On July 1 of the current year, Marcia purchases a new home and borrows $320,000. Marcia is required to pay two points on the loan. The loan is secured by the residence and the charging of points is an established business practice in the area. The term of the loan is 20 years, beginning on July 1 of the current year. How much, if any, of the points may Marcia deduct in the current year?a. $0 b. $160 c. $3,200 d. $6,400
Business · High School · Wed Jan 13 2021
Answered on
c) $3,200
To calculate the amount paid for points: 2 points * 1% * $320,000 = 0.02 * $320,000 = $6,400
For the year in which Marcia buys her new home, she can deduct the entire $6,400 in points on her loan, provided the points were charged for the use of money (as opposed to points charged for services, like preparation costs), the loan was used to buy or build her main home, and paying points is an established business practice in the area where the loan was made. There are additional criteria such as the loan is secured by the home, the points did not replace amounts typically stated separately on the settlement sheet, and the funds she provided at or before closing were at least equal to the points charged.