Cathcart v. Commissioner
United States Tax Court
36 T.C.M. (CCH) 1321 (1977)
Cathcart (plaintiff) obtained a net proceeds loan for $57,600, of which Southern Federal withheld $2,560.08 (including $1,086.60 in interest) before disbursing the remainder; Cathcart sought to deduct the entire withheld interest amount in the year of disbursement, but the Commissioner (defendant) disallowed most of the deduction, reasoning that Cathcart would actually pay that interest gradually over 29 years through his mortgage installments, and allowed him to deduct only the small portion allocable to that first year.
Whether interest charges withheld upfront from mortgage loan proceeds constitute a deductible payment of interest in the year the loan is disbursed, or must instead be prorated and deducted over the period the loan is actually repaid.