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From: turano@silver.DEC
Newsgroups: net.taxes
Subject: Re: tax deduction of prepaid mortgage interest
Message-ID: <106@decwrl.UUCP>
Date: Fri, 23-Aug-85 09:09:02 EDT
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Posted: Fri Aug 23 09:09:02 1985
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**

	With regard to the comments about the deduction of mortgage interest 
prepaid in December being assignable to the current year:

	>If you want to deduct the Jan 1 payment this year, pay it on Dec. 30.
	>...As far as IRS is concerned, it's the date you actually PAID the
	>interest that counts.

	I believe this is not correct. Sec. 461(g)(1) of the Internal
Revenue Code states:

       "(g) Prepaid Interest.-
		(1) In General.- If the taxable income of the taxpayer is
	computed under a cash receipts and disbursements method of accounting, 
	interest paid by the taxpayer which, under regulations prescribed by
	the Secretary, is properly allocable to any period-
			(A) with respect to which the interest represents a
			charge for the use or forbearance of money, and
			(B) which is after the close of the taxable year in 
			which paid,
	shall be charged to capital account and shall be treated as paid
	in the period to which so allocable.
		(2) Exception.- " { Deals with points paid and is not
	important in this discussion.}

	IRS Publication 17 (Rev. Nov. 84) in section 29, in the third
paragraph on page 129 seems to interpret this:

	"Interest paid in advance. If you pay interest in advance for a period
	that goes beyond the end of the tax year, you must spread the interest
	over the tax years to which it applies. You may deduct in each year
	only the interest for that year."

	Together these would seem to imply that the interest payment for
January of the following year must be allocated to the following year's
deductions. The rationale being that the Congress does not wish individuals
to manipulate their tax liability at random. 

	If someone has another reference indicating that the mortgage payment
for January for the following year is deductable for the current year, I'd 
like to see it. 

	I am not a lawyer or an accountant and the above interpretation is 
strictly an opinion which should not be construed as a fact.

Tom Turano