, must be amortized over the life of the loan.