A great letter on points

I wanted to follow up with you about what I believe to be a new tax code referring to a client's ability to deduct the entire amount of origination and/or discount points on a refinance for the tax year the refinance occured, rather than amortizing the points over the life of the loan. This is a new decision that has came out, and I wanted to share this with you and get your opinion on it. It may help set you apart from other CPAs that may not be aware of this. Here is the information on the tax code.

I might be mistaken, but I would like to get your interpretation.

Here is a copy of the letter http://www.taxsandiego.com/kiplingerpointsletter

The message is ready to be sent with the following file or link attachments:

Thanks Brendin that’s an interesting case I'm not really sure what they were thinking in trying to exclude the 30% of income for disability it that wasn't on the tax return. I’m sure the points issue never would have came into question. Here is how I have always written off points. Here is how the Irs defines go to page 5.

http://www.irs.gov/pub/irs-pdf/p936.pdf as you can see it’s a very lose interpretation. As a matter of fact most tax software has a much stricter criteria which they use to define what exactly points are. Not really surprising when we live in such a litigious society. The software companies worry about protecting their own selves from potential lawsuits from the clients using their software.

Per Irs code: I'm going to simplify how points are written off here.

1. New home purchase: 100% deductible if paid to purchase a home or build a home if the amount of points are equal to or less then the amount buyer's down payment plus the amount the seller paid or credited to the transaction up to 100% of the home's value

2. Refinance: points must be amortized over the life of the loan with one big exception if the loan proceeds were used to substantially improve the property up to 100% of the homes value. If it’s a 125% LTV loan you must amortize the points paid that are related to the amount 25% over the homes value.

3. Home Improvement loans: fully deductible in year paid if secured by residence and payment of points is an established business practice in that area.

4. Home equity line of credit points: amortized unless? The big exception applies here to. If the loan proceeds were used to substantially improve the property up to 100% of the homes value they are deductible.

If a client has the receipts to substantiate home improvements I write-off the points paid in most mortgage loan transactions fully in the year paid. It's never been questioned because it is correct. Although, I'm sure many of the tax chains large accounting firms drop the ball on this many often because we have become such a litigious society it is probably easier for them not to write these things off even though it is the right thing to do.

Which brings me to my next subject: This is a great opportunity for us to start a Blog which I will use for both of us to promote ourselves. I carefully look this material over and edit it. Can I use your name and this material?