Question

A small office building is purchased for $1,200,000 with a balloon mortgage that is due at the end of year 10. Payments are based on a 25 year amortization period. If one point was charged at closing, what annual amount can be deducted for tax purposes?

Answer 1

Answer:

$12,000 during the first year or $1,200 per year during 10 years  

Explanation:

The IRS considers mortgage points as interest paid in advance, and generally individuals and small businesses will deduct them entirely during the current year. But the taxpayer can choose to deduct that amount ratably over the life of the loan (in this case 10 years). Of course most people chooses to deduct them completely during the first year because the IRS doesn't recognize any interest.