Mortgage points may be currently deductible.

• Author: Blum, Richard A.
• Position: Brief Article

New safe harbor

To minimize possible disputes regarding the deductibility of points paid to acquire a principal residence, Rev. Proc. 92-12 allows "as a matter of administrative practice," a current deduction for cash method taxpayers, for tax years beginning after 1990, if the payments meet the following criteria.

* They must be clearly designated on the Uniform Settlement Statement (Form HUD-1 or equivalent) as points incurred in connection with the debt (e.g., "loan origination fees," "loan discount," "discount points" or "points").

* They must be computed as a percentage of the debt's stated principal amount.

* They must conform to an established business practice of charging points for loans to acquire personal residences in the area in which the residence is located. The points paid must not exceed the amount generally charged in that area. Amounts designated as points that are paid in lieu of amounts ordinarily stated separately on the settlement statement (such as appraisal fees, inspection fees, title fees, attorney fees property taxes and mortgage insurance premiums) are not deductible as points.

* They must be paid to acquire the taxpayer's principal residence and the loan must be secured by that residence.

* They must be paid directly...