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1040x How To

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1040x How To

1040x how to Publication 936 - Main Content Table of Contents Part I. 1040x how to Home Mortgage InterestSecured Debt Qualified Home Special Situations Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement How To Report Special Rule for Tenant-Stockholders in Cooperative Housing Corporations Part II. 1040x how to Limits on Home Mortgage Interest DeductionHome Acquisition Debt Home Equity Debt Grandfathered Debt Table 1 Instructions How To Get Tax HelpLow Income Taxpayer Clinics Part I. 1040x how to Home Mortgage Interest This part explains what you can deduct as home mortgage interest. 1040x how to It includes discussions on points, mortgage insurance premiums, and how to report deductible interest on your tax return. 1040x how to Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). 1040x how to The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. 1040x how to You can deduct home mortgage interest if all the following conditions are met. 1040x how to You file Form 1040 and itemize deductions on Schedule A (Form 1040). 1040x how to The mortgage is a secured debt on a qualified home in which you have an ownership interest. 1040x how to Secured Debt and Qualified Home are explained later. 1040x how to  Both you and the lender must intend that the loan be repaid. 1040x how to Fully deductible interest. 1040x how to   In most cases, you can deduct all of your home mortgage interest. 1040x how to How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. 1040x how to   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. 1040x how to (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. 1040x how to ) If one or more of your mortgages does not fit into any of these categories, use Part II of this publication to figure the amount of interest you can deduct. 1040x how to   The three categories are as follows. 1040x how to Mortgages you took out on or before October 13, 1987 (called grandfathered debt). 1040x how to 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). 1040x how to 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). 1040x how to The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. 1040x how to   See Part II for more detailed definitions of grandfathered, home acquisition, and home equity debt. 1040x how to    You can use Figure A to check whether your home mortgage interest is fully deductible. 1040x how to This image is too large to be displayed in the current screen. 1040x how to Please click the link to view the image. 1040x how to Figure A. 1040x how to Is My Home Mortgage Interest Fully Deductible? Secured Debt You can deduct your home mortgage interest only if your mortgage is a secured debt. 1040x how to A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that: Makes your ownership in a qualified home security for payment of the debt, Provides, in case of default, that your home could satisfy the debt, and Is recorded or is otherwise perfected under any state or local law that applies. 1040x how to In other words, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. 1040x how to If you cannot pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt. 1040x how to In this publication, mortgage will refer to secured debt. 1040x how to Debt not secured by home. 1040x how to   A debt is not secured by your home if it is secured solely because of a lien on your general assets or if it is a security interest that attaches to the property without your consent (such as a mechanic's lien or judgment lien). 1040x how to   A debt is not secured by your home if it once was, but is no longer secured by your home. 1040x how to Wraparound mortgage. 1040x how to   This is not a secured debt unless it is recorded or otherwise perfected under state law. 1040x how to Example. 1040x how to Beth owns a home subject to a mortgage of $40,000. 1040x how to She sells the home for $100,000 to John, who takes it subject to the $40,000 mortgage. 1040x how to Beth continues to make the payments on the $40,000 note. 1040x how to John pays $10,000 down and gives Beth a $90,000 note secured by a wraparound mortgage on the home. 1040x how to Beth does not record or otherwise perfect the $90,000 mortgage under the state law that applies. 1040x how to Therefore, the mortgage is not a secured debt and John cannot deduct any of the interest he pays on it as home mortgage interest. 1040x how to Choice to treat the debt as not secured by your home. 1040x how to   You can choose to treat any debt secured by your qualified home as not secured by the home. 1040x how to This treatment begins with the tax year for which you make the choice and continues for all later tax years. 1040x how to You can revoke your choice only with the consent of the Internal Revenue Service (IRS). 1040x how to   You may want to treat a debt as not secured by your home if the interest on that debt is fully deductible (for example, as a business expense) whether or not it qualifies as home mortgage interest. 1040x how to This may allow you, if the limits in Part II apply, more of a deduction for interest on other debts that are deductible only as home mortgage interest. 1040x how to Cooperative apartment owner. 1040x how to   If you own stock in a cooperative housing corporation, see the Special Rule for Tenant-Stockholders in Cooperative Housing Corporations , near the end of this Part I. 1040x how to Qualified Home For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. 1040x how to This means your main home or your second home. 1040x how to A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. 1040x how to The interest you pay on a mortgage on a home other than your main or second home may be deductible if the proceeds of the loan were used for business, investment, or other deductible purposes. 1040x how to Otherwise, it is considered personal interest and is not deductible. 1040x how to Main home. 1040x how to   You can have only one main home at any one time. 1040x how to This is the home where you ordinarily live most of the time. 1040x how to Second home. 1040x how to   A second home is a home that you choose to treat as your second home. 1040x how to Second home not rented out. 1040x how to   If you have a second home that you do not hold out for rent or resale to others at any time during the year, you can treat it as a qualified home. 1040x how to You do not have to use the home during the year. 1040x how to Second home rented out. 1040x how to   If you have a second home and rent it out part of the year, you also must use it as a home during the year for it to be a qualified home. 1040x how to You must use this home more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental, whichever is longer. 1040x how to If you do not use the home long enough, it is considered rental property and not a second home. 1040x how to For information on residential rental property, see Publication 527. 1040x how to More than one second home. 1040x how to   If you have more than one second home, you can treat only one as the qualified second home during any year. 1040x how to However, you can change the home you treat as a second home during the year in the following situations. 1040x how to If you get a new home during the year, you can choose to treat the new home as your second home as of the day you buy it. 1040x how to If your main home no longer qualifies as your main home, you can choose to treat it as your second home as of the day you stop using it as your main home. 1040x how to If your second home is sold during the year or becomes your main home, you can choose a new second home as of the day you sell the old one or begin using it as your main home. 1040x how to Divided use of your home. 1040x how to   The only part of your home that is considered a qualified home is the part you use for residential living. 1040x how to If you use part of your home for other than residential living, such as a home office, you must allocate the use of your home. 1040x how to You must then divide both the cost and fair market value of your home between the part that is a qualified home and the part that is not. 1040x how to Dividing the cost may affect the amount of your home acquisition debt, which is limited to the cost of your home plus the cost of any improvements. 1040x how to (See Home Acquisition Debt in Part II. 1040x how to ) Dividing the fair market value may affect your home equity debt limit, also explained in Part II . 1040x how to Renting out part of home. 1040x how to   If you rent out part of a qualified home to another person (tenant), you can treat the rented part as being used by you for residential living only if all of the following conditions apply. 1040x how to The rented part of your home is used by the tenant primarily for residential living. 1040x how to The rented part of your home is not a self-contained residential unit having separate sleeping, cooking, and toilet facilities. 1040x how to You do not rent (directly or by sublease) the same or different parts of your home to more than two tenants at any time during the tax year. 1040x how to If two persons (and dependents of either) share the same sleeping quarters, they are treated as one tenant. 1040x how to Office in home. 1040x how to   If you have an office in your home that you use in your business, see Publication 587, Business Use of Your Home. 1040x how to It explains how to figure your deduction for the business use of your home, which includes the business part of your home mortgage interest. 1040x how to Home under construction. 1040x how to   You can treat a home under construction as a qualified home for a period of up to 24 months, but only if it becomes your qualified home at the time it is ready for occupancy. 1040x how to   The 24-month period can start any time on or after the day construction begins. 1040x how to Home destroyed. 1040x how to   You may be able to continue treating your home as a qualified home even after it is destroyed in a fire, storm, tornado, earthquake, or other casualty. 1040x how to This means you can continue to deduct the interest you pay on your home mortgage, subject to the limits described in this publication. 1040x how to   You can continue treating a destroyed home as a qualified home if, within a reasonable period of time after the home is destroyed, you: Rebuild the destroyed home and move into it, or Sell the land on which the home was located. 1040x how to   This rule applies to your main home and to a second home that you treat as a qualified home. 1040x how to Time-sharing arrangements. 1040x how to   You can treat a home you own under a time-sharing plan as a qualified home if it meets all the requirements. 1040x how to A time-sharing plan is an arrangement between two or more people that limits each person's interest in the home or right to use it to a certain part of the year. 1040x how to Rental of time-share. 1040x how to   If you rent out your time-share, it qualifies as a second home only if you also use it as a home during the year. 1040x how to See Second home rented out , earlier, for the use requirement. 1040x how to To know whether you meet that requirement, count your days of use and rental of the home only during the time you have a right to use it or to receive any benefits from the rental of it. 1040x how to Married taxpayers. 1040x how to   If you are married and file a joint return, your qualified home(s) can be owned either jointly or by only one spouse. 1040x how to Separate returns. 1040x how to   If you are married filing separately and you and your spouse own more than one home, you can each take into account only one home as a qualified home. 1040x how to However, if you both consent in writing, then one spouse can take both the main home and a second home into account. 1040x how to Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. 1040x how to It also describes certain special situations that may affect your deduction. 1040x how to Late payment charge on mortgage payment. 1040x how to   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. 1040x how to Mortgage prepayment penalty. 1040x how to   If you pay off your home mortgage early, you may have to pay a penalty. 1040x how to 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. 1040x how to Sale of home. 1040x how to   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 the sale. 1040x how to Example. 1040x how to John and Peggy Harris sold their home on May 7. 1040x how to Through April 30, they made home mortgage interest payments of $1,220. 1040x how to 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. 1040x how to Their mortgage interest deduction is $1,270 ($1,220 + $50). 1040x how to Prepaid interest. 1040x how to   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. 1040x how to You can deduct in each year only the interest that qualifies as home mortgage interest for that year. 1040x how to However, there is an exception that applies to points, discussed later. 1040x how to Mortgage interest credit. 1040x how to    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. 1040x how to Figure the credit on Form 8396, Mortgage Interest Credit. 1040x how to If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. 1040x how to   See Form 8396 and Publication 530 for more information on the mortgage interest credit. 1040x how to Ministers' and military housing allowance. 1040x how to   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. 1040x how to Hardest Hit Fund and Emergency Homeowners' Loan Programs. 1040x how to   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. 1040x how to 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. 1040x how to 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. 1040x how to 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 (other information including real property taxes paid). 1040x how to 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. 1040x how to Mortgage assistance payments under section 235 of the National Housing Act. 1040x how to   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. 1040x how to You cannot deduct the interest that is paid for you. 1040x how to No other effect on taxes. 1040x how to   Do not include these mortgage assistance payments in your income. 1040x how to Also, do not use these payments to reduce other deductions, such as real estate taxes. 1040x how to Divorced or separated individuals. 1040x how to   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. 1040x how to See the discussion of Payments for jointly-owned home under Alimony in Publication 504, Divorced or Separated Individuals. 1040x how to Redeemable ground rents. 1040x how to   In some states (such as Maryland), you can buy your home subject to a ground rent. 1040x how to A ground rent is an obligation you assume to pay a fixed amount per year on the property. 1040x how to Under this arrangement, you are leasing (rather than buying) the land on which your home is located. 1040x how to   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. 1040x how to   A ground rent is a redeemable ground rent if all of the following are true. 1040x how to Your lease, including renewal periods, is for more than 15 years. 1040x how to You can freely assign the lease. 1040x how to You have a present or future right (under state or local law) to end the lease and buy the lessor's entire interest in the land by paying a specific amount. 1040x how to The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. 1040x how to   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. 1040x how to Nonredeemable ground rents. 1040x how to   Payments on a nonredeemable ground rent are not mortgage interest. 1040x how to You can deduct them as rent if they are a business expense or if they are for rental property. 1040x how to Reverse mortgages. 1040x how to   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. 1040x how to With a reverse mortgage, you retain title to your home. 1040x how to 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. 1040x how to Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. 1040x how to Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full. 1040x how to Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Part II. 1040x how to Rental payments. 1040x how to   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. 1040x how to This is true even if the settlement papers call them interest. 1040x how to You cannot deduct these payments as home mortgage interest. 1040x how to Mortgage proceeds invested in tax-exempt securities. 1040x how to   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. 1040x how to “Grandfathered debt” and “home equity debt” are defined in Part II of this publication. 1040x how to Refunds of interest. 1040x how to   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. 1040x how to 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. 1040x how to However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. 1040x how to This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. 1040x how to If you need to include the refund in income, report it on Form 1040, line 21. 1040x how to   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. 1040x how to For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. 1040x how to   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in Publication 525, Taxable and Nontaxable Income. 1040x how to Cooperative apartment owner. 1040x how to   If you own a cooperative apartment, you must reduce your home mortgage interest deduction by your share of any cash portion of a patronage dividend that the cooperative receives. 1040x how to The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. 1040x how to   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. 1040x how to Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. 1040x how to Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. 1040x how to This image is too large to be displayed in the current screen. 1040x how to Please click the link to view the image. 1040x how to Figure B. 1040x how to Are My Points Fully Deductible This Year? A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. 1040x how to See Points paid by the seller , later. 1040x how to General Rule You generally cannot deduct the full amount of points in the year paid. 1040x how to Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. 1040x how to See Deduction Allowed Ratably , next. 1040x how to For exceptions to the general rule, see Deduction Allowed in Year Paid , later. 1040x how to 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. 1040x how to You use the cash method of accounting. 1040x how to This means you report income in the year you receive it and deduct expenses in the year you pay them. 1040x how to Most individuals use this method. 1040x how to Your loan is secured by a home. 1040x how to (The home does not need to be your main home. 1040x how to ) Your loan period is not more than 30 years. 1040x how to 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. 1040x how to 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. 1040x how to Example. 1040x how to You use the cash method of accounting. 1040x how to In 2013, you took out a $100,000 loan payable over 20 years. 1040x how to The terms of the loan are the same as for other 20-year loans offered in your area. 1040x how to You paid $4,800 in points. 1040x how to You made 3 monthly payments on the loan in 2013. 1040x how to You can deduct $60 [($4,800 ÷ 240 months) x 3 payments] in 2013. 1040x how to In 2014, if you make all twelve payments, you will be able to deduct $240 ($20 x 12). 1040x how to Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. 1040x how to (You can use Figure B as a quick guide to see whether your points are fully deductible in the year paid. 1040x how to ) Your loan is secured by your main home. 1040x how to (Your main home is the one you ordinarily live in most of the time. 1040x how to ) Paying points is an established business practice in the area where the loan was made. 1040x how to The points paid were not more than the points generally charged in that area. 1040x how to You use the cash method of accounting. 1040x how to This means you report income in the year you receive it and deduct expenses in the year you pay them. 1040x how to Most individuals use this method. 1040x how to 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. 1040x how to The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. 1040x how to The funds you provided are not required to have been applied to the points. 1040x how to They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. 1040x how to You cannot have borrowed these funds from your lender or mortgage broker. 1040x how to You use your loan to buy or build your main home. 1040x how to The points were computed as a percentage of the principal amount of the mortgage. 1040x how to The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. 1040x how to The points may be shown as paid from either your funds or the seller's. 1040x how to Note. 1040x how to 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. 1040x how to Home improvement loan. 1040x how to   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. 1040x how to Second home. 1040x how to You cannot fully deduct in the year paid points you pay on loans secured by your second home. 1040x how to You can deduct these points only over the life of the loan. 1040x how to Refinancing. 1040x how to   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. 1040x how to This is true even if the new mortgage is secured by your main home. 1040x how to   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 , you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. 1040x how to You can deduct the rest of the points over the life of the loan. 1040x how to Example 1. 1040x how to In 1998, Bill Fields got a mortgage to buy a home. 1040x how to In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. 1040x how to The mortgage is secured by his home. 1040x how to To get the new loan, he had to pay three points ($3,000). 1040x how to 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. 1040x how to Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. 1040x how to The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. 1040x how to Bill's first payment on the new loan was due July 1. 1040x how to He made six payments on the loan in 2013 and is a cash basis taxpayer. 1040x how to Bill used the funds from the new mortgage to repay his existing mortgage. 1040x how to 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. 1040x how to He cannot deduct all of the points in 2013. 1040x how to He can deduct two points ($2,000) ratably over the life of the loan. 1040x how to He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. 1040x how to The other point ($1,000) was a fee for services and is not deductible. 1040x how to Example 2. 1040x how to 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. 1040x how to Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. 1040x how to His deduction is $500 ($2,000 × 25%). 1040x how to Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. 1040x how to This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. 1040x how to The total amount Bill deducts in 2013 is $550 ($500 + $50). 1040x how to Special Situations This section describes certain special situations that may affect your deduction of points. 1040x how to Original issue discount. 1040x how to   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. 1040x how to This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. 1040x how to Amounts charged for services. 1040x how to    Amounts charged by the lender for specific services connected to the loan are not interest. 1040x how to Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. 1040x how to  You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. 1040x how to Points paid by the seller. 1040x how to   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. 1040x how to Treatment by seller. 1040x how to   The seller cannot deduct these fees as interest. 1040x how to But they are a selling expense that reduces the amount realized by the seller. 1040x how to See Publication 523 for information on selling your home. 1040x how to Treatment by buyer. 1040x how to   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. 1040x how to If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. 1040x how to If any of those tests are not met, the buyer deducts the points over the life of the loan. 1040x how to   If you need information about the basis of your home, see Publication 523 or Publication 530. 1040x how to Funds provided are less than points. 1040x how to   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. 1040x how to In addition, you can deduct any points paid by the seller. 1040x how to Example 1. 1040x how to When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). 1040x how to You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. 1040x how to Of the $1,000 charged for points, you can deduct $750 in the year paid. 1040x how to You spread the remaining $250 over the life of the mortgage. 1040x how to Example 2. 1040x how to 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. 1040x how to In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). 1040x how to You spread the remaining $250 over the life of the mortgage. 1040x how to You must reduce the basis of your home by the $1,000 paid by the seller. 1040x how to Excess points. 1040x how to   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. 1040x how to You must spread any additional points over the life of the mortgage. 1040x how to Mortgage ending early. 1040x how to   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. 1040x how to However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. 1040x how to Instead, deduct the remaining balance over the term of the new loan. 1040x how to   A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. 1040x how to Example. 1040x how to Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. 1040x how to He deducts $200 points per year. 1040x how to Through 2012, Dan has deducted $2,200 of the points. 1040x how to Dan prepaid his mortgage in full in 2013. 1040x how to He can deduct the remaining $800 of points in 2013. 1040x how to Limits on deduction. 1040x how to   You cannot fully deduct points paid on a mortgage that exceeds the limits discussed in Part II . 1040x how to See the Table 1 Instructions for line 10. 1040x how to Form 1098. 1040x how to    The mortgage interest statement you receive should show not only the total interest paid during the year, but also your deductible points paid during the year. 1040x how to See Form 1098, Mortgage Interest Statement , later. 1040x how to Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. 1040x how to The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006. 1040x how to Qualified mortgage insurance. 1040x how to   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). 1040x how to   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. 1040x how to If provided by the Rural Housing Service, it is commonly known as a guarantee fee. 1040x how to The funding fee and guarantee fee can either be included in the amount of the loan or paid in full at the time of closing. 1040x how to These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. 1040x how to Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. 1040x how to Special rules for prepaid mortgage insurance. 1040x how to   Generally, if you paid premiums for qualified mortgage insurance that are properly allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. 1040x how to 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. 1040x how to No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. 1040x how to This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. 1040x how to Example. 1040x how to Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. 1040x how to Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. 1040x how to 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. 1040x how to Ryan's adjusted gross income (AGI) for 2012 is $76,000. 1040x how to Ryan can deduct $880 ($9,240 ÷ 84 x 8 months) for qualified mortgage insurance premiums in 2012. 1040x how to For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 x 12 months) if his AGI is $100,000 or less. 1040x how to 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). 1040x how to Limit on deduction. 1040x how to   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. 1040x how to 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. 1040x how to If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. 1040x how to Form 1098. 1040x how to   The mortgage interest statement you receive should show not only the total interest paid during the year, but also your mortgage insurance premiums paid during the year, which may qualify to be treated as deductible mortgage interest. 1040x how to See Form 1098, Mortgage Interest Statement, next. 1040x how to 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. 1040x how to You will receive the statement if you pay interest to a person (including a financial institution or cooperative housing corporation) in the course of that person's trade or business. 1040x how to A governmental unit is a person for purposes of furnishing the statement. 1040x how to The statement for each year should be sent to you by January 31 of the following year. 1040x how to A copy of this form will also be sent to the IRS. 1040x how to 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. 1040x how to However, it should not show any interest that was paid for you by a government agency. 1040x how to As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. 1040x how to However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. 1040x how to See the earlier discussion of Points to determine whether you can deduct points not shown on Form 1098. 1040x how to Prepaid interest on Form 1098. 1040x how to   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. 1040x how to However, you cannot deduct the prepaid amount for January 2014 in 2013. 1040x how to (See Prepaid interest , earlier. 1040x how to ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. 1040x how to You will include the interest for January 2014 with other interest you pay for 2014. 1040x how to Refunded interest. 1040x how to   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. 1040x how to See Refunds of interest , earlier. 1040x how to Mortgage insurance premiums. 1040x how to   The amount of mortgage insurance premiums you paid during 2013 may be shown in Box 4 of Form 1098. 1040x how to See Mortgage Insurance Premiums , earlier. 1040x how to How To Report Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. 1040x how to 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. 1040x how to Attach a statement explaining the difference and print “See attached” next to line 10. 1040x how to Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. 1040x how to 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. 1040x how to The seller must give you this number and you must give the seller your TIN. 1040x how to A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. 1040x how to Failure to meet any of these requirements may result in a $50 penalty for each failure. 1040x how to 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. 1040x how to 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. 1040x how to Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. 1040x how to More than one borrower. 1040x how to   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. 1040x how to Show how much of the interest each of you paid, and give the name and address of the person who received the form. 1040x how to Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. 1040x how to Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. 1040x how to   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. 1040x how to Let each of the other borrowers know what his or her share is. 1040x how to Mortgage proceeds used for business or investment. 1040x how to   If your home mortgage interest deduction is limited under the rules explained in Part II , but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 2 near the end of this publication. 1040x how to It shows where to deduct the part of your excess interest that is for those activities. 1040x how to The Table 1 Instructions for line 13 in Part II explain how to divide the excess interest among the activities for which the mortgage proceeds were used. 1040x how to Special Rule for Tenant-Stockholders in Cooperative Housing Corporations A qualified home includes stock in a cooperative housing corporation owned by a tenant-stockholder. 1040x how to This applies only if the tenant-stockholder is entitled to live in the house or apartment because of owning stock in the cooperative. 1040x how to Cooperative housing corporation. 1040x how to   This is a corporation that meets all of the following conditions. 1040x how to Has only one class of stock outstanding, Has no stockholders other than those who own the stock that can live in a house, apartment, or house trailer owned or leased by the corporation, Has no stockholders who can receive any distribution out of capital other than on a liquidation of the corporation, and Meets at least one of the following requirements. 1040x how to Receives at least 80% of its gross income for the year in which the mortgage interest is paid or incurred from tenant-stockholders. 1040x how to For this purpose, gross income is all income received during the entire year, including amounts received before the corporation changed to cooperative ownership. 1040x how to At all times during the year, at least 80% of the total square footage of the corporation's property is used or available for use by the tenant-stockholders for residential or residential-related use. 1040x how to At least 90% of the corporation's expenditures paid or incurred during the year are for the acquisition, construction, management, maintenance, or care of corporate property for the benefit of the tenant-stockholders. 1040x how to Stock used to secure debt. 1040x how to   In some cases, you cannot use your cooperative housing stock to secure a debt because of either: Restrictions under local or state law, or Restrictions in the cooperative agreement (other than restrictions in which the main purpose is to permit the tenant- stockholder to treat unsecured debt as secured debt). 1040x how to However, you can treat a debt as secured by the stock to the extent that the proceeds are used to buy the stock under the allocation of interest rules. 1040x how to See chapter 4 of Publication 535 for details on these rules. 1040x how to Figuring deductible home mortgage interest. 1040x how to   Generally, if you are a tenant-stockholder, you can deduct payments you make for your share of the interest paid or incurred by the cooperative. 1040x how to The interest must be on a debt to buy, build, change, improve, or maintain the cooperative's housing, or on a debt to buy the land. 1040x how to   Figure your share of this interest by multiplying the total by the following fraction. 1040x how to      Your shares of stock in the cooperative   The total shares of stock in the cooperative Limits on deduction. 1040x how to   To figure how the limits discussed in Part II apply to you, treat your share of the cooperative's debt as debt incurred by you. 1040x how to The cooperative should determine your share of its grandfathered debt, its home acquisition debt, and its home equity debt. 1040x how to (Your share of each of these types of debt is equal to the average balance of each debt multiplied by the fraction just given. 1040x how to ) After your share of the average balance of each type of debt is determined, you include it with the average balance of that type of debt secured by your stock. 1040x how to Form 1098. 1040x how to    The cooperative should give you a Form 1098 showing your share of the interest. 1040x how to Use the rules in this publication to determine your deductible mortgage interest. 1040x how to Part II. 1040x how to Limits on Home Mortgage Interest Deduction This part of the publication discusses the limits on deductible home mortgage interest. 1040x how to These limits apply to your home mortgage interest expense if you have a home mortgage that does not fit into any of the three categories listed at the beginning of Part I under Fully deductible interest . 1040x how to Your home mortgage interest deduction is limited to the interest on the part of your home mortgage debt that is not more than your qualified loan limit. 1040x how to This is the part of your home mortgage debt that is grandfathered debt or that is not more than the limits for home acquisition debt and home equity debt. 1040x how to Table 1 can help you figure your qualified loan limit and your deductible home mortgage interest. 1040x how to Home Acquisition Debt Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home (your main or second home). 1040x how to It also must be secured by that home. 1040x how to If the amount of your mortgage is more than the cost of the home plus the cost of any substantial improvements, only the debt that is not more than the cost of the home plus improvements qualifies as home acquisition debt. 1040x how to The additional debt may qualify as home equity debt (discussed later). 1040x how to Home acquisition debt limit. 1040x how to   The total amount you can treat as home acquisition debt at any time on your main home and second home cannot be more than $1 million ($500,000 if married filing separately). 1040x how to This limit is reduced (but not below zero) by the amount of your grandfathered debt (discussed later). 1040x how to Debt over this limit may qualify as home equity debt (also discussed later). 1040x how to Refinanced home acquisition debt. 1040x how to   Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. 1040x how to However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. 1040x how to Any additional debt not used to buy, build, or substantially improve a qualified home is not home acquisition debt, but may qualify as home equity debt (discussed later). 1040x how to Mortgage that qualifies later. 1040x how to   A mortgage that does not qualify as home acquisition debt because it does not meet all the requirements may qualify at a later time. 1040x how to For example, a debt that you use to buy your home may not qualify as home acquisition debt because it is not secured by the home. 1040x how to However, if the debt is later secured by the home, it may qualify as home acquisition debt after that time. 1040x how to Similarly, a debt that you use to buy property may not qualify because the property is not a qualified home. 1040x how to However, if the property later becomes a qualified home, the debt may qualify after that time. 1040x how to Mortgage treated as used to buy, build, or improve home. 1040x how to   A mortgage secured by a qualified home may be treated as home acquisition debt, even if you do not actually use the proceeds to buy, build, or substantially improve the home. 1040x how to This applies in the following situations. 1040x how to You buy your home within 90 days before or after the date you take out the mortgage. 1040x how to The home acquisition debt is limited to the home's cost, plus the cost of any substantial improvements within the limit described below in (2) or (3). 1040x how to (See Example 1 later. 1040x how to ) You build or improve your home and take out the mortgage before the work is completed. 1040x how to The home acquisition debt is limited to the amount of the expenses incurred within 24 months before the date of the mortgage. 1040x how to You build or improve your home and take out the mortgage within 90 days after the work is completed. 1040x how to The home acquisition debt is limited to the amount of the expenses incurred within the period beginning 24 months before the work is completed and ending on the date of the mortgage. 1040x how to (See Example 2 later. 1040x how to ) Example 1. 1040x how to You bought your main home on June 3 for $175,000. 1040x how to You paid for the home with cash you got from the sale of your old home. 1040x how to On July 15, you took out a mortgage of $150,000 secured by your main home. 1040x how to You used the $150,000 to invest in stocks. 1040x how to You can treat the mortgage as taken out to buy your home because you bought the home within 90 days before you took out the mortgage. 1040x how to The entire mortgage qualifies as home acquisition debt because it was not more than the home's cost. 1040x how to Example 2. 1040x how to On January 31, John began building a home on the lot that he owned. 1040x how to He used $45,000 of his personal funds to build the home. 1040x how to The home was completed on October 31. 1040x how to On November 21, John took out a $36,000 mortgage that was secured by the home. 1040x how to The mortgage can be treated as used to build the home because it was taken out within 90 days after the home was completed. 1040x how to The entire mortgage qualifies as home acquisition debt because it was not more than the expenses incurred within the period beginning 24 months before the home was completed. 1040x how to This is illustrated by Figure C. 1040x how to   Please click here for the text description of the image. 1040x how to Figure C. 1040x how to John's example Date of the mortgage. 1040x how to   The date you take out your mortgage is the day the loan proceeds are disbursed. 1040x how to This is generally the closing date. 1040x how to You can treat the day you apply in writing for your mortgage as the date you take it out. 1040x how to However, this applies only if you receive the loan proceeds within a reasonable time (such as within 30 days) after your application is approved. 1040x how to If a timely application you make is rejected, a reasonable additional time will be allowed to make a new application. 1040x how to Cost of home or improvements. 1040x how to   To determine your cost, include amounts paid to acquire any interest in a qualified home or to substantially improve the home. 1040x how to   The cost of building or substantially improving a qualified home includes the costs to acquire real property and building materials, fees for architects and design plans, and required building permits. 1040x how to Substantial improvement. 1040x how to   An improvement is substantial if it: Adds to the value of your home, Prolongs your home's useful life, or Adapts your home to new uses. 1040x how to    Repairs that maintain your home in good condition, such as repainting your home, are not substantial improvements. 1040x how to However, if you paint your home as part of a renovation that substantially improves your qualified home, you can include the painting costs in the cost of the improvements. 1040x how to Acquiring an interest in a home because of a divorce. 1040x how to   If you incur debt to acquire the interest of a spouse or former spouse in a home, because of a divorce or legal separation, you can treat that debt as home acquisition debt. 1040x how to Part of home not a qualified home. 1040x how to    To figure your home acquisition debt, you must divide the cost of your home and improvements between the part of your home that is a qualified home and any part that is not a qualified home. 1040x how to See Divided use of your home under Qualified Home in Part I. 1040x how to Home Equity Debt If you took out a loan for reasons other than to buy, build, or substantially improve your home, it may qualify as home equity debt. 1040x how to In addition, debt you incurred to buy, build, or substantially improve your home, to the extent it is more than the home acquisition debt limit (discussed earlier), may qualify as home equity debt. 1040x how to Home equity debt is a mortgage you took out after October 13, 1987, that: Does not qualify as home acquisition debt or as grandfathered debt, and Is secured by your qualified home. 1040x how to Example. 1040x how to You bought your home for cash 10 years ago. 1040x how to You did not have a mortgage on your home until last year, when you took out a $50,000 loan, secured by your home, to pay for your daughter's college tuition and your father's medical bills. 1040x how to This loan is home equity debt. 1040x how to Home equity debt limit. 1040x how to   There is a limit on the amount of debt that can be treated as home equity debt. 1040x how to The total home equity debt on your main home and second home is limited to the smaller of: $100,000 ($50,000 if married filing separately), or The total of each home's fair market value (FMV) reduced (but not below zero) by the amount of its home acquisition debt and grandfathered debt. 1040x how to Determine the FMV and the outstanding home acquisition and grandfathered debt for each home on the date that the last debt was secured by the home. 1040x how to Example. 1040x how to You own one home that you bought in 2000. 1040x how to Its FMV now is $110,000, and the current balance on your original mortgage (home acquisition debt) is $95,000. 1040x how to Bank M offers you a home mortgage loan of 125% of the FMV of the home less any outstanding mortgages or other liens. 1040x how to To consolidate some of your other debts, you take out a $42,500 home mortgage loan [(125% × $110,000) − $95,000] with Bank M. 1040x how to Your home equity debt is limited to $15,000. 1040x how to This is the smaller of: $100,000, the maximum limit, or $15,000, the amount that the FMV of $110,000 exceeds the amount of home acquisition debt of $95,000. 1040x how to Debt higher than limit. 1040x how to   Interest on amounts over the home equity debt limit (such as the interest on $27,500 [$42,500 − $15,000] in the preceding example) generally is treated as personal interest and is not deductible. 1040x how to But if the proceeds of the loan were used for investment, business, or other deductible purposes, the interest may be deductible. 1040x how to If it is, see the Table 1 Instructions for line 13 for an explanation of how to allocate the excess interest. 1040x how to Part of home not a qualified home. 1040x how to   To figure the limit on your home equity debt, you must divide the FMV of your home between the part that is a qualified home and any part that is not a qualified home. 1040x how to See Divided use of your home under Qualified Home in Part I. 1040x how to Fair market value (FMV). 1040x how to    This is the price at which the home would change hands between you and a buyer, neither having to sell or buy, and both having reasonable knowledge of all relevant facts. 1040x how to Sales of similar homes in your area, on about the same date your last debt was secured by the home, may be helpful in figuring the FMV. 1040x how to Grandfathered Debt If you took out a mortgage on your home before October 14, 1987, or you refinanced such a mortgage, it may qualify as grandfathered debt. 1040x how to To qualify, it must have been secured by your qualified home on October 13, 1987, and at all times after that date. 1040x how to How you used the proceeds does not matter. 1040x how to Grandfathered debt is not limited. 1040x how to All of the interest you paid on grandfathered debt is fully deductible home mortgage interest. 1040x how to However, the amount of your grandfathered debt reduces the $1 million limit for home acquisition debt and the limit based on your home's fair market value for home equity debt. 1040x how to Refinanced grandfathered debt. 1040x how to   If you refinanced grandfathered debt after October 13, 1987, for an amount that was not more than the mortgage principal left on the debt, then you still treat it as grandfathered debt. 1040x how to To the extent the new debt is more than that mortgage principal, it is treated as home acquisition or home equity debt, and the mortgage is a mixed-use mortgage (discussed later under Average Mortgage Balance in the Table 1 instructions). 1040x how to The debt must be secured by the qualified home. 1040x how to   You treat grandfathered debt that was refinanced after October 13, 1987, as grandfathered debt only for the term left on the debt that was refinanced. 1040x how to After that, you treat it as home acquisition debt or home equity debt, depending on how you used the proceeds. 1040x how to Exception. 1040x how to   If the debt before refinancing was like a balloon note (the principal on the debt was not amortized over the term of the debt), then you treat the refinanced debt as grandfathered debt for the term of the first refinancing. 1040x how to This term cannot be more than 30 years. 1040x how to Example. 1040x how to Chester took out a $200,000 first mortgage on his home in 1986. 1040x how to The mortgage was a five-year balloon note and the entire balance on the note was due in 1991. 1040x how to Chester refinanced the debt in 1991 with a new 20-year mortgage. 1040x how to The refinanced debt is treated as grandfathered debt for its entire term (20 years). 1040x how to Line-of-credit mortgage. 1040x how to    If you had a line-of-credit mortgage on October 13, 1987, and borrowed additional amounts against it after that date, then the additional amounts are either home acquisition debt or home equity debt depending on how you used the proceeds. 1040x how to The balance on the mortgage before you borrowed the additional amounts is grandfathered debt. 1040x how to The newly borrowed amounts are not grandfathered debt because the funds were borrowed after October 13, 1987. 1040x how to See Average Mortgage Balance in the Table 1 Instructions that follow. 1040x how to Table 1 Instructions Unless you are subject to the overall limit on itemized deductions, you can deduct all of the interest you paid during the year on mortgages secured by your main home or second home in either of the following two situations. 1040x how to All the mortgages are grandfathered debt. 1040x how to The total of the mortgage balances for the entire year is within the limits discussed earlier under Home Acquisition Debt and Home Equity Debt . 1040x how to In either of those cases, you do not need Table 1. 1040x how to Otherwise, you can use Table 1 to determine your qualified loan limit and deductible home mortgage interest. 1040x how to Fill out only one Table 1 for both your main and second home regardless of how many mortgages you have. 1040x how to Table 1. 1040x how to Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. 1040x how to Part I Qualified Loan Limit 1. 1040x how to Enter the average balance of all your grandfathered debt. 1040x how to See line 1 instructions 1. 1040x how to   2. 1040x how to Enter the average balance of all your home acquisition debt. 1040x how to See line 2 instructions 2. 1040x how to   3. 1040x how to Enter $1,000,000 ($500,000 if married filing separately) 3. 1040x how to   4. 1040x how to Enter the larger of the amount on line 1 or the amount on line 3 4. 1040x how to   5. 1040x how to Add the amounts on lines 1 and 2. 1040x how to Enter the total here 5. 1040x how to   6. 1040x how to Enter the smaller of the amount on line 4 or the amount on line 5 6. 1040x how to   7. 1040x how to If you have home equity debt, enter the smaller of $100,000 ($50,000 if married filing separately) or your limited amount. 1040x how to See the line 7 instructions for the limit which may apply to you. 1040x how to 7. 1040x how to   8. 1040x how to Add the amounts on lines 6 and 7. 1040x how to Enter the total. 1040x how to This is your qualified loan limit. 1040x how to 8. 1040x how to   Part II Deductible Home Mortgage Interest 9. 1040x how to Enter the total of the average balances of all mortgages on all qualified homes. 1040x how to  See line 9 instructions 9. 1040x how to     If line 8 is less than line 9, go on to line 10. 1040x how to If line 8 is equal to or more than line 9, stop here. 1040x how to All of your interest on all the mortgages included on line 9 is deductible as home mortgage interest on Schedule A (Form 1040). 1040x how to     10. 1040x how to Enter the total amount of interest that you paid. 1040x how to See line 10 instructions 10. 1040x how to   11. 1040x how to Divide the amount on line 8 by the amount on line 9. 1040x how to Enter the result as a decimal amount (rounded to three places) 11. 1040x how to × . 1040x how to 12. 1040x how to Multiply the amount on line 10 by the decimal amount on line 11. 1040x how to Enter the result. 1040x how to This is your deductible home mortgage interest. 1040x how to Enter this amount on Schedule A (Form 1040) 12. 1040x how to   13. 1040x how to Subtract the amount on line 12 from the amount on line 10. 1040x how to Enter the result. 1040x how to This is not home mortgage interest. 1040x how to See line 13 instructions 13. 1040x how to   Home equity debt only. 1040x how to   If all of your mortgages are home equity debt, do not fill in lines 1 through 5. 1040x how to Enter zero on line 6 and complete the rest of Table 1. 1040x how to Average Mortgage Balance You have to figure the average balance of each mortgage to determine your qualified loan limit. 1040x how to You need these amounts to complete lines 1, 2, and 9 of Table 1. 1040x how to You can use the highest mortgage balances during the year, but you may benefit most by using the average balances. 1040x how to The following are methods you can use to figure your average mortgage balances. 1040x how to However, if a mortgage has more than one category of debt, see Mixed-use mortgages , later, in this section. 1040x how to Average of first and last balance method. 1040x how to   You can use this method if all the following apply. 1040x how to You did not borrow any new amounts on the mortgage during the year. 1040x how to (This does not include borrowing the original mortgage amount. 1040x how to ) You did not prepay more than one month's principal during the year. 1040x how to (This includes prepayment by refinancing your home or by applying proceeds from its sale. 1040x how to ) You had to make level payments at fixed equal intervals on at least a semi-annual basis. 1040x how to You treat your payments as level even if they were adjusted from time to time because of changes in the interest rate. 1040x how to    To figure your average balance, complete the following worksheet. 1040x how to    1. 1040x how to Enter the balance as of the first day of the year that the mortgage was secured by your qualified home during the year (generally January 1)   2. 1040x how to Enter the balance as of the last day of the year that the mortgage was secured by your qualified home during the year (generally December 31)   3. 1040x how to Add amounts on lines 1 and 2   4. 1040x how to Divide the amount on line 3 by 2. 1040x how to Enter the result   Interest paid divided by interest rate method. 1040x how to   You can use this method if at all times in 2013 the mortgage was secured by your qualified home and the interest was paid at least monthly. 1040x how to    Complete the following worksheet to figure your average balance. 1040x how to    1. 1040x how to Enter the interest paid in 2013. 1040x how to Do not include points, mortgage insurance premiums, or any interest paid in 2013 that is for a year after 2013. 1040x how to However, do include interest that is for 2013 but was paid in an earlier year   2. 1040x how to Enter the annual interest rate on the mortgage. 1040x how to If the interest rate varied in 2013, use the lowest rate for the year   3. 1040x how to Divide the amount on line 1 by the amount on line 2. 1040x how to Enter the result   Example. 1040x how to Mr. 1040x how to Blue had a line of credit secured by his main home all year. 1040x how to He paid interest of $2,500 on this loan. 1040x how to The interest rate on the loan was 9% (. 1040x how to 09) all year. 1040x how to His average balance using this method is $27,778, figured as follows. 1040x how to 1. 1040x how to Enter the interest paid in 2013. 1040x how to Do not include points, mortgage insurance premiums, or any interest paid in 2013 that is for a year after 2013. 1040x how to However, do include interest that is for 2013 but was paid in an earlier year $2,500 2. 1040x how to Enter the annual interest rate on the mortgage. 1040x how to If the interest rate varied in 2013, use the lowest rate for the year . 1040x how to 09 3. 1040x how to Divide the amount on line 1 by the amount on line 2. 1040x how to Enter the result $27,778 Statements provided by your lender. 1040x how to   If you receive monthly statements showing the closing balance or the average balance for the month, you can use either to figure your average balance for the year. 1040x how to You can treat the balance as zero for any month the mortgage was not secured by your qualified home. 1040x how to   For each mortgage, figure your average balance by adding your monthly closing or average balances and dividing that total by the number of months the home secured by that mortgage was a qualified home during the year. 1040x how to   If your lender can give you your average balance for the year, you can use that amount. 1040x how to Example. 1040x how to Ms. 1040x how to Brown had a home equity loan secured by her main home all year. 1040x how to She received monthly statements showing her average balance for each month. 1040x how to She can figure her average balance for the year by adding her monthly average balances and dividing the total by 12. 1040x how to Mixed-use mortgages. 1040x how to   A mixed-use mortgage is a loan that consists of more than one of the three categories of debt (grandfathered debt, home acquisition debt, and home equity debt). 1040x how to For example, a mortgage you took out during the year is a mixed-use mortgage if you used its proceeds partly to refinance a mortgage that you took out in an earlier year to buy your home (home acquisition debt) and partly to buy a car (home equity debt). 1040x how to   Complete lines 1 and 2 of Table 1 by including the separate average balances of any grandfathered debt and home acquisition debt in your mixed-use mortgage. 1040x how to Do not use the methods described earlier in this section to figure the average balance of either category. 1040x how to Instead, for each category, use the following method. 1040x how to Figure the balance of that category of debt for each month. 1040x how to This is the amount of the loan proceeds allocated to that category, reduced by your principal payments on the mortgage previously applied to that category. 1040x how to Principal payments on a mixed-use mortgage are applied in full to each category of debt, until its balance is zero, in the following order: First, any home equity debt, Next, any grandfathered debt, and Finally, any home acquisition debt. 1040x how to Add together the monthly balances figured in (1). 1040x how to Divide the result in (2) by 12. 1040x how to   Complete line 9 of Table 1 by including the average balance of the entire mixed-use mortgage, figured under one of the methods described earlier in this section. 1040x how to Example 1. 1040x how to In 1986, Sharon took out a $1,400,000 mortgage to buy her main home (grandfathered debt). 1040x how to On March 2, 2013, when the home had a fair market value of $1,700,000 and she owed $1,100,000 on the mortgage, Sharon took out a second mortgage for $200,000. 1040x how to She used $180,000 of the proceeds to make substantial improvements to her home (home acquisition debt) and the remaining $20,000 to buy a car (home equity debt). 1040x how to Under the loan agreement, Sharon must make principal payments of $1,000 at the end of each month. 1040x how to During 2013, her principal payments on the second mortgage totaled $10,000. 1040x how to To complete Table 1, line 2, Sharon must figure a separate average balance for the part of her second mortgage that is home acquisition debt. 1040x how to The January and February balances were zero. 1040x how to The March through December balances were all $180,000, because none of her principal payments are applied to the home acquisition debt. 1040x how to (They are all applied to the home equity debt, reducing it to $10,000 [$20,000 − $10,000]. 1040x how to ) The monthly balances of the home acquisition debt total $1,800,000 ($180,000 × 10). 1040x how to Therefore, the average balance of the home acquisition debt for 2013 was $150,000 ($1,800,000 ÷ 12). 1040x how to Example 2. 1040x how to The facts are the same as in Example 1. 1040x how to In 2014, Sharon's January through October principal payments on her second mortgage are applied to the home equity debt, reducing it to zero. 1040x how to The balance of the home acquisition debt remains $180,000 for each of those months. 1040x how to Because her November and December principal payments are applied to the home acquisition debt, the November balance is $179,000 ($180,000 − $1,000) and the December balance is $178,000 ($180,000 − $2,000). 1040x how to The monthly balances total $2,157,000 [($180,000 × 10) + $179,000 + $178,000]. 1040x how to Therefore, the average balance of the home acquisition debt for 2014 is $179,750 ($2,157,000 ÷ 12). 1040x how to L
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Valuation of Assets

This page provides links to useful job aids, articles and white papers on various valuation topics. The items contained herein are offered for reference purposes only and do not represent or suggest official IRS positions. They may not be used or cited as authority for setting any legal position.

Discount for Lack of Marketability - Job Aid for IRS Valuation Professionals
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Page Last Reviewed or Updated: 13-Mar-2014

The 1040x How To

1040x how to Publication 557 - Additional Material Table of Contents Appendix. 1040x how to Sample Articles of Organization, continued Organization Reference Chart Section of 1986 Code Description of organization General nature of activities Application  Form Annual return required to be  filed Contributions  allowable 501(c)(1) Corporations Organized under Act of Congress (including Federal Credit Unions) Instrumentalities of the  United States No Form None Yes, if made for exclusively public purposes 501(c)(2) Title Holding Corporation For Exempt Organization Holding title to property of an  exempt organization 1024 9901 or 990-EZ8 No2 501(c)(3) Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations Activities of nature implied by description of class of organization 1023 9901 or 990-EZ8, or 990-PF Yes, generally 501(c)(4) Civic Leagues, Social Welfare Organizations, and Local Associations of Employees Promotion of community welfare; charitable, educational, or recreational 1024 9901 or 990-EZ8 No, generally 2, 3 501(c)(5) Labor, Agricultural, and Horticultural Organizations Educational or instructive, the  purpose being to improve conditions of work, and to improve products of efficiency 1024 9901 or 990-EZ8 No2 501(c)(6) Business Leagues, Chambers of Commerce, Real Estate Boards, etc. 1040x how to Improvement of business  conditions of one or more lines of business 1024 9901 or 990-EZ8 No2 501(c)(7) Social and Recreational Clubs Pleasure, recreation, social activities 1024 9901 or 990-EZ8 No2 501(c)(8) Fraternal Beneficiary Societies  and Associations Lodge providing for payment of life, sickness, accident or other benefits  to members 1024 9901 or 990-EZ8 Yes, if for certain Sec. 1040x how to 501(c)(3) purposes 501(c)(9) Voluntary Employees Beneficiary Associations Providing for payment of life, sickness, accident, or other benefits to members 1024 9901 or 990-EZ8 No2 501(c)(10) Domestic Fraternal Societies  and Associations Lodge devoting its net earnings to charitable, fraternal, and other  specified purposes. 1040x how to No life, sickness, or accident benefits to members 1024 9901 or 990-EZ8 Yes, if for certain Sec. 1040x how to 501(c)(3) purposes 501(c)(11) Teachers' Retirement Fund Associations Teachers' association for payment of retirement benefits Letter6 9901 or 990-EZ8 No2 501(c)(12) Benevolent Life Insurance Associations, Mutual Ditch or  Irrigation Companies, Mutual or Cooperative Telephone Companies, etc. 1040x how to Activities of a mutually beneficial  nature similar to those implied by the description of class of organization 1024 9901 or 990-EZ8 No2 501(c)(13) Cemetery Companies Burials and incidental activities 1024 9901 or 990-EZ8 Yes, generally 501(c)(14) State-Chartered Credit Unions,  Mutual Reserve Funds Loans to members Letter6 9901 or 990-EZ8 No2 501(c)(15) Mutual Insurance Companies or Associations Providing insurance to members substantially at cost 1024 9901 or 990-EZ8 No2 501(c)(16) Cooperative Organizations to  Finance Crop Operations Financing crop operations in  conjunction with activities of a marketing  or purchasing association Form 1120-C6 9901 or 990-EZ8 No2 501(c)(17) Supplemental Unemployment  Benefit Trusts Provides for payment of  supplemental unemployment compensation benefits 1024 9901 or 990-EZ8 No2 501(c)(18) Employee Funded Pension Trust (created before June 25, 1959) Payment of benefits under a  pension plan funded by employees Letter6 9901 or 990-EZ8 No2 501(c)(19) Post or Organization of Past or  Present Members of the Armed Forces Activities implied by nature of organization 1024 9901 or 990-EZ8 No, generally7 501(c)(21) Black Lung Benefit Trusts Funded by coal mine operators to satisfy their liability for disability or  death due to black lung diseases Letter6 990-BL No4 501(c)(22) Withdrawal Liability Payment Fund To provide funds to meet the  liability of employers withdrawing from  a multi-employer pension fund Letter6 9901 or 990-EZ8 No5 501(c)(23) Veterans' Organization (created before 1880) To provide insurance and other  benefits to veterans Letter6 9901 or 990-EZ8 No, generally7 501(c)(25) Title Holding Corporations or Trusts with Multiple Parent Corporations Holding title and paying over  income from property to 35 or fewer parents or beneficiaries 1024 9901 or 990-EZ8 No 501(c)(26) State-Sponsored Organization Providing Health Coverage for High-Risk Individuals Provides health care coverage to high-risk individuals Letter6 9901 or 990-EZ8 No 501(c)(27) State-Sponsored Workers' Compensation Reinsurance Organization Reimburses members for losses  under workers' compensation acts Letter6 9901 or 990-EZ8 No 501(c)(28) National Railroad Retirement Investment Trust Manages and invests the assets of the Railroad Retirement Account No Form 99011 No11 501(c)(29) CO-OP health insurance issuers A qualified health insurance issuer which has received a loan or grant under the CO-OP program Letter and Form 871814 9901 No13 501(d) Religious and Apostolic Associations Regular business activities;  Communal religious community No Form 10659 No2 501(e) Cooperative Hospital Service Organizations Performs cooperative services for hospitals 1023 9901 or 990-EZ8 Yes 501(f) Cooperative Service Organizations  of Operating Educational Organizations Performs collective investment  services for educational organizations 1023 9901 or 990-EZ8 Yes 501(k) Child Care Organizations Provides care for children 1023 9901 or 990-EZ8 Yes 501(n) Charitable Risk Pools Pools certain insurance risks of sec. 1040x how to 501(c)(3) organizations 1023 9901 or 990-EZ8 Yes 501(q) Credit Counseling Organization Credit counseling services 1023 102312 No 521(a) Farmers' Cooperative Associations Cooperative marketing and  purchasing for agricultural procedures 1028 1120-C No 527 Political organizations A party, committee, fund,  association, etc. 1040x how to , that directly or indirectly accepts contributions or makes expenditures for political campaigns 8871 1120-POL10 9901 or 990-EZ8 No 1For exceptions to the filing requirement, see chapter 2 and the form instructions. 1040x how to Note: For annual tax periods beginning after 2006, most tax-exempt organizations, other than churches, are required to file an annual Form 990, 990-EZ, or 990-PF with the IRS or to submit an annual electronic notice, Form 990-N (e-Postcard), to the IRS. 1040x how to Tax-exempt organizations failing to file an annual return or submit an annual notice as required for 3 consecutive years will automatically lose their tax-exempt status. 1040x how to    2An organization exempt under a subsection of section 501 other than 501(c)(3) can establish a charitable fund, contributions to which are deductible. 1040x how to Such a fund must itself meet the requirements of section 501(c)(3) and the related notice requirements of section 508(a). 1040x how to    3Contributions to volunteer fire companies and similar organizations are deductible, but only if made for exclusively public purposes. 1040x how to    4Deductible as a business expense to the extent allowed by section 192. 1040x how to    5Deductible as a business expense to the extent allowed by section 194A. 1040x how to 6Application is by letter to the address shown on Form 8718. 1040x how to A copy of the organizing document should be attached and the letter should be signed by an officer. 1040x how to    7Contributions to these organizations are deductible only if 90% or more of the organization's members are war veterans. 1040x how to    8For limits on the use of Form 990-EZ, see chapter 2 and the general instructions for Form 990-EZ (or Form 990). 1040x how to    9Although the organization files a partnership return, all distributions are deemed dividends. 1040x how to The members are not entitled to pass through treatment of the organization's income or expenses. 1040x how to    10Form 1120-POL is required only if the organization has taxable income as defined in section 527(c). 1040x how to    11Only required to annually file so much of the Form 990 that relates to the names and addresses of the officers, directors, trustees, and key employees, and their titles, compensation, and hours devoted to their positions (Part VII of Form 990), and to complete Item I in the Heading of Form 990 to confirm its tax-exempt status under section 501(c)(28). 1040x how to    12See section 501(q) if the organization provides credit counseling services and seeks recognition of exemption under section 501(c)(4). 1040x how to Use Form 1024 if applying for recognition under section 501(c)(4). 1040x how to    13See section 501(c)(29) for details. 1040x how to    14See Revenue Procedure 2012-11, sec. 1040x how to 4. 1040x how to 01, 2012-7 I. 1040x how to R. 1040x how to B. 1040x how to 368, for details. 1040x how to Appendix. 1040x how to Sample Articles of Organization The following are examples of Articles of Incorporation (Draft A) and a declaration of trust (Draft B) that contain the required information as to purposes and powers of an organization and disposition of its assets upon dissolution. 1040x how to You should bear in mind that requirements for these instruments may vary under applicable state law. 1040x how to See Private Foundations and Public Charities , earlier for the special provisions required in a private foundation's governing instrument in order for it to qualify for exemption. 1040x how to DRAFT A  Articles of Incorporation of the undersigned, a majority of whom are citizens of the United States, desiring to form a Non-Profit Corporation under the Non-Profit Corporation Law of , do hereby certify: First: The name of the Corporation shall be . 1040x how to Second: The place in this state where the principal office of the Corporation is to be located is the City of , County. 1040x how to Third: Said corporation is organized exclusively for charitable, religious, educational, and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. 1040x how to Fourth: The names and addresses of the persons who are the initial trustees of the corporation are as follows: Name , Address Fifth: No part of the net earnings of the corporation shall inure to the benefit of, or be distributable to its members, trustees, officers, or other private persons, except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in Article Third hereof. 1040x how to No substantial part of the activities of the corporation shall be the carrying on of propaganda, or otherwise attempting to influence legislation, and the corporation shall not participate in, or intervene in (including the publishing or distribution of statements) any political campaign on behalf of or in opposition to any candidate for public office. 1040x how to Notwithstanding any other provision of these articles, the corporation shall not carry on any other activities not permitted to be carried on (a) by a corporation exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or (b) by a corporation, contributions to which are deductible under section 170(c)(2) of the Internal Revenue Code, or the corresponding section of any future federal tax code. 1040x how to   If reference to federal law in articles of incorporation imposes a limitation that is invalid in your state, you may wish to substitute the following for the last sentence of the preceding paragraph: “Notwithstanding any other provision of these articles, this corporation shall not, except to an insubstantial degree, engage in any activities or exercise any powers that are not in furtherance of the purposes of this corporation. 1040x how to ” Sixth: Upon the dissolution of the corporation, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. 1040x how to Any such assets not so disposed of shall be disposed of by a Court of Competent Jurisdiction of the county in which the principal office of the corporation is then located, exclusively for such purposes or to such organization or organizations, as said Court shall determine, which are organized and operated exclusively for such purposes. 1040x how to   In witness whereof, we have hereunto subscribed our names this day of , 20. 1040x how to Appendix. 1040x how to Sample Articles of Organization, continued Draft B The Charitable Trust. 1040x how to Declaration of Trust made as of the day of , 20 , by , of , and , of , who hereby declare and agree that they have received this day from , as Donor, the sum of Ten Dollars ($10) and that they will hold and manage the same, and any additions to it, in trust, as follows: First: This trust shall be called “The Charitable Trust. 1040x how to ” Second: The trustees may receive and accept property, whether real, personal, or mixed, by way of gift, bequest, or devise, from any person, firm, trust, or corporation, to be held, administered, and disposed of in accordance with and pursuant to the provisions of this Declaration of Trust; but no gift, bequest, or devise of any such property shall be received and accepted if it is conditioned or limited in such manner as to require the disposition of the income or its principal to any person or organization other than a “charitable organization” or for other than “charitable purposes” within the meaning of such terms as defined in Article Third of this Declaration of Trust, or as shall, in the opinion of the trustees, jeopardize the federal income tax exemption of this trust pursuant to section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. 1040x how to Third: a) The principal and income of all property received and accepted by the trustees to be administered under this Declaration of Trust shall be held in trust by them, and the trustees may make payments or distributions from income or principal, or both, to or for the use of such charitable organizations, within the meaning of that term as defined in paragraph C, in such amounts and for such charitable purposes of the trust as the trustees shall from time to time select and determine; and the trustees may make payments or distributions from income or principal, or both, directly for such charitable purposes, within the meaning of that term as defined in paragraph D, in such amounts as the trustees shall from time to time select and determine without making use of any other charitable organization. 1040x how to The trustees may also make payments or distributions of all or any part of the income or principal to states, territories, or possessions of the United States, any political subdivision of any of the foregoing, or to the United States or the District of Columbia but only for charitable purposes within the meaning of that term as defined in paragraph D. 1040x how to Income or principal derived from contributions by corporations shall be distributed by the trustees for use solely within the United States or its possessions. 1040x how to No part of the net earnings of this trust shall inure or be payable to or for the benefit of any private shareholder or individual, and no substantial part of the activities of this trust shall be the carrying on of propaganda, or otherwise attempting to influence legislation. 1040x how to No part of the activities of this trust shall be the participation in, or intervention in (including the publishing or distributing of statements), any political campaign on behalf of or in opposition to any candidate for public office. 1040x how to b) The trust shall continue forever unless the trustees terminate it and distribute all of the principal and income, which action may be taken by the trustees in their discretion at any time. 1040x how to On such termination, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. 1040x how to The donor authorizes and empowers the trustees to form and organize a nonprofit corporation limited to the uses and purposes provided for in this Declaration of Trust, such corporation to be organized under the laws of any state or under the laws of the United States as may be determined by the trustees; such corporation when organized to have power to administer and control the affairs and property and to carry out the uses, objects, and purposes of this trust. 1040x how to Upon the creation and organization of such corporation, the trustees are authorized and empowered to convey, transfer, and deliver to such corporation all the property and assets to which this trust may be or become entitled. 1040x how to The charter, bylaws, and other provisions for the organization and management of such corporation and its affairs and property shall be such as the trustees shall determine, consistent with the provisions of this paragraph. 1040x how to c) In this Declaration of Trust and in any amendments to it, references to “charitable organizations” or “charitable organization” mean corporations, trusts, funds, foundations, or community chests created or organized in the United States or in any of its possessions, whether under the laws of the United States, any state or territory, the District of Columbia, or any possession of the United States, organized and operated exclusively for charitable purposes, no part of the net earnings of which inures or is payable to or for the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation, and which do not participate in or intervene in (including the publishing or distributing of statements) any political campaign on behalf of or in opposition to any candidate for public office. 1040x how to It is intended that the organization described in this paragraph C shall be entitled to exemption from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. 1040x how to d) In this Declaration of Trust and in any amendments to it, the term “charitable purposes” shall be limited to and shall include only religious, charitable, scientific, literary, or educational purposes within the meaning of those terms as used in section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, but only such purposes as also constitute public charitable purposes under the law of trusts of the State of. 1040x how to Fourth: This Declaration of Trust may be amended at any time or times by written instrument or instruments signed and sealed by the trustees, and acknowledged by any of the trustees, provided that no amendment shall authorize the trustees to conduct the affairs of this trust in any manner or for any purpose contrary to the provisions of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. 1040x how to An amendment of the provisions of this Article Fourth (or any amendment to it) shall be valid only if and to the extent that such amendment further restricts the trustees' amending power. 1040x how to All instruments amending this Declaration of Trust shall be noted upon or kept attached to the executed original of this Declaration of Trust held by the trustees. 1040x how to Fifth: Any trustee under this Declaration of Trust may, by written instrument, signed and acknowledged, resign his office. 1040x how to The number of trustees shall be at all times not less than two, and whenever for any reason the number is reduced to one, there shall be, and at any other time there may be, appointed one or more additional trustees. 1040x how to Appointments shall be made by the trustee or trustees for the time in office by written instruments signed and acknowledged. 1040x how to Any succeeding or additional trustee shall, upon his or her acceptance of the office by written instrument signed and acknowledged, have the same powers, rights, and duties, and the same title to the trust estate jointly with the surviving or remaining trustee or trustees as if originally appointed. 1040x how to  None of the trustees shall be required to furnish any bond or surety. 1040x how to None of them shall be responsible or liable for the acts or omissions of any other of the trustees or of any predecessor or of a custodian, agent, depositary, or counsel selected with reasonable care. 1040x how to  The one or more trustees, whether original or successor, for the time being in office, shall have full authority to act even though one or more vacancies may exist. 1040x how to A trustee may, by appropriate written instrument, delegate all or any part of his or her powers to another or others of the trustees for such periods and subject to such conditions as such delegating trustee may determine. 1040x how to  The trustees serving under this Declaration of Trust are authorized to pay to themselves amounts for reasonable expenses incurred and reasonable compensation for services rendered in the administration of this trust, but in no event shall any trustee who has made a contribution to this trust ever receive any compensation thereafter. 1040x how to Sixth: In extension and not in limitation of the common law and statutory powers of trustees and other powers granted in this Declaration of Trust, the trustees shall have the following discretionary powers. 1040x how to a) To invest and reinvest the principal and income of the trust in such property, real, personal, or mixed, and in such manner as they shall deem proper, and from time to time to change investments as they shall deem advisable; to invest in or retain any stocks, shares, bonds, notes, obligations, or personal or real property (including without limitation any interests in or obligations of any corporation, association, business trust, investment trust, common trust fund, or investment company) although some or all of the property so acquired or retained is of a kind or size which but for this express authority would not be considered proper and although all of the trust funds are invested in the securities of one company. 1040x how to No principal or income, however, shall be loaned, directly or indirectly, to any trustee or to anyone else, corporate or otherwise, who has at any time made a contribution to this trust, nor to anyone except on the basis of an adequate interest charge and with adequate security. 1040x how to b) To sell, lease, or exchange any personal, mixed, or real property, at public auction or by private contract, for such consideration and on such terms as to credit or otherwise, and to make such contracts and enter into such undertakings relating to the trust property, as they consider advisable, whether or not such leases or contracts may extend beyond the duration of the trust. 1040x how to c) To borrow money for such periods, at such rates of interest, and upon such terms as the trustees consider advisable, and as security for such loans to mortgage or pledge any real or personal property with or without power of sale; to acquire or hold any real or personal property, subject to any mortgage or pledge on or of property acquired or held by this trust. 1040x how to d) To execute and deliver deeds, assignments, transfers, mortgages, pledges, leases, covenants, contracts, promissory notes, releases, and other instruments, sealed or unsealed, incident to any transaction in which they engage. 1040x how to e) To vote, to give proxies, to participate in the reorganization, merger, or consolidation of any concern, or in the sale, lease, disposition, or distribution of its assets; to join with other security holders in acting through a committee, depositary, voting trustees, or otherwise, and in this connection to delegate authority to such committee, depositary, or trustees and to deposit securities with them or transfer securities to them; to pay assessments levied on securities or to exercise subscription rights in respect of securities. 1040x how to f) To employ a bank or trust company as custodian of any funds or securities and to delegate to it such powers as they deem appropriate; to hold trust property without indication of fiduciary capacity but only in the name of a registered nominee, provided the trust property is at all times identified as such on the books of the trust; to keep any or all of the trust property or funds in any place or places in the United States of America; to employ clerks, accountants, investment counsel, investment agents, and any special services, and to pay the reasonable compensation and expenses of all such services in addition to the compensation of the trustees. 1040x how to Seventh: The trustees' powers are exercisable solely in the fiduciary capacity consistent with and in furtherance of the charitable purposes of this trust as specified in Article Third and not otherwise. 1040x how to Eighth: In this Declaration of Trust and in any amendment to it, references to “trustees” mean the one or more trustees, whether original or successor, for the time being in office. 1040x how to Ninth: Any person may rely on a copy, certified by a notary public, of the executed original of this Declaration of Trust held by the trustees, and of any of the notations on it and writings attached to it, as fully as he might rely on the original documents themselves. 1040x how to Any such person may rely fully on any statements of fact certified by anyone who appears from such original documents or from such certified copy to be a trustee under this Declaration of Trust. 1040x how to No one dealing with the trustees need inquire concerning the validity of anything the trustees purport to do. 1040x how to No one dealing with the trustees need see to the application of anything paid or transferred to or upon the order of the trustees of the trust. 1040x how to Tenth: This Declaration of Trust is to be governed in all respects by the laws of the State of . 1040x how to Trustee Trustee 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