JHyre: Tax treatment of prepay penalty?? - Posted by Nate(DC)

import · March 14, 2002, 1:16pm

Posted by Nate(DC) on March 16, 2002 at 12:02:46:

Thanks. Let me know if you find anything.

NT

import · March 14, 2002, 1:16pm

JHyre: Tax treatment of prepay penalty?? - Posted by Nate(DC)

Posted by Nate(DC) on March 14, 2002 at 14:16:34:

I’m considering a refi of the existing mortgage on my principal residence. It has a prepayment penalty (but we can lower the rate, get rid of PMI, and take cash out, so I think it’s worth it anyway).

Wondering if you know how the prepayment penalty is characterized by the IRS, if we do pay it. Is it considered interest (deductible this year) or do we have to amortize it over the life of the new loan like other costs of refinancing. I would assume it’s the former, since we could conceivably have to pay the penalty even if we sold the house, but wanted to see if you knew.

Thanks,
Nate

import · March 15, 2002, 5:08am

Re: JHyre: Tax treatment of prepay penalty?? - Posted by JHyre in Ohio

Posted by JHyre in Ohio on March 15, 2002 at 06:08:00:

IRS will certainly want to see prepayment penalty capitalized to basis of new loan. Case law will probably back them. Haven’t seen such cases, I’ll double check later today.

John Hyre