Question

On April 1, year 1, Mary borrowed $200,000 to refinance the original mortgage on her principal residence. Mary paid 3 points to reduce her interest rate from 6 percent to 5 percent. The loan is for a 30-year period. How much can Mary deduct in year 1 for her points paid

Answer 1

$6,000

Step-by-step explanation:

The three point that Mary purchased to lower her monthly payment are equal to $200,000 x 3% (each point is 1% of the principal) = $6,000

The IRS considers mortgage points prepaid mortgage interests, so it allows borrowers to deduct them as part of itemized deductions. Borrowers can elect to deduct them in the year that they were paid, in this case year 1.

Answer 2

The answer is $150

Step-by-step explanation:

Mary paid =$200,000*3%=($6,000/360)*9=$150

As she paid on April 1st therefore 9 months have been taken in our calculation.

The period 360 is worked out like this=12*30=360

Therefore formula is Number of months * Number of year