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Student Tax Form 1098 T

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Student Tax Form 1098 T

Student tax form 1098 t 5. Student tax form 1098 t   Personal Use of Dwelling Unit (Including Vacation Home) Table of Contents Dividing Expenses Dwelling Unit Used as a HomeMain home. Student tax form 1098 t Shared equity financing agreement. Student tax form 1098 t Donation of use of the property. Student tax form 1098 t Examples. Student tax form 1098 t Days used for repairs and maintenance. Student tax form 1098 t Days used as a main home before or after renting. Student tax form 1098 t Reporting Income and DeductionsNot used as a home. Student tax form 1098 t Used as a home but rented less than 15 days. Student tax form 1098 t Used as a home and rented 15 days or more. Student tax form 1098 t If you have any personal use of a dwelling unit (including a vacation home) that you rent, you must divide your expenses between rental use and personal use. Student tax form 1098 t In general, your rental expenses will be no more than your total expenses multiplied by a fraction; the denominator of which is the total number of days the dwelling unit is used and the numerator of which is the total number of days actually rented at a fair rental price. Student tax form 1098 t Only your rental expenses may deducted on Schedule E (Form 1040). Student tax form 1098 t Some of your personal expenses may be deductible if you itemize your deductions on Schedule A (Form 1040). Student tax form 1098 t You must also determine if the dwelling unit is considered a home. Student tax form 1098 t The amount of rental expenses that you can deduct may be limited if the dwelling unit is considered a home. Student tax form 1098 t Whether a dwelling unit is considered a home depends on how many days during the year are considered to be days of personal use. Student tax form 1098 t There is a special rule if you used the dwelling unit as a home and you rented it for less than 15 days during the year. Student tax form 1098 t Dwelling unit. Student tax form 1098 t   A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. Student tax form 1098 t It also includes all structures or other property belonging to the dwelling unit. Student tax form 1098 t A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. Student tax form 1098 t   A dwelling unit does not include property (or part of the property) used solely as a hotel, motel, inn, or similar establishment. Student tax form 1098 t Property is used solely as a hotel, motel, inn, or similar establishment if it is regularly available for occupancy by paying customers and is not used by an owner as a home during the year. Student tax form 1098 t Example. Student tax form 1098 t You rent a room in your home that is always available for short-term occupancy by paying customers. Student tax form 1098 t You do not use the room yourself and you allow only paying customers to use the room. Student tax form 1098 t This room is used solely as a hotel, motel, inn, or similar establishment and is not a dwelling unit. Student tax form 1098 t Dividing Expenses If you use a dwelling unit for both rental and personal purposes, divide your expenses between the rental use and the personal use based on the number of days used for each purpose. Student tax form 1098 t When dividing your expenses, follow these rules. Student tax form 1098 t Any day that the unit is rented at a fair rental price is a day of rental use even if you used the unit for personal purposes that day. Student tax form 1098 t (This rule does not apply when determining whether you used the unit as a home. Student tax form 1098 t ) Any day that the unit is available for rent but not actually rented is not a day of rental use. Student tax form 1098 t Fair rental price. Student tax form 1098 t   A fair rental price for your property generally is the amount of rent that a person who is not related to you would be willing to pay. Student tax form 1098 t The rent you charge is not a fair rental price if it is substantially less than the rents charged for other properties that are similar to your property in your area. Student tax form 1098 t   Ask yourself the following questions when comparing another property with yours. Student tax form 1098 t Is it used for the same purpose? Is it approximately the same size? Is it in approximately the same condition? Does it have similar furnishings? Is it in a similar location? If any of the answers are no, the properties probably are not similar. Student tax form 1098 t Example. Student tax form 1098 t Your beach cottage was available for rent from June 1 through August 31 (92 days). Student tax form 1098 t Except for the first week in August (7 days), when you were unable to find a renter, you rented the cottage at a fair rental price during that time. Student tax form 1098 t The person who rented the cottage for July allowed you to use it over the weekend (2 days) without any reduction in or refund of rent. Student tax form 1098 t Your family also used the cottage during the last 2 weeks of May (14 days). Student tax form 1098 t The cottage was not used at all before May 17 or after August 31. Student tax form 1098 t You figure the part of the cottage expenses to treat as rental expenses as follows. Student tax form 1098 t The cottage was used for rental a total of 85 days (92 − 7). Student tax form 1098 t The days it was available for rent but not rented (7 days) are not days of rental use. Student tax form 1098 t The July weekend (2 days) you used it is rental use because you received a fair rental price for the weekend. Student tax form 1098 t You used the cottage for personal purposes for 14 days (the last 2 weeks in May). Student tax form 1098 t The total use of the cottage was 99 days (14 days personal use + 85 days rental use). Student tax form 1098 t Your rental expenses are 85/99 (86%) of the cottage expenses. Student tax form 1098 t Note. Student tax form 1098 t When determining whether you used the cottage as a home, the July weekend (2 days) you used it is considered personal use even though you received a fair rental price for the weekend. Student tax form 1098 t Therefore, you had 16 days of personal use and 83 days of rental use for this purpose. Student tax form 1098 t Because you used the cottage for personal purposes more than 14 days and more than 10% of the days of rental use (8 days), you used it as a home. Student tax form 1098 t If you have a net loss, you may not be able to deduct all of the rental expenses. Student tax form 1098 t See Dwelling Unit Used as a Home, next. Student tax form 1098 t Dwelling Unit Used as a Home If you use a dwelling unit for both rental and personal purposes, the tax treatment of the rental expenses you figured earlier under Dividing Expenses and rental income depends on whether you are considered to be using the dwelling unit as a home. Student tax form 1098 t You use a dwelling unit as a home during the tax year if you use it for personal purposes more than the greater of: 14 days, or 10% of the total days it is rented to others at a fair rental price. Student tax form 1098 t See What is a day of personal use , later. Student tax form 1098 t If a dwelling unit is used for personal purposes on a day it is rented at a fair rental price (discussed earlier), do not count that day as a day of rental use in applying (2) above. Student tax form 1098 t Instead, count it as a day of personal use in applying both (1) and (2) above. Student tax form 1098 t What is a day of personal use?   A day of personal use of a dwelling unit is any day that the unit is used by any of the following persons. Student tax form 1098 t You or any other person who owns an interest in it, unless you rent it to another owner as his or her main home under a shared equity financing agreement (defined later). Student tax form 1098 t However, see Days used as a main home before or after renting , later. Student tax form 1098 t A member of your family or a member of the family of any other person who owns an interest in it, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. Student tax form 1098 t Family includes only your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc. Student tax form 1098 t ), and lineal descendants (children, grandchildren, etc. Student tax form 1098 t ). Student tax form 1098 t Anyone under an arrangement that lets you use some other dwelling unit. Student tax form 1098 t Anyone at less than a fair rental price. Student tax form 1098 t Main home. Student tax form 1098 t   If the other person or member of the family in (1) or (2) above has more than one home, his or her main home is ordinarily the one he or she lived in most of the time. Student tax form 1098 t Shared equity financing agreement. Student tax form 1098 t   This is an agreement under which two or more persons acquire undivided interests for more than 50 years in an entire dwelling unit, including the land, and one or more of the co-owners is entitled to occupy the unit as his or her main home upon payment of rent to the other co-owner or owners. Student tax form 1098 t Donation of use of the property. Student tax form 1098 t   You use a dwelling unit for personal purposes if: You donate the use of the unit to a charitable organization, The organization sells the use of the unit at a fund-raising event, and The “purchaser” uses the unit. Student tax form 1098 t Examples. Student tax form 1098 t   The following examples show how to determine if you have days of personal use. Student tax form 1098 t Example 1. Student tax form 1098 t You and your neighbor are co-owners of a condominium at the beach. Student tax form 1098 t Last year, you rented the unit to vacationers whenever possible. Student tax form 1098 t The unit was not used as a main home by anyone. Student tax form 1098 t Your neighbor used the unit for 2 weeks last year; you did not use it at all. Student tax form 1098 t Because your neighbor has an interest in the unit, both of you are considered to have used the unit for personal purposes during those 2 weeks. Student tax form 1098 t Example 2. Student tax form 1098 t You and your neighbors are co-owners of a house under a shared equity financing agreement. Student tax form 1098 t Your neighbors live in the house and pay you a fair rental price. Student tax form 1098 t Even though your neighbors have an interest in the house, the days your neighbors live there are not counted as days of personal use by you. Student tax form 1098 t This is because your neighbors rent the house as their main home under a shared equity financing agreement. Student tax form 1098 t Example 3. Student tax form 1098 t You own a rental property that you rent to your son. Student tax form 1098 t Your son does not own any interest in this property. Student tax form 1098 t He uses it as his main home and pays you a fair rental price. Student tax form 1098 t Your son's use of the property is not personal use by you because your son is using it as his main home, he owns no interest in the property, and he is paying you a fair rental price. Student tax form 1098 t Example 4. Student tax form 1098 t You rent your beach house to Rosa. Student tax form 1098 t Rosa rents her cabin in the mountains to you. Student tax form 1098 t You each pay a fair rental price. Student tax form 1098 t You are using your beach house for personal purposes on the days that Rosa uses it because your house is used by Rosa under an arrangement that allows you to use her cabin. Student tax form 1098 t Example 5. Student tax form 1098 t You rent an apartment to your mother at less than a fair rental price. Student tax form 1098 t You are using the apartment for personal purposes on the days that your mother rents it because you rent it for less than a fair rental price. Student tax form 1098 t Days used for repairs and maintenance. Student tax form 1098 t   Any day that you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. Student tax form 1098 t Do not count such a day as a day of personal use even if family members use the property for recreational purposes on the same day. Student tax form 1098 t Example. Student tax form 1098 t Corey owns a cabin in the mountains that he rents for most of the year. Student tax form 1098 t He spends a week at the cabin with family members. Student tax form 1098 t Corey works on maintenance of the cabin 3 or 4 hours each day during the week and spends the rest of the time fishing, hiking, and relaxing. Student tax form 1098 t Corey's family members, however, work substantially full time on the cabin each day during the week. Student tax form 1098 t The main purpose of being at the cabin that week is to do maintenance work. Student tax form 1098 t Therefore, the use of the cabin during the week by Corey and his family will not be considered personal use by Corey. Student tax form 1098 t Days used as a main home before or after renting. Student tax form 1098 t   For purposes of determining whether a dwelling unit was used as a home, you may not have to count days you used the property as your main home before or after renting it or offering it for rent as days of personal use. Student tax form 1098 t Do not count them as days of personal use if: You rented or tried to rent the property for 12 or more consecutive months. Student tax form 1098 t You rented or tried to rent the property for a period of less than 12 consecutive months and the period ended because you sold or exchanged the property. Student tax form 1098 t However, this special rule does not apply when dividing expenses between rental and personal use. Student tax form 1098 t See Property Changed to Rental Use in chapter 4. Student tax form 1098 t Example 1. Student tax form 1098 t On February 29, 2012, you moved out of the house you had lived in for 6 years because you accepted a job in another town. Student tax form 1098 t You rented your house at a fair rental price from March 15, 2012, to May 14, 2013 (14 months). Student tax form 1098 t On June 1, 2013, you moved back into your old house. Student tax form 1098 t The days you used the house as your main home from January 1 to February 29, 2012, and from June 1 to December 31, 2013, are not counted as days of personal use. Student tax form 1098 t Therefore, you would use the rules in chapter 1 when figuring your rental income and expenses. Student tax form 1098 t Example 2. Student tax form 1098 t On January 31, you moved out of the condominium where you had lived for 3 years. Student tax form 1098 t You offered it for rent at a fair rental price beginning on February 1. Student tax form 1098 t You were unable to rent it until April. Student tax form 1098 t On September 15, you sold the condominium. Student tax form 1098 t The days you used the condominium as your main home from January 1 to January 31 are not counted as days of personal use when determining whether you used it as a home. Student tax form 1098 t Examples. Student tax form 1098 t   The following examples show how to determine whether you used your rental property as a home. Student tax form 1098 t Example 1. Student tax form 1098 t You converted the basement of your home into an apartment with a bedroom, a bathroom, and a small kitchen. Student tax form 1098 t You rented the basement apartment at a fair rental price to college students during the regular school year. Student tax form 1098 t You rented to them on a 9-month lease (273 days). Student tax form 1098 t You figured 10% of the total days rented to others at a fair rental price is 27 days. Student tax form 1098 t During June (30 days), your brothers stayed with you and lived in the basement apartment rent free. Student tax form 1098 t Your basement apartment was used as a home because you used it for personal purposes for 30 days. Student tax form 1098 t Rent-free use by your brothers is considered personal use. Student tax form 1098 t Your personal use (30 days) is more than the greater of 14 days or 10% of the total days it was rented (27 days). Student tax form 1098 t Example 2. Student tax form 1098 t You rented the guest bedroom in your home at a fair rental price during the local college's homecoming, commencement, and football weekends (a total of 27 days). Student tax form 1098 t Your sister-in-law stayed in the room, rent free, for the last 3 weeks (21 days) in July. Student tax form 1098 t You figured 10% of the total days rented to others at a fair rental price is 3 days. Student tax form 1098 t The room was used as a home because you used it for personal purposes for 21 days. Student tax form 1098 t That is more than the greater of 14 days or 10% of the 27 days it was rented (3 days). Student tax form 1098 t Example 3. Student tax form 1098 t You own a condominium apartment in a resort area. Student tax form 1098 t You rented it at a fair rental price for a total of 170 days during the year. Student tax form 1098 t For 12 of these days, the tenant was not able to use the apartment and allowed you to use it even though you did not refund any of the rent. Student tax form 1098 t Your family actually used the apartment for 10 of those days. Student tax form 1098 t Therefore, the apartment is treated as having been rented for 160 (170 – 10) days. Student tax form 1098 t You figured 10% of the total days rented to others at a fair rental price is 16 days. Student tax form 1098 t Your family also used the apartment for 7 other days during the year. Student tax form 1098 t You used the apartment as a home because you used it for personal purposes for 17 days. Student tax form 1098 t That is more than the greater of 14 days or 10% of the 160 days it was rented (16 days). Student tax form 1098 t Minimal rental use. Student tax form 1098 t   If you use the dwelling unit as a home and you rent it less than 15 days during the year, that period is not treated as rental activity. Student tax form 1098 t See Used as a home but rented less than 15 days, later, for more information. Student tax form 1098 t Limit on deductions. Student tax form 1098 t   Renting a dwelling unit that is considered a home is not a passive activity. Student tax form 1098 t Instead, if your rental expenses are more than your rental income, some or all of the excess expenses cannot be used to offset income from other sources. Student tax form 1098 t The excess expenses that cannot be used to offset income from other sources are carried forward to the next year and treated as rental expenses for the same property. Student tax form 1098 t Any expenses carried forward to the next year will be subject to any limits that apply for that year. Student tax form 1098 t This limitation will apply to expenses carried forward to another year even if you do not use the property as your home for that subsequent year. Student tax form 1098 t   To figure your deductible rental expenses for this year and any carryover to next year, use Worksheet 5–1. Student tax form 1098 t Reporting Income and Deductions Property not used for personal purposes. Student tax form 1098 t   If you do not use a dwelling unit for personal purposes, see chapter 3 for how to report your rental income and expenses. Student tax form 1098 t Property used for personal purposes. Student tax form 1098 t   If you do use a dwelling unit for personal purposes, then how you report your rental income and expenses depends on whether you used the dwelling unit as a home. Student tax form 1098 t Not used as a home. Student tax form 1098 t   If you use a dwelling unit for personal purposes, but not as a home, report all the rental income in your income. Student tax form 1098 t Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in this chapter under Dividing Expenses . Student tax form 1098 t The expenses for personal use are not deductible as rental expenses. Student tax form 1098 t   Your deductible rental expenses can be more than your gross rental income; however, see Limits on Rental Losses in chapter 3. Student tax form 1098 t Used as a home but rented less than 15 days. Student tax form 1098 t   If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function is not considered to be rental and it should not be reported on Schedule E (Form 1040). Student tax form 1098 t You are not required to report the rental income and rental expenses from this activity. Student tax form 1098 t The expenses, including qualified mortgage interest, property taxes, and any qualified casualty loss will be reported as normally allowed on Schedule A (Form 1040). Student tax form 1098 t See the Instructions for Schedule A (Form 1040) for more information on deducting these expenses. Student tax form 1098 t Used as a home and rented 15 days or more. Student tax form 1098 t   If you use a dwelling unit as a home and rent it 15 days or more during the year, include all your rental income in your income. Student tax form 1098 t Since you used the dwelling unit for personal purposes, you must divide your expenses between the rental use and the personal use as described earlier in this chapter under Dividing Expenses . Student tax form 1098 t The expenses for personal use are not deductible as rental expenses. Student tax form 1098 t   If you had a net profit from renting the dwelling unit for the year (that is, if your rental income is more than the total of your rental expenses, including depreciation), deduct all of your rental expenses. Student tax form 1098 t You do not need to use Worksheet 5-1. Student tax form 1098 t   However, if you had a net loss from renting the dwelling unit for the year, your deduction for certain rental expenses is limited. Student tax form 1098 t To figure your deductible rental expenses and any carryover to next year, use Worksheet 5–1. Student tax form 1098 t Worksheet 5-1. Student tax form 1098 t Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Use this worksheet only if you answer “yes” to all of the following questions. Student tax form 1098 t Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home . Student tax form 1098 t ) Did you rent the dwelling unit at a fair rental price 15 days or more this year? Is the total of your rental expenses and depreciation more than your rental income? PART I. Student tax form 1098 t Rental Use Percentage A. Student tax form 1098 t Total days available for rent at fair rental price A. Student tax form 1098 t       B. Student tax form 1098 t Total days available for rent (line A) but not rented B. Student tax form 1098 t       C. Student tax form 1098 t Total days of rental use. Student tax form 1098 t Subtract line B from line A C. Student tax form 1098 t       D. Student tax form 1098 t Total days of personal use (including days rented at less than fair rental price) D. Student tax form 1098 t       E. Student tax form 1098 t Total days of rental and personal use. Student tax form 1098 t Add lines C and D E. Student tax form 1098 t       F. Student tax form 1098 t Percentage of expenses allowed for rental. Student tax form 1098 t Divide line C by line E     F. Student tax form 1098 t . Student tax form 1098 t PART II. Student tax form 1098 t Allowable Rental Expenses 1. Student tax form 1098 t Enter rents received 1. Student tax form 1098 t   2a. Student tax form 1098 t Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) 2a. Student tax form 1098 t       b. Student tax form 1098 t Enter the rental portion of real estate taxes b. Student tax form 1098 t       c. Student tax form 1098 t Enter the rental portion of deductible casualty and theft losses (see instructions) c. Student tax form 1098 t       d. Student tax form 1098 t Enter direct rental expenses (see instructions) d. Student tax form 1098 t       e. Student tax form 1098 t Fully deductible rental expenses. Student tax form 1098 t Add lines 2a–2d. Student tax form 1098 t Enter here and  on the appropriate lines on Schedule E (see instructions) 2e. Student tax form 1098 t   3. Student tax form 1098 t Subtract line 2e from line 1. Student tax form 1098 t If zero or less, enter -0- 3. Student tax form 1098 t   4a. Student tax form 1098 t Enter the rental portion of expenses directly related to operating or maintaining  the dwelling unit (such as repairs, insurance, and utilities) 4a. Student tax form 1098 t       b. Student tax form 1098 t Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) b. Student tax form 1098 t       c. Student tax form 1098 t Carryover of operating expenses from 2012 worksheet c. Student tax form 1098 t       d. Student tax form 1098 t Add lines 4a–4c d. Student tax form 1098 t       e. Student tax form 1098 t Allowable expenses. Student tax form 1098 t Enter the smaller of line 3 or line 4d (see instructions) 4e. Student tax form 1098 t   5. Student tax form 1098 t Subtract line 4e from line 3. Student tax form 1098 t If zero or less, enter -0- 5. Student tax form 1098 t   6a. Student tax form 1098 t Enter the rental portion of excess casualty and theft losses (see instructions) 6a. Student tax form 1098 t       b. Student tax form 1098 t Enter the rental portion of depreciation of the dwelling unit b. Student tax form 1098 t       c. Student tax form 1098 t Carryover of excess casualty losses and depreciation from 2012 worksheet c. Student tax form 1098 t       d. Student tax form 1098 t Add lines 6a–6c d. Student tax form 1098 t       e. Student tax form 1098 t Allowable excess casualty and theft losses and depreciation. Student tax form 1098 t Enter the smaller of  line 5 or line 6d (see instructions) 6e. Student tax form 1098 t   PART III. Student tax form 1098 t Carryover of Unallowed Expenses to Next Year 7a. Student tax form 1098 t Operating expenses to be carried over to next year. Student tax form 1098 t Subtract line 4e from line 4d 7a. Student tax form 1098 t   b. Student tax form 1098 t Excess casualty and theft losses and depreciation to be carried over to next year. Student tax form 1098 t  Subtract line 6e from line 6d b. Student tax form 1098 t   Worksheet 5-1 Instructions. Student tax form 1098 t Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Caution. Student tax form 1098 t Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4b, and 6a–6b of  Part II. Student tax form 1098 t Line 2a. Student tax form 1098 t Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A as if you had not rented the unit. Student tax form 1098 t Do not include interest on a loan that did not benefit the dwelling unit. Student tax form 1098 t For example, do not include interest on a home equity loan used to pay off credit cards or other personal loans, buy a car, or pay college tuition. Student tax form 1098 t Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. Student tax form 1098 t Include the rental portion of this interest in the total you enter on line 2a of the worksheet. Student tax form 1098 t   Figure the qualified mortgage insurance premiums on the dwelling unit that you could deduct on line 13 of Schedule A as if you had not rented the unit. Student tax form 1098 t See the Schedule A instructions. Student tax form 1098 t However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. Student tax form 1098 t See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. Student tax form 1098 t Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet. Student tax form 1098 t   Note. Student tax form 1098 t Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. Student tax form 1098 t Instead, figure the personal portion on a separate Schedule A. Student tax form 1098 t If you have deducted mortgage interest or qualified mortgage insurance premiums on the dwelling unit on other forms, such as Schedule C or F, remember to reduce your Schedule A deduction by that amount. Student tax form 1098 t           Line 2c. Student tax form 1098 t Figure the casualty and theft losses related to the dwelling unit that you could deduct on Schedule A as if you had not rented the dwelling unit. Student tax form 1098 t To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. Student tax form 1098 t If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. Student tax form 1098 t On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. Student tax form 1098 t Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet. Student tax form 1098 t   Note. Student tax form 1098 t Do not file this Form 4684 or use it to figure your personal losses on Schedule A. Student tax form 1098 t Instead, figure the personal portion on a separate Form 4684. Student tax form 1098 t           Line 2d. Student tax form 1098 t Enter the total of your rental expenses that are directly related only to the rental activity. Student tax form 1098 t These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. Student tax form 1098 t Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity. Student tax form 1098 t           Line 2e. Student tax form 1098 t You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses on Schedule E even if your rental expenses are more than your rental income. Student tax form 1098 t Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E. Student tax form 1098 t           Line 4b. Student tax form 1098 t On line 2a, you entered the rental portion of the mortgage interest or qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. Student tax form 1098 t If you had additional mortgage interest and qualified mortgage insurance premiums that would not be deductible on Schedule A because of limits imposed on them, enter on line 4b of this worksheet the rental portion of those excess amounts. Student tax form 1098 t Do not include interest on a loan that did not benefit the dwelling unit  (as explained in the line 2a instructions). Student tax form 1098 t           Line 4e. Student tax form 1098 t You can deduct the amounts on lines 4a, 4b, and 4c as rental expenses on Schedule E only to the extent they are not more than the amount on line 4e. Student tax form 1098 t *           Line 6a. Student tax form 1098 t To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet. Student tax form 1098 t   A. Student tax form 1098 t Enter the amount from Form 4684, line 10       B. Student tax form 1098 t Enter the rental portion of line A       C. Student tax form 1098 t Enter the amount from line 2c of this worksheet       D. Student tax form 1098 t Subtract line C from line B. Student tax form 1098 t Enter the result here and on line 6a of this worksheet               Line 6e. Student tax form 1098 t You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses on Schedule E only to the extent they are not more than the amount on line 6e. Student tax form 1098 t * *Allocating the limited deduction. Student tax form 1098 t If you cannot deduct all of the amount on line 4d or 6d this year, you can allocate the allowable deduction in any way you wish among the expenses included on line 4d or 6d. Student tax form 1098 t Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I. Student tax form 1098 t Prev  Up  Next   Home   More Online Publications
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The Student Tax Form 1098 T

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