johnson@hplabs.UUCP (Mark Scott Johnson) (09/04/83)
[From IRS Publication 545, "Interest Expense":] "Points" paid by a borrower. The term "points" is sometimes used to describe the charges paid by a borrower. They are also called loan origination fees [common in California], maximum loan charges, or premium charges. If the payment of any of these charges is only for the use of money, it is interest. [In other words, if your bank doesn't itemize its charges, they're probably not considered points.] You may fully deduct the amount you pay as points in the year of payment only if the loan is used to buy or improve your principal home and is secured by that home. The charging of points has to be an established practice in your area. ... If these conditions are not met [for example, points for refinancing], points are treated as interest paid in advanced. They must [sic] be spread over the life of the mortgage, and are considered as paid and are deductible over that period [that is, amortized]. [Elsewhere in the publication it says that most all loan-related fees except points are added to the property's basis, and will thus reduce your capital gain (or increase your capital loss) at the time of sale. In summary, "loan points" are special!] -- Mark Scott Johnson