Mortgage interest is an itemized deduction that requires the use of Schedule A (Form 1040) in addition to the standard Form 1040. This form also lists other deductions, such as medical and dental expenses, taxes paid, and donations to charities. This article discusses the rules for deducting mortgage interest on a home. Part I contains general information about mortgage interest on the home, including points and mortgage insurance premiums.
It also explains how to declare deductible interest on your tax return. Part II explains how your mortgage interest deduction may be limited. It contains Table 1, which is a worksheet that you can use to calculate the limit of your deduction. Include information about points, mortgage insurance premiums, and how to declare deductible interest on your tax return.
Mortgage interest is generally any interest you pay on a loan secured by your home (main home or second home). The loan can be a mortgage to buy your home or a second mortgage. You cannot deduct mortgage interest unless the following conditions are met:In most cases, you can deduct all mortgage interest on your home. The amount you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the proceeds from the mortgage.
You can use Figure A to check if the mortgage interest on your home is fully deductible. Do you meet the conditions for deducting mortgage interest? You may want to consider a debt as unsecured by your home if the interest on that debt is fully deductible (for example, as a business expense), regardless of whether or not they qualify as mortgage interest. This may allow you, if the Part II limits apply, a greater deduction for interest on other debts that are only deductible such as mortgage interest or mortgage interest. In order for you to apply for a mortgage interest deduction, your debt must be insured by a qualifying home. This means your main home or your second home. A home includes a house, condominium, co-op, mobile home, motorhome, boat, or similar property that has sleeping, cooking and toilet facilities. If you have an office in your home that you use in your business, check out Pub.
587 for more information. It explains how to calculate your deduction for the business use of your home, which includes the commercial portion of the mortgage interest on your home. This section describes certain items that may be included such as mortgage interest and others that may not. It also describes certain special situations that may affect your deduction. You can deduct a late payment fee as mortgage interest if it wasn't for a specific service provided in connection with your mortgage loan.
If you pay off your home mortgage early, you may have to pay a penalty. You can deduct that penalty as mortgage interest, as long as the penalty is not for a specific service provided or for a cost incurred in connection with your mortgage loan. If you sell your home, you can deduct mortgage interest on your home (subject to applicable limits) paid up to, but not including, the date of the sale. If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest among the tax years to which it applies. You can deduct each year only the interest that qualifies as mortgage interest for that year.
However, there is one exception that applies to the points discussed below. If you're a minister or member of the Uniformed Services and you receive a housing subsidy that isn't taxable, you can still deduct mortgage interest on your home. If you live in a home before the final settlement of the purchase, any payments you make during that period will be rent and not interest. This is true even if the agreement documents call them interest. You cannot deduct these payments as mortgage interest. You cannot deduct mortgage interest from acquired rights debt if you used the mortgage proceeds to purchase securities or certificates that generate tax-free income. Interest paid by the Small Business Administration (SBA) on mortgage loans in the event of a disaster is deductible as mortgage interest, if the requirements mentioned above in the Mortgage Interest section are met.
The statement will show the total interest you paid during the year, the mortgage insurance premiums you paid and, if you purchased a primary residence during the year, it will also show the points paid during the year, including the points paid by the seller which are deductible as interest, to the extent that you do not exceed the debt limit for home purchase.