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Tax Law (Questions About Taxes)/payment to reduce interest rate


I have a residential rental property.  In 2012 I paid $4500 to the credit union to reduce my loan interest rate from 6.375 to 4.25%.

Is this considered "prepaid interest"?  How do I deduct this?  In one year or over the life of the loan (2009 fixed loan, 10 year balloon, interest rate resets in 2014)?



Thanks for your question.

It depends on how the amount was characterized by the credit union.  If they are points, and based as a percentage of the loan amount, they are in essence prepaid interest.

If this is the case, you can amortize them over the life of the loan, beginning in the month the rate was adjusted.

Hope this helps.

John Stancil, CPA

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John Stancil, CPA


I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at I also offer seminars and consultations to churches and clergy on their tax issues at Also visit my blog, I am listed on Tax Connections at Prepare and file your own taxes at


I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

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