TREATMENT OF PREPAID INTEREST.

SEC. 208. TREATMENT OF PREPAID INTEREST. (a) General Rule.— Section 461 (relating to general rule for taxable year of deduction) is amended by adding at the end thereof the following new subsection: 90 STAT. 1542 “(g) Prepaid Interest.— “(1) In general.— If the taxable income of the taxpayer is computed under the 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.— This subsection shall not apply to points paid in respect of any indebtedness incurred in connection with the purchase or improvement of, and secured by, the principal residence of the taxpayer to the extent that, under regulations prescribed by the Secretary, such payment of points is an established business practice in the area in which such indebtedness is incurred, and the amount of such payment does not exceed the amount generally charged in such area.” (b) Effective Date.— (1) In general.— Except as provided in paragraph (2), the amendment made by subsection (a) shall apply to amounts paid after December 31, 1975, in taxable years ending after such date. (2) Certain amounts paid before 1977.— The amendment made by subsection (a) shall not apply to amounts paid before January 1, 1977, pursuant to a binding contract or written loan commitment, which existed on September 16, 1975 (and at all times thereafter), and which required prepayment of such amounts by the taxpayer.