Finance
A Missouri borrower pays $3,600 in prepaid interest (points) at closing. This is recorded on taxes as:
AA non-deductible expense
BDeductible mortgage interest in the year paid (for a primary residence purchase, subject to IRS rules)✓ Correct
CA capital improvement
DAn HOA fee
Explanation
Points paid to obtain a mortgage on a primary residence are generally deductible as mortgage interest in the year paid, subject to IRS requirements and limitations.
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Key Terms to Know
Discount Points
Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
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