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H And R Block Tax

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H And R Block Tax

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

The IRS, in a continuing effort to increase tax compliance and at the same time reduce taxpayer burden, has expanded its MSU Program into other industries. The newest additions are new voluntary compliance agreements for all industries where tipping is customary.

These voluntary compliance agreements are designed to enhance tax compliance among tipped employees through taxpayer education instead of through traditional enforcement actions, such as tip examinations.

Tip agreements available are:

EmTRAC - Employer-designed Tip Reporting Alternative Commitment (PDF). Taxpayers in the Food and beverage industry designing their own tip compliance program in conjunction with the IRS.

Page Last Reviewed or Updated: 27-Dec-2013

The H And R Block Tax

H and r block tax 6. H and r block tax   How To Get Tax Help Table of Contents Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. H and r block tax Free help with your tax return. H and r block tax   You can get free help preparing your return nationwide from IRS-certified volunteers. H and r block tax The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. H and r block tax The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. H and r block tax Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. H and r block tax In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. H and r block tax To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. H and r block tax gov, download the IRS2Go app, or call 1-800-906-9887. H and r block tax   As part of the TCE program, AARP offers the Tax-Aide counseling program. H and r block tax To find the nearest AARP Tax-Aide site, visit AARP's website at www. H and r block tax aarp. H and r block tax org/money/taxaide or call 1-888-227-7669. H and r block tax For more information on these programs, go to IRS. H and r block tax gov and enter “VITA” in the search box. H and r block tax Internet. H and r block tax    IRS. H and r block tax gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. H and r block tax Download the free IRS2Go app from the iTunes app store or from Google Play. H and r block tax Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. H and r block tax Check the status of your 2013 refund with the Where's My Refund? application on IRS. H and r block tax gov or download the IRS2Go app and select the Refund Status option. H and r block tax The IRS issues more than 9 out of 10 refunds in less than 21 days. H and r block tax Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. H and r block tax You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. H and r block tax The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. H and r block tax Use the Interactive Tax Assistant (ITA) to research your tax questions. H and r block tax No need to wait on the phone or stand in line. H and r block tax The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. H and r block tax When you reach the response screen, you can print the entire interview and the final response for your records. H and r block tax New subject areas are added on a regular basis. H and r block tax  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. H and r block tax gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. H and r block tax You can use the IRS Tax Map, to search publications and instructions by topic or keyword. H and r block tax The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. H and r block tax When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. H and r block tax Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. H and r block tax You can also ask the IRS to mail a return or an account transcript to you. H and r block tax Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. H and r block tax gov or by calling 1-800-908-9946. H and r block tax Tax return and tax account transcripts are generally available for the current year and the past three years. H and r block tax Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. H and r block tax Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. H and r block tax If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. H and r block tax Check the status of your amended return using Where's My Amended Return? Go to IRS. H and r block tax gov and enter Where's My Amended Return? in the search box. H and r block tax You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. H and r block tax It can take up to 3 weeks from the date you mailed it to show up in our system. H and r block tax Make a payment using one of several safe and convenient electronic payment options available on IRS. H and r block tax gov. H and r block tax Select the Payment tab on the front page of IRS. H and r block tax gov for more information. H and r block tax Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. H and r block tax Figure your income tax withholding with the IRS Withholding Calculator on IRS. H and r block tax gov. H and r block tax Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. H and r block tax Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. H and r block tax gov. H and r block tax Request an Electronic Filing PIN by going to IRS. H and r block tax gov and entering Electronic Filing PIN in the search box. H and r block tax Download forms, instructions and publications, including accessible versions for people with disabilities. H and r block tax Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. H and r block tax gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. H and r block tax An employee can answer questions about your tax account or help you set up a payment plan. H and r block tax Before you visit, check the Office Locator on IRS. H and r block tax gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. H and r block tax If you have a special need, such as a disability, you can request an appointment. H and r block tax Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. H and r block tax Apply for an Employer Identification Number (EIN). H and r block tax Go to IRS. H and r block tax gov and enter Apply for an EIN in the search box. H and r block tax Read the Internal Revenue Code, regulations, or other official guidance. H and r block tax Read Internal Revenue Bulletins. H and r block tax Sign up to receive local and national tax news and more by email. H and r block tax Just click on “subscriptions” above the search box on IRS. H and r block tax gov and choose from a variety of options. H and r block tax Phone. H and r block tax    You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. H and r block tax Download the free IRS2Go app from the iTunes app store or from Google Play. H and r block tax Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. H and r block tax gov, or download the IRS2Go app. H and r block tax Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. H and r block tax The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. H and r block tax Most VITA and TCE sites offer free electronic filing. H and r block tax Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. H and r block tax Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. H and r block tax Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. H and r block tax If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. H and r block tax The IRS issues more than 9 out of 10 refunds in less than 21 days. H and r block tax Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. H and r block tax Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. H and r block tax The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. H and r block tax Note, the above information is for our automated hotline. H and r block tax Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. H and r block tax Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. H and r block tax You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. H and r block tax It can take up to 3 weeks from the date you mailed it to show up in our system. H and r block tax Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). H and r block tax You should receive your order within 10 business days. H and r block tax Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. H and r block tax If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. H and r block tax Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. H and r block tax The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. H and r block tax These individuals can also contact the IRS through relay services such as the Federal Relay Service. H and r block tax Walk-in. H and r block tax   You can find a selection of forms, publications and services — in-person. H and r block tax Products. H and r block tax You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. H and r block tax Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. H and r block tax Services. H and r block tax You can walk in to your local TAC for face-to-face tax help. H and r block tax An employee can answer questions about your tax account or help you set up a payment plan. H and r block tax Before visiting, use the Office Locator tool on IRS. H and r block tax gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. H and r block tax Mail. H and r block tax   You can send your order for forms, instructions, and publications to the address below. H and r block tax You should receive a response within 10 business days after your request is received. H and r block tax Internal Revenue Service 1201 N. H and r block tax Mitsubishi Motorway Bloomington, IL 61705-6613    The Taxpayer Advocate Service Is Here to Help You. H and r block tax The Taxpayer Advocate Service (TAS) is your voice at the IRS. H and r block tax Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. H and r block tax   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. H and r block tax We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. H and r block tax You face (or your business is facing) an immediate threat of adverse action. H and r block tax You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. H and r block tax   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. H and r block tax Here's why we can help: TAS is an independent organization within the IRS. H and r block tax Our advocates know how to work with the IRS. H and r block tax Our services are free and tailored to meet your needs. H and r block tax We have offices in every state, the District of Columbia, and Puerto Rico. H and r block tax   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at Taxpayer Advocate, or call us toll-free at 1-877-777-4778. H and r block tax   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. H and r block tax If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System. H and r block tax Low Income Taxpayer Clinics (LITCs). H and r block tax   Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. H and r block tax Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. H and r block tax Visit www. H and r block tax TaxpayerAdvocate. H and r block tax irs. H and r block tax gov or see IRS Publication 4134, Low Income Taxpayer Clinic List. H and r block tax Prev  Up  Next   Home   More Online Publications