In financing lingo, one point is equivalent to 1% of the loan value. Because they constitute prepaid interest, points are usually deducted ratably over the loan term. This rule would apply, for example, when a taxpayer purchases a rental real estate property–the points paid in such a transaction are amortized over the life of the loan. However, tax law provides a break for points paid on a mortgage to buy or improve a taxpayer’s principal residence, allowing them to be deducted in full in the year paid.
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