File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

2012 Income Tax

1040ez Tax Forms DownloadsIrs 2010 Form 1040Print 1040ezBankruptcy Married Filing Income Taxes SeparatelyE-file Tax Extension FreeMi 1040x2011 Federal Tax Form 1040H&rblock Free OnlineFile Free State Taxes Only2012 Form 1040ezHow To File State Taxes Online1040ez Form1042 EzWhere To Send 1040xFile Tax ExtensionDoes Active Duty Military Pay State TaxesHow To File An Amended Tax Return For 2013Tax Forms 1040ez 2011Do My Taxes Free OnlineIrs Gov Form 1040ezAmended Tax Return Form1040ez Tax Form 2012File Amended Tax Return Online1040ez Online FormAlabama 40 Tax Forms 2012Unemployed Tax FilingAmending Federal Tax Return2010 Tax Forms And Instructions1040x Form 2013Irs Where Mail 1040ez1040ez GovAmended TaxesFile 2012 State Taxes FreeI Need To File An Amended Tax ReturnFederal Tax TableIrs Forms 1040Back Tax ReturnsH&rblock OnlineFree 2011 Tax Software1040ez Efile

2012 Income Tax

2012 income tax Publication 555 - Introductory Material Table of Contents Future Developments What's New Important Reminder IntroductionOrdering forms and publications. 2012 income tax Tax questions. 2012 income tax Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 555, such as legislation enacted after it was published, go to www. 2012 income tax irs. 2012 income tax gov/pub555. 2012 income tax What's New Same-sex marriages. 2012 income tax  For federal tax purposes, individuals of the same sex are married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. 2012 income tax The term "spouse" includes an individual married to a person of the same sex if the couple is lawfully married under state (or foreign) law. 2012 income tax However, individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not called a marriage under state (or foreign) law are not married for federal tax purposes. 2012 income tax The word “state” as used here includes the District of Columbia, Puerto Rico, and U. 2012 income tax S. 2012 income tax territories and possessions. 2012 income tax It means any domestic jurisdiction that has the legal authority to sanction marriages. 2012 income tax The term “foreign country” means any foreign jurisdiction that has the legal authority to sanction marriages. 2012 income tax If individuals of the same sex are married, they generally must use the married filing jointly or married filing separately filing status. 2012 income tax However, if they did not live together during the last 6 months of the year, one or both of them may be able to use the head of household filing status. 2012 income tax For details, see Publication 501, Exemptions, Standard Deduction, and Filing Information. 2012 income tax Also see Revenue Ruling 2013-17 and Answers to Frequently Asked Questions for Individuals of the Same Sex Who Are Married Under State Law on IRS. 2012 income tax gov. 2012 income tax Important Reminder Photographs of missing children. 2012 income tax  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. 2012 income tax Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 2012 income tax You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. 2012 income tax Introduction This publication is for married taxpayers who are domiciled in one of the following community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin. 2012 income tax This publication does not address the federal tax treatment of income or property subject to the “community property” election under Alaska state laws. 2012 income tax Community property laws affect how you figure your income on your federal income tax return if you are married, live in a community property state or country, and file separate returns. 2012 income tax If you are married, your tax usually will be less if you file married filing jointly than if you file married filing separately. 2012 income tax However, sometimes it can be to your advantage to file separate returns. 2012 income tax If you and your spouse file separate returns, you have to determine your community income and your separate income. 2012 income tax Community property laws also affect your basis in property you inherit from a married person who lived in a community property state. 2012 income tax See Death of spouse , later. 2012 income tax Registered domestic partners. 2012 income tax    This publication is also for registered domestic partners who are domiciled in Nevada, Washington, or California. 2012 income tax Registered domestic partners in Nevada, Washington, or California generally must follow state community property laws and report half the combined community income of the individual and his or her registered domestic partner. 2012 income tax   Registered domestic partners are not married for federal tax purposes. 2012 income tax They can use the single filing status, or if they qualify, the head of household filing status. 2012 income tax    You can find answers to frequently asked questions by going to www. 2012 income tax irs. 2012 income tax gov/pub555 and clicking on Answers to Frequently Asked Questions for Registered Domestic Partners and Individuals in Civil Unions under Other Items You May Find Useful. 2012 income tax Comments and suggestions. 2012 income tax    We welcome your comments about this publication and your suggestions for future editions. 2012 income tax   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. 2012 income tax NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. 2012 income tax Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 2012 income tax   You can send your comments from www. 2012 income tax irs. 2012 income tax gov/formspubs. 2012 income tax Click on “More Information” and then on “Give us feedback on forms and publications. 2012 income tax ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. 2012 income tax Ordering forms and publications. 2012 income tax    Visit www. 2012 income tax irs. 2012 income tax gov/formspubs to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. 2012 income tax Internal Revenue Service 1201 N. 2012 income tax Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. 2012 income tax    If you have a tax question, check the information available on IRS. 2012 income tax gov or call 1-800-829-1040. 2012 income tax We cannot answer tax questions sent to either of the above addresses. 2012 income tax Useful Items - You may want to see: Publication 504 Divorced or Separated Individuals 505 Tax Withholding and Estimated Tax 971 Innocent Spouse Relief Form (and Instructions) 8857 Request for Innocent Spouse Relief 8958 Allocation of Tax Amounts Between Certain Individuals in Community Property States  See How To Get Tax Help near the end of this publication for information about getting these publications and forms. 2012 income tax Prev  Up  Next   Home   More Online Publications
Español

Hurricanes

During the storm: stay inside; keep away from windows; and follow directions from your local emergency officials.

The 2012 Income Tax

2012 income tax 23. 2012 income tax   Interest Expense Table of Contents Introduction Useful Items - You may want to see: Home Mortgage InterestAmount Deductible Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement Investment InterestInvestment Property Allocation of Interest Expense Limit on Deduction Items You Cannot DeductPersonal Interest Allocation of Interest How To ReportMore than one borrower. 2012 income tax Mortgage proceeds used for business or investment. 2012 income tax Introduction This chapter discusses what interest expenses you can deduct. 2012 income tax Interest is the amount you pay for the use of borrowed money. 2012 income tax The following are types of interest you can deduct as itemized deductions on Schedule A (Form 1040). 2012 income tax Home mortgage interest, including certain points and mortgage insurance premiums. 2012 income tax Investment interest. 2012 income tax This chapter explains these deductions. 2012 income tax It also explains where to deduct other types of interest and lists some types of interest you cannot deduct. 2012 income tax Use Table 23-1 to find out where to get more information on various types of interest, including investment interest. 2012 income tax Useful Items - You may want to see: Publication 936 Home Mortgage Interest Deduction 550 Investment Income and Expenses Home Mortgage Interest Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). 2012 income tax The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. 2012 income tax You can deduct home mortgage interest if all the following conditions are met. 2012 income tax You file Form 1040 and itemize deductions on Schedule A (Form 1040). 2012 income tax The mortgage is a secured debt on a qualified home in which you have an ownership interest. 2012 income tax (Generally, your mortgage is a secured debt if you put your home up as collateral to protect the interest of the lender. 2012 income tax The term “qualified home” means your main home or second home. 2012 income tax For details, see Publication 936. 2012 income tax )  Both you and the lender must intend that the loan be repaid. 2012 income tax Amount Deductible In most cases, you can deduct all of your home mortgage interest. 2012 income tax How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. 2012 income tax Fully deductible interest. 2012 income tax   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. 2012 income tax (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. 2012 income tax )   The three categories are as follows: Mortgages you took out on or before October 13, 1987 (called grandfathered debt). 2012 income tax 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). 2012 income tax 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). 2012 income tax The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. 2012 income tax   See Part II of Publication 936 for more detailed definitions of grandfathered, home acquisition, and home equity debt. 2012 income tax    You can use Figure 23-A to check whether your home mortgage interest is fully deductible. 2012 income tax Figure 23-A. 2012 income tax Is My Home Mortgage Interest Fully Deductible? Please click here for the text description of the image. 2012 income tax Figure 23-A. 2012 income tax Is My Interest Fully Deductible? Limits on deduction. 2012 income tax   You cannot fully deduct interest on a mortgage that does not fit into any of the three categories listed earlier. 2012 income tax If this applies to you, see Part II of Publication 936 to figure the amount of interest you can deduct. 2012 income tax Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. 2012 income tax It also describes certain special situations that may affect your deduction. 2012 income tax Late payment charge on mortgage payment. 2012 income tax   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. 2012 income tax Mortgage prepayment penalty. 2012 income tax   If you pay off your home mortgage early, you may have to pay a penalty. 2012 income tax 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. 2012 income tax Sale of home. 2012 income tax   If you sell your home, you can deduct your home mortgage interest (subject to any limits that apply) paid up to, but not including, the date of sale. 2012 income tax Example. 2012 income tax John and Peggy Harris sold their home on May 7. 2012 income tax Through April 30, they made home mortgage interest payments of $1,220. 2012 income tax 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. 2012 income tax Their mortgage interest deduction is $1,270 ($1,220 + $50). 2012 income tax Prepaid interest. 2012 income tax   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. 2012 income tax You can deduct in each year only the interest that qualifies as home mortgage interest for that year. 2012 income tax However, there is an exception that applies to points, discussed later. 2012 income tax Mortgage interest credit. 2012 income tax   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. 2012 income tax Figure the credit on Form 8396, Mortgage Interest Credit. 2012 income tax If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. 2012 income tax   For more information on the credit, see chapter 37. 2012 income tax Ministers' and military housing allowance. 2012 income tax   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. 2012 income tax Hardest Hit Fund and Emergency Homeowners' Loan Programs. 2012 income tax   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. 2012 income tax 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. 2012 income tax 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. 2012 income tax If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098-MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received from payer(s) / borrower(s)), box 4 (mortgage insurance premiums) and box 5 (real property taxes). 2012 income tax 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. 2012 income tax Mortgage assistance payments under section 235 of the National Housing Act. 2012 income tax   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. 2012 income tax You cannot deduct the interest that is paid for you. 2012 income tax No other effect on taxes. 2012 income tax   Do not include these mortgage assistance payments in your income. 2012 income tax Also, do not use these payments to reduce other deductions, such as real estate taxes. 2012 income tax Divorced or separated individuals. 2012 income tax   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. 2012 income tax See the discussion of Payments for jointly-owned home in chapter 18. 2012 income tax Redeemable ground rents. 2012 income tax   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. 2012 income tax   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. 2012 income tax For more information, see Publication 936. 2012 income tax Nonredeemable ground rents. 2012 income tax   Payments on a nonredeemable ground rent are not mortgage interest. 2012 income tax You can deduct them as rent if they are a business expense or if they are for rental property. 2012 income tax Reverse mortgages. 2012 income tax   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. 2012 income tax With a reverse mortgage, you retain title to your home. 2012 income tax 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. 2012 income tax Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. 2012 income tax Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until the loan is paid in full. 2012 income tax Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Publication 936. 2012 income tax Rental payments. 2012 income tax   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. 2012 income tax This is true even if the settlement papers call them interest. 2012 income tax You cannot deduct these payments as home mortgage interest. 2012 income tax Mortgage proceeds invested in tax-exempt securities. 2012 income tax   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. 2012 income tax “Grandfathered debt” and “home equity debt” are defined earlier under Amount Deductible. 2012 income tax Refunds of interest. 2012 income tax   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. 2012 income tax 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. 2012 income tax However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. 2012 income tax This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. 2012 income tax    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. 2012 income tax For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. 2012 income tax   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in chapter 12. 2012 income tax Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. 2012 income tax Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. 2012 income tax A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. 2012 income tax See Points paid by the seller , later. 2012 income tax General Rule You generally cannot deduct the full amount of points in the year paid. 2012 income tax Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. 2012 income tax See Deduction Allowed Ratably , next. 2012 income tax For exceptions to the general rule, see Deduction Allowed in Year Paid , later. 2012 income tax 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. 2012 income tax You use the cash method of accounting. 2012 income tax This means you report income in the year you receive it and deduct expenses in the year you pay them. 2012 income tax Most individuals use this method. 2012 income tax Your loan is secured by a home. 2012 income tax (The home does not need to be your main home. 2012 income tax ) Your loan period is not more than 30 years. 2012 income tax 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. 2012 income tax 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. 2012 income tax Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. 2012 income tax (You can use Figure 23-B as a quick guide to see whether your points are fully deductible in the year paid. 2012 income tax ) Your loan is secured by your main home. 2012 income tax (Your main home is the one you ordinarily live in most of the time. 2012 income tax ) Paying points is an established business practice in the area where the loan was made. 2012 income tax The points paid were not more than the points generally charged in that area. 2012 income tax You use the cash method of accounting. 2012 income tax This means you report income in the year you receive it and deduct expenses in the year you pay them. 2012 income tax (If you want more information about this method, see Accounting Methods in chapter 1. 2012 income tax ) 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. 2012 income tax The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. 2012 income tax The funds you provided are not required to have been applied to the points. 2012 income tax They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. 2012 income tax You cannot have borrowed these funds from your lender or mortgage broker. 2012 income tax You use your loan to buy or build your main home. 2012 income tax The points were computed as a percentage of the principal amount of the mortgage. 2012 income tax The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. 2012 income tax The points may be shown as paid from either your funds or the seller's. 2012 income tax Figure 23-B. 2012 income tax Are My Points Fully Deductible This Year? Please click here for the text description of the image. 2012 income tax Figure 23-B. 2012 income tax Are My Points Fully Deductible This Year? Note. 2012 income tax 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. 2012 income tax Home improvement loan. 2012 income tax   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. 2012 income tax Second home. 2012 income tax You cannot fully deduct in the year paid points you pay on loans secured by your second home. 2012 income tax You can deduct these points only over the life of the loan. 2012 income tax Refinancing. 2012 income tax   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. 2012 income tax This is true even if the new mortgage is secured by your main home. 2012 income tax   However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first 6 tests listed under Deduction Allowed in Year Paid , earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. 2012 income tax You can deduct the rest of the points over the life of the loan. 2012 income tax Example 1. 2012 income tax In 1998, Bill Fields got a mortgage to buy a home. 2012 income tax In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. 2012 income tax The mortgage is secured by his home. 2012 income tax To get the new loan, he had to pay three points ($3,000). 2012 income tax 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. 2012 income tax Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. 2012 income tax The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. 2012 income tax Bill's first payment on the new loan was due July 1. 2012 income tax He made six payments on the loan in 2013 and is a cash basis taxpayer. 2012 income tax Bill used the funds from the new mortgage to repay his existing mortgage. 2012 income tax 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. 2012 income tax He cannot deduct all of the points in 2013. 2012 income tax He can deduct two points ($2,000) ratably over the life of the loan. 2012 income tax He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. 2012 income tax The other point ($1,000) was a fee for services and is not deductible. 2012 income tax Example 2. 2012 income tax 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. 2012 income tax Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. 2012 income tax His deduction is $500 ($2,000 × 25%). 2012 income tax Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. 2012 income tax This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. 2012 income tax The total amount Bill deducts in 2013 is $550 ($500 + $50). 2012 income tax Special Situations This section describes certain special situations that may affect your deduction of points. 2012 income tax Original issue discount. 2012 income tax   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. 2012 income tax This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. 2012 income tax Amounts charged for services. 2012 income tax   Amounts charged by the lender for specific services connected to the loan are not interest. 2012 income tax Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. 2012 income tax You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. 2012 income tax Points paid by the seller. 2012 income tax   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. 2012 income tax Treatment by seller. 2012 income tax   The seller cannot deduct these fees as interest. 2012 income tax But they are a selling expense that reduces the amount realized by the seller. 2012 income tax See chapter 15 for information on selling your home. 2012 income tax Treatment by buyer. 2012 income tax    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. 2012 income tax If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. 2012 income tax If any of those tests are not met, the buyer deducts the points over the life of the loan. 2012 income tax   For information about basis, see chapter 13. 2012 income tax Funds provided are less than points. 2012 income tax   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. 2012 income tax In addition, you can deduct any points paid by the seller. 2012 income tax Example 1. 2012 income tax When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). 2012 income tax You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. 2012 income tax Of the $1,000 charged for points, you can deduct $750 in the year paid. 2012 income tax You spread the remaining $250 over the life of the mortgage. 2012 income tax Example 2. 2012 income tax 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. 2012 income tax In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). 2012 income tax You spread the remaining $250 over the life of the mortgage. 2012 income tax You must reduce the basis of your home by the $1,000 paid by the seller. 2012 income tax Excess points. 2012 income tax   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. 2012 income tax You must spread any additional points over the life of the mortgage. 2012 income tax Mortgage ending early. 2012 income tax   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. 2012 income tax However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. 2012 income tax Instead, deduct the remaining balance over the term of the new loan. 2012 income tax    A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. 2012 income tax Example. 2012 income tax Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. 2012 income tax He deducts $200 points per year. 2012 income tax Through 2012, Dan has deducted $2,200 of the points. 2012 income tax Dan prepaid his mortgage in full in 2013. 2012 income tax He can deduct the remaining $800 of points in 2013. 2012 income tax Limits on deduction. 2012 income tax   You cannot fully deduct points paid on a mortgage unless the mortgage fits into one of the categories listed earlier under Fully deductible interest . 2012 income tax See Publication 936 for details. 2012 income tax Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. 2012 income tax The insurance must be in connection with home acquisition debt and the insurance contract must have been issued after 2006. 2012 income tax Qualified mortgage insurance. 2012 income tax   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). 2012 income tax   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. 2012 income tax If provided by the Rural Housing Service, it is commonly known as a guarantee fee. 2012 income tax These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. 2012 income tax Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. 2012 income tax Special rules for prepaid mortgage insurance. 2012 income tax   Generally, if you paid premiums for qualified mortgage insurance that are allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. 2012 income tax 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. 2012 income tax No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. 2012 income tax This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. 2012 income tax See the Example below. 2012 income tax Example. 2012 income tax Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. 2012 income tax Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. 2012 income tax 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. 2012 income tax Ryan's adjusted gross income (AGI) for 2012 is $76,000. 2012 income tax Ryan can deduct $880 ($9,240 ÷ 84 × 8 months) for qualified mortgage insurance premiums in 2012. 2012 income tax For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 × 12 months) if his AGI is $100,000 or less. 2012 income tax 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). 2012 income tax Limit on deduction. 2012 income tax   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. 2012 income tax 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. 2012 income tax If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. 2012 income tax 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. 2012 income tax You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. 2012 income tax A governmental unit is a person for purposes of furnishing the statement. 2012 income tax The statement for each year should be sent to you by January 31 of the following year. 2012 income tax A copy of this form will also be sent to the IRS. 2012 income tax 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. 2012 income tax However, it should not show any interest that was paid for you by a government agency. 2012 income tax As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. 2012 income tax However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. 2012 income tax See Points , earlier, to determine whether you can deduct points not shown on Form 1098. 2012 income tax Prepaid interest on Form 1098. 2012 income tax   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. 2012 income tax However, you cannot deduct the prepaid amount for January 2014 in 2013. 2012 income tax (See Prepaid interest , earlier. 2012 income tax ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. 2012 income tax You will include the interest for January 2014 with the other interest you pay for 2014. 2012 income tax See How To Report , later. 2012 income tax Refunded interest. 2012 income tax   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. 2012 income tax See Refunds of interest , earlier. 2012 income tax Mortgage insurance premiums. 2012 income tax   The amount of mortgage insurance premiums you paid during 2013 may be shown in box 4 of Form 1098. 2012 income tax See Mortgage Insurance Premiums, earlier. 2012 income tax Investment Interest This section discusses interest expenses you may be able to deduct as an investor. 2012 income tax If you borrow money to buy property you hold for investment, the interest you pay is investment interest. 2012 income tax You can deduct investment interest subject to the limit discussed later. 2012 income tax However, you cannot deduct interest you incurred to produce tax-exempt income. 2012 income tax Nor can you deduct interest expenses on straddles. 2012 income tax Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. 2012 income tax Investment Property Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. 2012 income tax It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). 2012 income tax Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). 2012 income tax Partners, shareholders, and beneficiaries. 2012 income tax   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. 2012 income tax Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. 2012 income tax Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. 2012 income tax The allocation is not affected by the use of property that secures the debt. 2012 income tax Limit on Deduction Generally, your deduction for investment interest expense is limited to the amount of your net investment income. 2012 income tax You can carry over the amount of investment interest that you could not deduct because of this limit to the next tax year. 2012 income tax The interest carried over is treated as investment interest paid or accrued in that next year. 2012 income tax You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. 2012 income tax Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. 2012 income tax Investment income. 2012 income tax    This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). 2012 income tax Investment income does not include Alaska Permanent Fund dividends. 2012 income tax It also does not include qualified dividends or net capital gain unless you choose to include them. 2012 income tax Choosing to include qualified dividends. 2012 income tax   Investment income generally does not include qualified dividends, discussed in chapter 8. 2012 income tax However, you can choose to include all or part of your qualified dividends in investment income. 2012 income tax   You make this choice by completing Form 4952, line 4g, according to its instructions. 2012 income tax   If you choose to include any amount of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. 2012 income tax Choosing to include net capital gain. 2012 income tax   Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). 2012 income tax However, you can choose to include all or part of your net capital gain in investment income. 2012 income tax    You make this choice by completing Form 4952, line 4g, according to its instructions. 2012 income tax   If you choose to include any amount of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. 2012 income tax    Before making either choice, consider the overall effect on your tax liability. 2012 income tax Compare your tax if you make one or both of these choices with your tax if you do not. 2012 income tax Investment income of child reported on parent's return. 2012 income tax    Investment income includes the part of your child's interest and dividend income that you choose to report on your return. 2012 income tax If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814, Parents' Election To Report Child's Interest and Dividends. 2012 income tax Child's qualified dividends. 2012 income tax   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. 2012 income tax However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. 2012 income tax   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). 2012 income tax Child's Alaska Permanent Fund dividends. 2012 income tax   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. 2012 income tax To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. 2012 income tax Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. 2012 income tax Subtract the result from the amount on Form 8814, line 12. 2012 income tax Child's capital gain distributions. 2012 income tax    If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D, line 13, or Form 1040, line 13) generally does not count as investment income. 2012 income tax However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. 2012 income tax   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). 2012 income tax Investment expenses. 2012 income tax   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. 2012 income tax Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. 2012 income tax Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A, line 27. 2012 income tax Losses from passive activities. 2012 income tax   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). 2012 income tax See Publication 925, Passive Activity and At-Risk Rules, for information about passive activities. 2012 income tax Form 4952 Use Form 4952, Investment Interest Expense Deduction, to figure your deduction for investment interest. 2012 income tax Exception to use of Form 4952. 2012 income tax   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. 2012 income tax Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. 2012 income tax You do not have any other deductible investment expenses. 2012 income tax You have no carryover of investment interest expense from 2012. 2012 income tax If you meet all of these tests, you can deduct all of your investment interest. 2012 income tax More Information For more information on investment interest, see Interest Expenses in chapter 3 of Publication 550. 2012 income tax Items You Cannot Deduct Some interest payments are not deductible. 2012 income tax Certain expenses similar to interest also are not deductible. 2012 income tax Nondeductible expenses include the following items. 2012 income tax Personal interest (discussed later). 2012 income tax Service charges (however, see Other Expenses (Line 23) in chapter 28). 2012 income tax Annual fees for credit cards. 2012 income tax Loan fees. 2012 income tax Credit investigation fees. 2012 income tax Interest to purchase or carry tax-exempt securities. 2012 income tax Penalties. 2012 income tax   You cannot deduct fines and penalties paid to a government for violations of law, regardless of their nature. 2012 income tax Personal Interest Personal interest is not deductible. 2012 income tax Personal interest is any interest that is not home mortgage interest, investment interest, business interest, or other deductible interest. 2012 income tax It includes the following items. 2012 income tax Interest on car loans (unless you use the car for business). 2012 income tax Interest on federal, state, or local income tax. 2012 income tax Finance charges on credit cards, retail installment contracts, and revolving charge accounts incurred for personal expenses. 2012 income tax Late payment charges by a public utility. 2012 income tax You may be able to deduct interest you pay on a qualified student loan. 2012 income tax For details, see Publication 970, Tax Benefits for Education. 2012 income tax Allocation of Interest If you use the proceeds of a loan for more than one purpose (for example, personal and business), you must allocate the interest on the loan to each use. 2012 income tax However, you do not have to allocate home mortgage interest if it is fully deductible, regardless of how the funds are used. 2012 income tax You allocate interest (other than fully deductible home mortgage interest) on a loan in the same way as the loan itself is allocated. 2012 income tax You do this by tracing disbursements of the debt proceeds to specific uses. 2012 income tax For details on how to do this, see chapter 4 of Publication 535. 2012 income tax How To Report You must file Form 1040 to deduct any home mortgage interest expense on your tax return. 2012 income tax Where you deduct your interest expense generally depends on how you use the loan proceeds. 2012 income tax See Table 23-1 for a summary of where to deduct your interest expense. 2012 income tax Home mortgage interest and points. 2012 income tax   Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. 2012 income tax 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. 2012 income tax Attach a statement explaining the difference and print “See attached” next to line 10. 2012 income tax    Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. 2012 income tax 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. 2012 income tax The seller must give you this number and you must give the seller your TIN. 2012 income tax A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. 2012 income tax Failure to meet any of these requirements may result in a $50 penalty for each failure. 2012 income tax 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. 2012 income tax See Social Security Number (SSN) in chapter 1 for more information about TINs. 2012 income tax    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. 2012 income tax   Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. 2012 income tax More than one borrower. 2012 income tax   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. 2012 income tax Show how much of the interest each of you paid, and give the name and address of the person who received the form. 2012 income tax Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. 2012 income tax Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. 2012 income tax   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. 2012 income tax You should let each of the other borrowers know what his or her share is. 2012 income tax Mortgage proceeds used for business or investment. 2012 income tax    If your home mortgage interest deduction is limited, but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 23-1. 2012 income tax It shows where to deduct the part of your excess interest that is for those activities. 2012 income tax Investment interest. 2012 income tax    Deduct investment interest, subject to certain limits discussed in Publication 550, on Schedule A (Form 1040), line 14. 2012 income tax Amortization of bond premium. 2012 income tax   There are various ways to treat the premium you pay to buy taxable bonds. 2012 income tax See Bond Premium Amortization in Publication 550. 2012 income tax Income-producing rental or royalty interest. 2012 income tax   Deduct interest on a loan for income-producing rental or royalty property that is not used in your business in Part I of Schedule E (Form 1040). 2012 income tax Example. 2012 income tax You rent out part of your home and borrow money to make repairs. 2012 income tax You can deduct only the interest payment for the rented part in Part I of Schedule E (Form 1040). 2012 income tax Deduct the rest of the interest payment on Schedule A (Form 1040) if it is deductible home mortgage interest. 2012 income tax Table 23-1. 2012 income tax Where To Deduct Your Interest Expense IF you have . 2012 income tax . 2012 income tax . 2012 income tax THEN deduct it on . 2012 income tax . 2012 income tax . 2012 income tax AND for more information go to . 2012 income tax . 2012 income tax . 2012 income tax deductible student loan interest Form 1040, line 33, or Form 1040A, line 18 Publication 970. 2012 income tax deductible home mortgage interest and points reported on Form 1098 Schedule A (Form 1040), line 10 Publication 936. 2012 income tax deductible home mortgage interest not reported on Form 1098 Schedule A (Form 1040), line 11 Publication 936. 2012 income tax deductible points not reported on Form 1098 Schedule A (Form 1040), line 12 Publication 936. 2012 income tax deductible mortgage insurance premiums Schedule A (Form 1040), line 13 Publication 936. 2012 income tax deductible investment interest (other than incurred to produce rents or royalties) Schedule A (Form 1040), line 14 Publication 550. 2012 income tax deductible business interest (non-farm) Schedule C or C-EZ (Form 1040) Publication 535. 2012 income tax deductible farm business interest Schedule F (Form 1040) Publications 225 and 535. 2012 income tax deductible interest incurred to produce rents or royalties Schedule E (Form 1040) Publications 527 and 535. 2012 income tax personal interest not deductible. 2012 income tax Prev  Up  Next   Home   More Online Publications