Stuart A. Bronstein wrote:

- quote -

Upon further reflection, perhaps the same rule should apply
to negative amortization that applies to unamortized points,
it would depend on whether they were refinanced with the
same lender or not.

Just a thought.

--
================================================== ======================
Ian Pilcher i.pilcher[at]comcast.net
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"steve" <mtbdude1[at]yahoo.com> wrote:

- quote -

A reverse mortgage is an example of a negative amortization
loan. According to IRS Revenue Ruling 80-248, interest on a
reverse mortgage is deductible by the borrower when it is
actually paid. I say your CPA friend is on the hook for
lunch.

Frederick Lorca

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Ian Pilcher <i.pilcher[at]comcast.net> wrote:
- quote -

If it gets added to principal immediately, isn't that like
borrowing the money to pay the interest? If so, wouldn't it
be considered paid at that time?

Stu

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Harlan Lunsford <hlunsford[at]bellsouth.net> wrote:
- quote -

That's exactly it. Here in California where the price of
real estate is so high (you can't get a studio condo in a
slum in San Francisco for under $500,000), this kind of loan
is not uncommon. The unpaid interest gets added to
principal. At some point the piper gets paid - I suppose
there's a balloon payment due in five years or so.

Stu

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"steve" <mtbdude1[at]yahoo.com> wrote:

- quote -

Is the interest otherwise deductible? That is, is the loan
"qualified home mortgage debt", or are the proceeds
traceable to use in business or for investment? If so, and
the loan is refinanced with a new lender, you win. If it's
refinanced with the same lender, your CPA sort of wins
(generally, the accrued interest would be deducted pro rata
as the new principal amount is paid down over time, tho the
case law has exceptions where current deduction may be
allowed.)

Bob Daniels ("There is nothing in life so exhilarating as
being shot at and missed." - Winston Churchill)

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steve wrote:

- quote -

My guess: It's clearly interest, so it should be deductible
"when paid" (under the cash method). The tricky part is
figuring out when it is paid.

Since it's added to the principal of the new loan, it seems
reasonable to amortize it over the life of that new loan, as
if a loan with unamortized points were refinanced with the
same lender.

So maybe you're both right?

--
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Ian Pilcher i.pilcher[at]comcast.net
================================================== ======================

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steve wrote:

- quote -

(snipped)

What is "negative amortization" anyway? Might it mean a
person has been making payments less then the interest due
per period of time?

ChEAr$,
Harlan Lunsford, EA n LA

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If a person refinances a loan with negative amortization, is
that person entitled to a mortgage interest deduction at the
time the first loan is paid?

A CPA-friend and I have a bet on this. I say the negative
amortization qualifies as mortgage interest and is
deductible when paid. He says it becomes loan principle and
not deductible. Who buys lunch?

Moderator: You bet against a professional?

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