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1040eztaxform Publication 926 - Additional Material Prev Up Next Home More Online Publications
Tax Relief for Victims of Hurricane Irene in New York
IRS e-File to Remain Open through Oct. 31 for Victims of Hurricane Irene
Updated 9/14/11 to include Herkimer county.
Updated 9/12/11 to include Bronx, Kings, Queens and Richmond counties.
Updated 9/911 to include Columbia, Putnam and Washington counties.
Updated 9/6/11 to include Clinton, Montgomery, Orange, Otsego, Rockland, Saratoga, Sullivan, Suffolk and Warren counties.
Updated 9/2/11 to include Nassau, Rensselaer and Westchester counties.
NY-2011-34, Sept. 1, 2011
NEW YORK — Victims of Hurricane Irene that began on Aug. 26, 2011, in parts of New York may qualify for tax relief from the Internal Revenue Service.
The President has declared the following counties a federal disaster area: Albany, Bronx, Clinton, Columbia, Delaware, Dutchess, Essex, Greene, Herkimer, Kings, Montgomery, Nassau, Orange, Otsego, Putnam, Queens, Rensselaer, Richmond, Rockland, Saratoga, Schenectady, Schoharie, Suffolk, Sullivan, Ulster, Warren, Washington and Westchester. Individuals who reside or have a business in these counties may qualify for tax relief.
The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Aug. 26 and on or before Oct. 31 have been postponed to Oct. 31, 2011. This includes corporations and other businesses that previously obtained an extension until Sept. 15 to file their 2010 returns, and individuals and businesses that received a similar extension until Oct. 17. It also includes the estimated tax payment for the third quarter, normally due Sept. 15.
In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Aug. 26 and on or before Sept. 12 as long as the deposits are made by Sept. 12, 2011.
If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.
The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.
Covered Disaster Area
The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.
Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.
Grant of Relief
Under section 7508A, the IRS gives affected taxpayers until Oct. 31 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Aug. 26 and on or before Oct. 31.
The IRS also gives affected taxpayers until Oct. 31 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Aug. 26 and on or before Oct. 31.
This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.
The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Aug. 26 and on or before Sept. 12 provided the taxpayer makes these deposits by Sept. 12.
Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.
Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.
Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “New York/Hurricane Irene” at the top of the form so that the IRS can expedite the processing of the refund.
The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.
Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.
Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.
Page Last Reviewed or Updated: 20-Mar-2014
1040eztaxform 23. 1040eztaxform Interest Expense Table of Contents Introduction Useful Items - You may want to see: Home Mortgage InterestAmount Deductible Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement Investment InterestInvestment Property Allocation of Interest Expense Limit on Deduction Items You Cannot DeductPersonal Interest Allocation of Interest How To ReportMore than one borrower. 1040eztaxform Mortgage proceeds used for business or investment. 1040eztaxform Introduction This chapter discusses what interest expenses you can deduct. 1040eztaxform Interest is the amount you pay for the use of borrowed money. 1040eztaxform The following are types of interest you can deduct as itemized deductions on Schedule A (Form 1040). 1040eztaxform Home mortgage interest, including certain points and mortgage insurance premiums. 1040eztaxform Investment interest. 1040eztaxform This chapter explains these deductions. 1040eztaxform It also explains where to deduct other types of interest and lists some types of interest you cannot deduct. 1040eztaxform Use Table 23-1 to find out where to get more information on various types of interest, including investment interest. 1040eztaxform Useful Items - You may want to see: Publication 936 Home Mortgage Interest Deduction 550 Investment Income and Expenses Home Mortgage Interest Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). 1040eztaxform The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. 1040eztaxform You can deduct home mortgage interest if all the following conditions are met. 1040eztaxform You file Form 1040 and itemize deductions on Schedule A (Form 1040). 1040eztaxform The mortgage is a secured debt on a qualified home in which you have an ownership interest. 1040eztaxform (Generally, your mortgage is a secured debt if you put your home up as collateral to protect the interest of the lender. 1040eztaxform The term “qualified home” means your main home or second home. 1040eztaxform For details, see Publication 936. 1040eztaxform ) Both you and the lender must intend that the loan be repaid. 1040eztaxform Amount Deductible In most cases, you can deduct all of your home mortgage interest. 1040eztaxform How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. 1040eztaxform Fully deductible interest. 1040eztaxform If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. 1040eztaxform (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category. 1040eztaxform ) The three categories are as follows: Mortgages you took out on or before October 13, 1987 (called grandfathered debt). 1040eztaxform Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2013 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately). 1040eztaxform Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2013 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2). 1040eztaxform The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. 1040eztaxform See Part II of Publication 936 for more detailed definitions of grandfathered, home acquisition, and home equity debt. 1040eztaxform You can use Figure 23-A to check whether your home mortgage interest is fully deductible. 1040eztaxform Figure 23-A. 1040eztaxform Is My Home Mortgage Interest Fully Deductible? Please click here for the text description of the image. 1040eztaxform Figure 23-A. 1040eztaxform Is My Interest Fully Deductible? Limits on deduction. 1040eztaxform You cannot fully deduct interest on a mortgage that does not fit into any of the three categories listed earlier. 1040eztaxform If this applies to you, see Part II of Publication 936 to figure the amount of interest you can deduct. 1040eztaxform Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. 1040eztaxform It also describes certain special situations that may affect your deduction. 1040eztaxform Late payment charge on mortgage payment. 1040eztaxform You can deduct as home mortgage interest a late payment charge if it was not for a specific service performed in connection with your mortgage loan. 1040eztaxform Mortgage prepayment penalty. 1040eztaxform If you pay off your home mortgage early, you may have to pay a penalty. 1040eztaxform You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. 1040eztaxform Sale of home. 1040eztaxform If you sell your home, you can deduct your home mortgage interest (subject to any limits that apply) paid up to, but not including, the date of sale. 1040eztaxform Example. 1040eztaxform John and Peggy Harris sold their home on May 7. 1040eztaxform Through April 30, they made home mortgage interest payments of $1,220. 1040eztaxform The settlement sheet for the sale of the home showed $50 interest for the 6-day period in May up to, but not including, the date of sale. 1040eztaxform Their mortgage interest deduction is $1,270 ($1,220 + $50). 1040eztaxform Prepaid interest. 1040eztaxform If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. 1040eztaxform You can deduct in each year only the interest that qualifies as home mortgage interest for that year. 1040eztaxform However, there is an exception that applies to points, discussed later. 1040eztaxform Mortgage interest credit. 1040eztaxform You may be able to claim a mortgage interest credit if you were issued a mortgage credit certificate (MCC) by a state or local government. 1040eztaxform Figure the credit on Form 8396, Mortgage Interest Credit. 1040eztaxform If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. 1040eztaxform For more information on the credit, see chapter 37. 1040eztaxform Ministers' and military housing allowance. 1040eztaxform If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you can still deduct your home mortgage interest. 1040eztaxform Hardest Hit Fund and Emergency Homeowners' Loan Programs. 1040eztaxform You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. 1040eztaxform You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. 1040eztaxform You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. 1040eztaxform If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098-MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received from payer(s) / borrower(s)), box 4 (mortgage insurance premiums) and box 5 (real property taxes). 1040eztaxform However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. 1040eztaxform Mortgage assistance payments under section 235 of the National Housing Act. 1040eztaxform If you qualify for mortgage assistance payments for lower-income families under section 235 of the National Housing Act, part or all of the interest on your mortgage may be paid for you. 1040eztaxform You cannot deduct the interest that is paid for you. 1040eztaxform No other effect on taxes. 1040eztaxform Do not include these mortgage assistance payments in your income. 1040eztaxform Also, do not use these payments to reduce other deductions, such as real estate taxes. 1040eztaxform Divorced or separated individuals. 1040eztaxform If a divorce or separation agreement requires you or your spouse or former spouse to pay home mortgage interest on a home owned by both of you, the payment of interest may be alimony. 1040eztaxform See the discussion of Payments for jointly-owned home in chapter 18. 1040eztaxform Redeemable ground rents. 1040eztaxform If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. 1040eztaxform Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. 1040eztaxform For more information, see Publication 936. 1040eztaxform Nonredeemable ground rents. 1040eztaxform Payments on a nonredeemable ground rent are not mortgage interest. 1040eztaxform You can deduct them as rent if they are a business expense or if they are for rental property. 1040eztaxform Reverse mortgages. 1040eztaxform A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. 1040eztaxform With a reverse mortgage, you retain title to your home. 1040eztaxform Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. 1040eztaxform Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. 1040eztaxform Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until the loan is paid in full. 1040eztaxform Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Publication 936. 1040eztaxform Rental payments. 1040eztaxform If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. 1040eztaxform This is true even if the settlement papers call them interest. 1040eztaxform You cannot deduct these payments as home mortgage interest. 1040eztaxform Mortgage proceeds invested in tax-exempt securities. 1040eztaxform You cannot deduct the home mortgage interest on grandfathered debt or home equity debt if you used the proceeds of the mortgage to buy securities or certificates that produce tax-free income. 1040eztaxform “Grandfathered debt” and “home equity debt” are defined earlier under Amount Deductible. 1040eztaxform Refunds of interest. 1040eztaxform If you receive a refund of interest in the same tax year you paid it, you must reduce your interest expense by the amount refunded to you. 1040eztaxform If you receive a refund of interest you deducted in an earlier year, you generally must include the refund in income in the year you receive it. 1040eztaxform However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. 1040eztaxform This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. 1040eztaxform If you received a refund of interest you overpaid in an earlier year, you generally will receive a Form 1098, Mortgage Interest Statement, showing the refund in box 3. 1040eztaxform For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. 1040eztaxform For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in chapter 12. 1040eztaxform Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. 1040eztaxform Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. 1040eztaxform A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. 1040eztaxform See Points paid by the seller , later. 1040eztaxform General Rule You generally cannot deduct the full amount of points in the year paid. 1040eztaxform Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. 1040eztaxform See Deduction Allowed Ratably , next. 1040eztaxform For exceptions to the general rule, see Deduction Allowed in Year Paid , later. 1040eztaxform Deduction Allowed Ratably If you do not meet the tests listed under Deduction Allowed in Year Paid , later, the loan is not a home improvement loan, or you choose not to deduct your points in full in the year paid, you can deduct the points ratably (equally) over the life of the loan if you meet all the following tests. 1040eztaxform You use the cash method of accounting. 1040eztaxform This means you report income in the year you receive it and deduct expenses in the year you pay them. 1040eztaxform Most individuals use this method. 1040eztaxform Your loan is secured by a home. 1040eztaxform (The home does not need to be your main home. 1040eztaxform ) Your loan period is not more than 30 years. 1040eztaxform If your loan period is more than 10 years, the terms of your loan are the same as other loans offered in your area for the same or longer period. 1040eztaxform Either your loan amount is $250,000 or less, or the number of points is not more than: 4, if your loan period is 15 years or less, or 6, if your loan period is more than 15 years. 1040eztaxform Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. 1040eztaxform (You can use Figure 23-B as a quick guide to see whether your points are fully deductible in the year paid. 1040eztaxform ) Your loan is secured by your main home. 1040eztaxform (Your main home is the one you ordinarily live in most of the time. 1040eztaxform ) Paying points is an established business practice in the area where the loan was made. 1040eztaxform The points paid were not more than the points generally charged in that area. 1040eztaxform You use the cash method of accounting. 1040eztaxform This means you report income in the year you receive it and deduct expenses in the year you pay them. 1040eztaxform (If you want more information about this method, see Accounting Methods in chapter 1. 1040eztaxform ) The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. 1040eztaxform The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. 1040eztaxform The funds you provided are not required to have been applied to the points. 1040eztaxform They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. 1040eztaxform You cannot have borrowed these funds from your lender or mortgage broker. 1040eztaxform You use your loan to buy or build your main home. 1040eztaxform The points were computed as a percentage of the principal amount of the mortgage. 1040eztaxform The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. 1040eztaxform The points may be shown as paid from either your funds or the seller's. 1040eztaxform Figure 23-B. 1040eztaxform Are My Points Fully Deductible This Year? Please click here for the text description of the image. 1040eztaxform Figure 23-B. 1040eztaxform Are My Points Fully Deductible This Year? Note. 1040eztaxform If you meet all of these tests, you can choose to either fully deduct the points in the year paid, or deduct them over the life of the loan. 1040eztaxform Home improvement loan. 1040eztaxform You can also fully deduct in the year paid points paid on a loan to improve your main home, if tests (1) through (6) are met. 1040eztaxform Second home. 1040eztaxform You cannot fully deduct in the year paid points you pay on loans secured by your second home. 1040eztaxform You can deduct these points only over the life of the loan. 1040eztaxform Refinancing. 1040eztaxform Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. 1040eztaxform This is true even if the new mortgage is secured by your main home. 1040eztaxform However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first 6 tests listed under Deduction Allowed in Year Paid , earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. 1040eztaxform You can deduct the rest of the points over the life of the loan. 1040eztaxform Example 1. 1040eztaxform In 1998, Bill Fields got a mortgage to buy a home. 1040eztaxform In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. 1040eztaxform The mortgage is secured by his home. 1040eztaxform To get the new loan, he had to pay three points ($3,000). 1040eztaxform Two points ($2,000) were for prepaid interest, and one point ($1,000) was charged for services, in place of amounts that ordinarily are stated separately on the settlement statement. 1040eztaxform Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. 1040eztaxform The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. 1040eztaxform Bill's first payment on the new loan was due July 1. 1040eztaxform He made six payments on the loan in 2013 and is a cash basis taxpayer. 1040eztaxform Bill used the funds from the new mortgage to repay his existing mortgage. 1040eztaxform Although the new mortgage loan was for Bill's continued ownership of his main home, it was not for the purchase or improvement of that home. 1040eztaxform He cannot deduct all of the points in 2013. 1040eztaxform He can deduct two points ($2,000) ratably over the life of the loan. 1040eztaxform He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. 1040eztaxform The other point ($1,000) was a fee for services and is not deductible. 1040eztaxform Example 2. 1040eztaxform The facts are the same as in Example 1, except that Bill used $25,000 of the loan proceeds to improve his home and $75,000 to repay his existing mortgage. 1040eztaxform Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. 1040eztaxform His deduction is $500 ($2,000 × 25%). 1040eztaxform Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. 1040eztaxform This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. 1040eztaxform The total amount Bill deducts in 2013 is $550 ($500 + $50). 1040eztaxform Special Situations This section describes certain special situations that may affect your deduction of points. 1040eztaxform Original issue discount. 1040eztaxform If you do not qualify to either deduct the points in the year paid or deduct them ratably over the life of the loan, or if you choose not to use either of these methods, the points reduce the issue price of the loan. 1040eztaxform This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. 1040eztaxform Amounts charged for services. 1040eztaxform Amounts charged by the lender for specific services connected to the loan are not interest. 1040eztaxform Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. 1040eztaxform You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. 1040eztaxform Points paid by the seller. 1040eztaxform The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. 1040eztaxform Treatment by seller. 1040eztaxform The seller cannot deduct these fees as interest. 1040eztaxform But they are a selling expense that reduces the amount realized by the seller. 1040eztaxform See chapter 15 for information on selling your home. 1040eztaxform Treatment by buyer. 1040eztaxform The buyer reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them. 1040eztaxform If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. 1040eztaxform If any of those tests are not met, the buyer deducts the points over the life of the loan. 1040eztaxform For information about basis, see chapter 13. 1040eztaxform Funds provided are less than points. 1040eztaxform If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the funds you provided were less than the points charged to you (test (6)), you can deduct the points in the year paid, up to the amount of funds you provided. 1040eztaxform In addition, you can deduct any points paid by the seller. 1040eztaxform Example 1. 1040eztaxform When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). 1040eztaxform You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. 1040eztaxform Of the $1,000 charged for points, you can deduct $750 in the year paid. 1040eztaxform You spread the remaining $250 over the life of the mortgage. 1040eztaxform Example 2. 1040eztaxform The facts are the same as in Example 1, except that the person who sold you your home also paid one point ($1,000) to help you get your mortgage. 1040eztaxform In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). 1040eztaxform You spread the remaining $250 over the life of the mortgage. 1040eztaxform You must reduce the basis of your home by the $1,000 paid by the seller. 1040eztaxform Excess points. 1040eztaxform If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the points paid were more than generally paid in your area (test (3)), you deduct in the year paid only the points that are generally charged. 1040eztaxform You must spread any additional points over the life of the mortgage. 1040eztaxform Mortgage ending early. 1040eztaxform If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. 1040eztaxform However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. 1040eztaxform Instead, deduct the remaining balance over the term of the new loan. 1040eztaxform A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. 1040eztaxform Example. 1040eztaxform Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. 1040eztaxform He deducts $200 points per year. 1040eztaxform Through 2012, Dan has deducted $2,200 of the points. 1040eztaxform Dan prepaid his mortgage in full in 2013. 1040eztaxform He can deduct the remaining $800 of points in 2013. 1040eztaxform Limits on deduction. 1040eztaxform You cannot fully deduct points paid on a mortgage unless the mortgage fits into one of the categories listed earlier under Fully deductible interest . 1040eztaxform See Publication 936 for details. 1040eztaxform Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. 1040eztaxform The insurance must be in connection with home acquisition debt and the insurance contract must have been issued after 2006. 1040eztaxform Qualified mortgage insurance. 1040eztaxform Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). 1040eztaxform Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. 1040eztaxform If provided by the Rural Housing Service, it is commonly known as a guarantee fee. 1040eztaxform These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. 1040eztaxform Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. 1040eztaxform Special rules for prepaid mortgage insurance. 1040eztaxform Generally, if you paid premiums for qualified mortgage insurance that are allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. 1040eztaxform You must allocate the premiums over the shorter of the stated term of the mortgage or 84 months, beginning with the month the insurance was obtained. 1040eztaxform No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. 1040eztaxform This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. 1040eztaxform See the Example below. 1040eztaxform Example. 1040eztaxform Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. 1040eztaxform Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. 1040eztaxform Since the $9,240 in private mortgage insurance is allocable to periods after 2012, Ryan must allocate the $9,240 over the shorter of the life of the mortgage or 84 months. 1040eztaxform Ryan's adjusted gross income (AGI) for 2012 is $76,000. 1040eztaxform Ryan can deduct $880 ($9,240 ÷ 84 × 8 months) for qualified mortgage insurance premiums in 2012. 1040eztaxform For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 × 12 months) if his AGI is $100,000 or less. 1040eztaxform In this example, the mortgage insurance premiums are allocated over 84 months, which is shorter than the life of the mortgage of 15 years (180 months). 1040eztaxform Limit on deduction. 1040eztaxform If your adjusted gross income on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are otherwise deductible is reduced and may be eliminated. 1040eztaxform See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. 1040eztaxform If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. 1040eztaxform Form 1098, Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement from the mortgage holder. 1040eztaxform You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. 1040eztaxform A governmental unit is a person for purposes of furnishing the statement. 1040eztaxform The statement for each year should be sent to you by January 31 of the following year. 1040eztaxform A copy of this form will also be sent to the IRS. 1040eztaxform The statement will show the total interest you paid during the year, any mortgage insurance premiums you paid, and if you purchased a main home during the year, it also will show the deductible points paid during the year, including seller-paid points. 1040eztaxform However, it should not show any interest that was paid for you by a government agency. 1040eztaxform As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. 1040eztaxform However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. 1040eztaxform See Points , earlier, to determine whether you can deduct points not shown on Form 1098. 1040eztaxform Prepaid interest on Form 1098. 1040eztaxform If you prepaid interest in 2013 that accrued in full by January 15, 2014, this prepaid interest may be included in box 1 of Form 1098. 1040eztaxform However, you cannot deduct the prepaid amount for January 2014 in 2013. 1040eztaxform (See Prepaid interest , earlier. 1040eztaxform ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. 1040eztaxform You will include the interest for January 2014 with the other interest you pay for 2014. 1040eztaxform See How To Report , later. 1040eztaxform Refunded interest. 1040eztaxform If you received a refund of mortgage interest you overpaid in an earlier year, you generally will receive a Form 1098 showing the refund in box 3. 1040eztaxform See Refunds of interest , earlier. 1040eztaxform Mortgage insurance premiums. 1040eztaxform The amount of mortgage insurance premiums you paid during 2013 may be shown in box 4 of Form 1098. 1040eztaxform See Mortgage Insurance Premiums, earlier. 1040eztaxform Investment Interest This section discusses interest expenses you may be able to deduct as an investor. 1040eztaxform If you borrow money to buy property you hold for investment, the interest you pay is investment interest. 1040eztaxform You can deduct investment interest subject to the limit discussed later. 1040eztaxform However, you cannot deduct interest you incurred to produce tax-exempt income. 1040eztaxform Nor can you deduct interest expenses on straddles. 1040eztaxform Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. 1040eztaxform Investment Property Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. 1040eztaxform It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). 1040eztaxform Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). 1040eztaxform Partners, shareholders, and beneficiaries. 1040eztaxform To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. 1040eztaxform Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. 1040eztaxform Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. 1040eztaxform The allocation is not affected by the use of property that secures the debt. 1040eztaxform Limit on Deduction Generally, your deduction for investment interest expense is limited to the amount of your net investment income. 1040eztaxform You can carry over the amount of investment interest that you could not deduct because of this limit to the next tax year. 1040eztaxform The interest carried over is treated as investment interest paid or accrued in that next year. 1040eztaxform You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. 1040eztaxform Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. 1040eztaxform Investment income. 1040eztaxform This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). 1040eztaxform Investment income does not include Alaska Permanent Fund dividends. 1040eztaxform It also does not include qualified dividends or net capital gain unless you choose to include them. 1040eztaxform Choosing to include qualified dividends. 1040eztaxform Investment income generally does not include qualified dividends, discussed in chapter 8. 1040eztaxform However, you can choose to include all or part of your qualified dividends in investment income. 1040eztaxform You make this choice by completing Form 4952, line 4g, according to its instructions. 1040eztaxform If you choose to include any amount of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. 1040eztaxform Choosing to include net capital gain. 1040eztaxform Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). 1040eztaxform However, you can choose to include all or part of your net capital gain in investment income. 1040eztaxform You make this choice by completing Form 4952, line 4g, according to its instructions. 1040eztaxform If you choose to include any amount of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. 1040eztaxform Before making either choice, consider the overall effect on your tax liability. 1040eztaxform Compare your tax if you make one or both of these choices with your tax if you do not. 1040eztaxform Investment income of child reported on parent's return. 1040eztaxform Investment income includes the part of your child's interest and dividend income that you choose to report on your return. 1040eztaxform If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814, Parents' Election To Report Child's Interest and Dividends. 1040eztaxform Child's qualified dividends. 1040eztaxform If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. 1040eztaxform However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. 1040eztaxform Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). 1040eztaxform Child's Alaska Permanent Fund dividends. 1040eztaxform If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. 1040eztaxform To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. 1040eztaxform Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. 1040eztaxform Subtract the result from the amount on Form 8814, line 12. 1040eztaxform Child's capital gain distributions. 1040eztaxform If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D, line 13, or Form 1040, line 13) generally does not count as investment income. 1040eztaxform However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. 1040eztaxform Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). 1040eztaxform Investment expenses. 1040eztaxform Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. 1040eztaxform Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. 1040eztaxform Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A, line 27. 1040eztaxform Losses from passive activities. 1040eztaxform Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). 1040eztaxform See Publication 925, Passive Activity and At-Risk Rules, for information about passive activities. 1040eztaxform Form 4952 Use Form 4952, Investment Interest Expense Deduction, to figure your deduction for investment interest. 1040eztaxform Exception to use of Form 4952. 1040eztaxform You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. 1040eztaxform Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. 1040eztaxform You do not have any other deductible investment expenses. 1040eztaxform You have no carryover of investment interest expense from 2012. 1040eztaxform If you meet all of these tests, you can deduct all of your investment interest. 1040eztaxform More Information For more information on investment interest, see Interest Expenses in chapter 3 of Publication 550. 1040eztaxform Items You Cannot Deduct Some interest payments are not deductible. 1040eztaxform Certain expenses similar to interest also are not deductible. 1040eztaxform Nondeductible expenses include the following items. 1040eztaxform Personal interest (discussed later). 1040eztaxform Service charges (however, see Other Expenses (Line 23) in chapter 28). 1040eztaxform Annual fees for credit cards. 1040eztaxform Loan fees. 1040eztaxform Credit investigation fees. 1040eztaxform Interest to purchase or carry tax-exempt securities. 1040eztaxform Penalties. 1040eztaxform You cannot deduct fines and penalties paid to a government for violations of law, regardless of their nature. 1040eztaxform Personal Interest Personal interest is not deductible. 1040eztaxform Personal interest is any interest that is not home mortgage interest, investment interest, business interest, or other deductible interest. 1040eztaxform It includes the following items. 1040eztaxform Interest on car loans (unless you use the car for business). 1040eztaxform Interest on federal, state, or local income tax. 1040eztaxform Finance charges on credit cards, retail installment contracts, and revolving charge accounts incurred for personal expenses. 1040eztaxform Late payment charges by a public utility. 1040eztaxform You may be able to deduct interest you pay on a qualified student loan. 1040eztaxform For details, see Publication 970, Tax Benefits for Education. 1040eztaxform Allocation of Interest If you use the proceeds of a loan for more than one purpose (for example, personal and business), you must allocate the interest on the loan to each use. 1040eztaxform However, you do not have to allocate home mortgage interest if it is fully deductible, regardless of how the funds are used. 1040eztaxform You allocate interest (other than fully deductible home mortgage interest) on a loan in the same way as the loan itself is allocated. 1040eztaxform You do this by tracing disbursements of the debt proceeds to specific uses. 1040eztaxform For details on how to do this, see chapter 4 of Publication 535. 1040eztaxform How To Report You must file Form 1040 to deduct any home mortgage interest expense on your tax return. 1040eztaxform Where you deduct your interest expense generally depends on how you use the loan proceeds. 1040eztaxform See Table 23-1 for a summary of where to deduct your interest expense. 1040eztaxform Home mortgage interest and points. 1040eztaxform Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. 1040eztaxform If you paid more deductible interest to the financial institution than the amount shown on Form 1098, show the larger deductible amount on line 10. 1040eztaxform Attach a statement explaining the difference and print “See attached” next to line 10. 1040eztaxform Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. 1040eztaxform If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and taxpayer identification number (TIN) on the dotted lines next to line 11. 1040eztaxform The seller must give you this number and you must give the seller your TIN. 1040eztaxform A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. 1040eztaxform Failure to meet any of these requirements may result in a $50 penalty for each failure. 1040eztaxform The TIN can be either a social security number, an individual taxpayer identification number (issued by the Internal Revenue Service), or an employer identification number. 1040eztaxform See Social Security Number (SSN) in chapter 1 for more information about TINs. 1040eztaxform If you can take a deduction for points that were not reported to you on Form 1098, deduct those points on Schedule A (Form 1040), line 12. 1040eztaxform Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. 1040eztaxform More than one borrower. 1040eztaxform If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. 1040eztaxform Show how much of the interest each of you paid, and give the name and address of the person who received the form. 1040eztaxform Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. 1040eztaxform Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. 1040eztaxform Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. 1040eztaxform You should let each of the other borrowers know what his or her share is. 1040eztaxform Mortgage proceeds used for business or investment. 1040eztaxform If your home mortgage interest deduction is limited, but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 23-1. 1040eztaxform It shows where to deduct the part of your excess interest that is for those activities. 1040eztaxform Investment interest. 1040eztaxform Deduct investment interest, subject to certain limits discussed in Publication 550, on Schedule A (Form 1040), line 14. 1040eztaxform Amortization of bond premium. 1040eztaxform There are various ways to treat the premium you pay to buy taxable bonds. 1040eztaxform See Bond Premium Amortization in Publication 550. 1040eztaxform Income-producing rental or royalty interest. 1040eztaxform Deduct interest on a loan for income-producing rental or royalty property that is not used in your business in Part I of Schedule E (Form 1040). 1040eztaxform Example. 1040eztaxform You rent out part of your home and borrow money to make repairs. 1040eztaxform You can deduct only the interest payment for the rented part in Part I of Schedule E (Form 1040). 1040eztaxform Deduct the rest of the interest payment on Schedule A (Form 1040) if it is deductible home mortgage interest. 1040eztaxform Table 23-1. 1040eztaxform Where To Deduct Your Interest Expense IF you have . 1040eztaxform . 1040eztaxform . 1040eztaxform THEN deduct it on . 1040eztaxform . 1040eztaxform . 1040eztaxform AND for more information go to . 1040eztaxform . 1040eztaxform . 1040eztaxform deductible student loan interest Form 1040, line 33, or Form 1040A, line 18 Publication 970. 1040eztaxform deductible home mortgage interest and points reported on Form 1098 Schedule A (Form 1040), line 10 Publication 936. 1040eztaxform deductible home mortgage interest not reported on Form 1098 Schedule A (Form 1040), line 11 Publication 936. 1040eztaxform deductible points not reported on Form 1098 Schedule A (Form 1040), line 12 Publication 936. 1040eztaxform deductible mortgage insurance premiums Schedule A (Form 1040), line 13 Publication 936. 1040eztaxform deductible investment interest (other than incurred to produce rents or royalties) Schedule A (Form 1040), line 14 Publication 550. 1040eztaxform deductible business interest (non-farm) Schedule C or C-EZ (Form 1040) Publication 535. 1040eztaxform deductible farm business interest Schedule F (Form 1040) Publications 225 and 535. 1040eztaxform deductible interest incurred to produce rents or royalties Schedule E (Form 1040) Publications 527 and 535. 1040eztaxform personal interest not deductible. 1040eztaxform Prev Up Next Home More Online Publications