A small office building is purchased of $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?

Question

Quizplus · Accepted Answer

Points paid on a mortgage for the purchase of a primary residence are generally deductible in the year they are paid. Since 1 point equals 1% of the loan amount, 1% of $1,200,000 is $12,000. However, the question asks for the annual amount that can be deducted, not the total amount. Points are a form of prepaid interest; therefore, if they are deductible, they are deducted in the year they are paid. There is no annual deduction for points in subsequent years after the initial payment, making the premise of the question slightly misleading. However, based on the options provided and the typical understanding of the question, the initial deduction in the year of payment is considered the "annual" deduction for that year.

A Small Office Building Is Purchased of $1,200,000 with a Balloon