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1040 ez turbo tax Publication 4492 - Main Contents Table of Contents DefinitionsHurricane Katrina Disaster Area Katrina Covered Disaster Area Gulf Opportunity (GO) Zone (Core Disaster Area) Hurricane Rita Disaster Area (Rita Covered Disaster Area) Rita GO Zone Hurricane Wilma Disaster Area Wilma Covered Disaster Area Wilma GO Zone Extended Tax Deadlines Charitable Giving IncentivesTemporary Suspension of Limits on Charitable Contributions Standard Mileage Rate for Charitable Use of Vehicles Mileage Reimbursements to Charitable Volunteers Charitable Deduction for Contributions of Food Inventory Charitable Deduction for Contributions of Book Inventories to Public Schools Casualty and Theft LossesTime limit for making election. 1040 ez turbo tax Replacement Period for Nonrecognition of Gain Net Operating Losses IRAs and Other Retirement PlansDefinitions Taxation of Qualified Hurricane Distributions Repayment of Qualified Hurricane Distributions Repayment of Qualified Distributions for the Purchase or Construction of a Main Home Loans From Qualified Plans Additional Tax Relief for IndividualsEarned Income Credit and Child Tax Credit Additional Exemption for Housing Individuals Displaced by Hurricane Katrina Education Credits Recapture of Federal Mortgage Subsidy Exclusion of Certain Cancellations of Indebtedness by Reason of Hurricane Katrina Tax Relief for Temporary Relocation Additional Tax Relief for BusinessesSpecial Depreciation Allowance Increased Section 179 Deduction Work Opportunity Credit Employee Retention Credit Hurricane Katrina Housing Credit Reforestation Costs Demolition and Clean-up Costs Increase in Rehabilitation Tax Credit Request for Copy or Transcript of Tax Return How To Get Tax Help Definitions The following definitions are used throughout this publication. 1040 ez turbo tax Hurricane Katrina Disaster Area The Hurricane Katrina disaster area covers the area for which the President declared a major disaster before September 14, 2005, because of Hurricane Katrina. 1040 ez turbo tax The Hurricane Katrina disaster area covers the entire states of Alabama, Florida, Louisiana, and Mississippi. 1040 ez turbo tax Katrina Covered Disaster Area A portion of the Hurricane Katrina disaster area has been designated by the IRS as a covered disaster area. 1040 ez turbo tax The Katrina covered disaster area covers the following areas in four states. 1040 ez turbo tax Alabama. 1040 ez turbo tax   The counties of Baldwin, Bibb, Choctaw, Clarke, Colbert, Cullman, Greene, Hale, Jefferson, Lamar, Lauderdale, Marengo, Marion, Mobile, Monroe, Perry, Pickens, Sumter, Tuscaloosa, Washington, Wilcox, and Winston. 1040 ez turbo tax Florida. 1040 ez turbo tax   The counties of Bay, Broward, Collier, Escambia, Franklin, Gulf, Miami-Dade, Monroe, Okaloosa, Santa Rosa, and Walton. 1040 ez turbo tax Louisiana. 1040 ez turbo tax   All parishes. 1040 ez turbo tax Mississippi. 1040 ez turbo tax   All counties. 1040 ez turbo tax Gulf Opportunity (GO) Zone (Core Disaster Area) The GO Zone (also called the core disaster area) covers the portion of the Hurricane Katrina disaster area determined by the Federal Emergency Management Agency (FEMA) to be eligible for either individual only or both individual and public assistance from the Federal Government. 1040 ez turbo tax The GO Zone covers the following areas in three states. 1040 ez turbo tax Alabama. 1040 ez turbo tax   The counties of Baldwin, Choctaw, Clarke, Greene, Hale, Marengo, Mobile, Pickens, Sumter, Tuscaloosa, and Washington. 1040 ez turbo tax Louisiana. 1040 ez turbo tax   The parishes of Acadia, Ascension, Assumption, Calcasieu, Cameron, East Baton Rouge, East Feliciana, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Orleans, Plaquemines, Pointe Coupee, St. 1040 ez turbo tax Bernard, St. 1040 ez turbo tax Charles, St. 1040 ez turbo tax Helena, St. 1040 ez turbo tax James, St. 1040 ez turbo tax John the Baptist, St. 1040 ez turbo tax Martin, St. 1040 ez turbo tax Mary, St. 1040 ez turbo tax Tammany, Tangipahoa, Terrebonne, Vermilion, Washington, West Baton Rouge, and West Feliciana. 1040 ez turbo tax Mississippi. 1040 ez turbo tax   The counties of Adams, Amite, Attala, Choctaw, Claiborne, Clarke, Copiah, Covington, Forrest, Franklin, George, Greene, Hancock, Harrison, Hinds, Holmes, Humphreys, Jackson, Jasper, Jefferson, Jefferson Davis, Jones, Kemper, Lamar, Lauderdale, Lawrence, Leake, Lincoln, Lowndes, Madison, Marion, Neshoba, Newton, Noxubee, Oktibbeha, Pearl River, Perry, Pike, Rankin, Scott, Simpson, Smith, Stone, Walthall, Warren, Wayne, Wilkinson, Winston, and Yazoo. 1040 ez turbo tax Hurricane Rita Disaster Area (Rita Covered Disaster Area) The Hurricane Rita disaster area (also designated by the IRS as the Rita covered disaster area) covers the area for which the President declared a major disaster before October 6, 2005, because of Hurricane Rita. 1040 ez turbo tax This area covers the entire states of Louisiana and Texas. 1040 ez turbo tax Rita GO Zone The Rita GO Zone covers the portion of the Hurricane Rita disaster area determined by FEMA to be eligible for either individual only or both individual and public assistance from the Federal Government. 1040 ez turbo tax The Rita GO Zone covers the following areas in two states. 1040 ez turbo tax Louisiana. 1040 ez turbo tax   The parishes of Acadia, Allen, Ascension, Beauregard, Calcasieu, Cameron, Evangeline, Iberia, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Plaquemines, Sabine, St. 1040 ez turbo tax Landry, St. 1040 ez turbo tax Martin, St. 1040 ez turbo tax Mary, St. 1040 ez turbo tax Tammany, Terrebonne, Vermilion, Vernon, and West Baton Rouge. 1040 ez turbo tax Texas. 1040 ez turbo tax   The counties of Angelina, Brazoria, Chambers, Fort Bend, Galveston, Hardin, Harris, Jasper, Jefferson, Liberty, Montgomery, Nacogdoches, Newton, Orange, Polk, Sabine, San Augustine, San Jacinto, Shelby, Trinity, Tyler, and Walker. 1040 ez turbo tax Hurricane Wilma Disaster Area The Hurricane Wilma disaster area covers the area for which the President declared a major disaster before November 14, 2005, because of Hurricane Wilma. 1040 ez turbo tax The Hurricane Wilma disaster area covers the entire state of Florida. 1040 ez turbo tax Wilma Covered Disaster Area A portion of the Hurricane Wilma disaster area has been designated by the IRS as a covered disaster area. 1040 ez turbo tax The Wilma covered disaster area covers the following counties. 1040 ez turbo tax Florida. 1040 ez turbo tax   Brevard, Broward, Charlotte, Collier, DeSoto, Glades, Hardee, Hendry, Highlands, Indian River, Lee, Martin, Miami-Dade, Monroe, Okeechobee, Osceola, Palm Beach, Polk, St. 1040 ez turbo tax Lucie, and Sarasota. 1040 ez turbo tax Wilma GO Zone The Wilma GO Zone covers the portion of the Hurricane Wilma disaster area determined by FEMA to be eligible for either individual only or both individual and public assistance from the Federal Government. 1040 ez turbo tax The Wilma GO Zone covers the following counties. 1040 ez turbo tax Florida. 1040 ez turbo tax   Brevard, Broward, Collier, Glades, Hendry, Indian River, Lee, Martin, Miami-Dade, Monroe, Okeechobee, Palm Beach, and St. 1040 ez turbo tax Lucie. 1040 ez turbo tax Extended Tax Deadlines The IRS has extended deadlines that apply to filing returns, paying taxes, and performing certain other time-sensitive acts for certain taxpayers affected by Hurricane Katrina, Rita, or Wilma, until February 28, 2006. 1040 ez turbo tax The extension applies to deadlines (either an original or extended due date) that occur during the following periods. 1040 ez turbo tax After August 28, 2005 (August 23, 2005, for Florida affected taxpayers), and before February 28, 2006, for taxpayers affected by Hurricane Katrina. 1040 ez turbo tax After September 22, 2005, and before February 28, 2006, for taxpayers affected by Hurricane Rita. 1040 ez turbo tax After October 22, 2005, and before February 28, 2006, for taxpayers affected by Hurricane Wilma. 1040 ez turbo tax Affected taxpayer. 1040 ez turbo tax   The following taxpayers are eligible for the extension. 1040 ez turbo tax Any individual whose main home is located in a covered disaster area. 1040 ez turbo tax Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. 1040 ez turbo tax Any individual, business entity, or sole proprietor whose records needed to meet a postponed deadline are maintained or whose tax professional's office is in a covered disaster area. 1040 ez turbo tax The main home or principal place of business does not have to be located in the covered area. 1040 ez turbo tax Any individual visiting a county or parish in the Hurricane Katrina or Hurricane Rita covered disaster area that was injured or killed (and the estate of an individual killed) as a result of the hurricane or its aftermath. 1040 ez turbo tax Any estate or trust whose tax records needed to meet a filing or payment deadline are maintained in a covered disaster area. 1040 ez turbo tax Generally, any individual who is a worker assisting in the relief activities in a covered disaster area. 1040 ez turbo tax However, a relief worker assisting in the Wilma covered disaster area is not an affected taxpayer unless the worker is affiliated with a recognized government or philanthropic organization assisting in the relief activities. 1040 ez turbo tax The spouse of an affected taxpayer, solely with regard to a joint income tax return with that taxpayer. 1040 ez turbo tax   To ensure correct processing, affected taxpayers should write the assigned disaster designation (for example, “Hurricane Katrina”) in red ink at the top of any forms or documents filed with the IRS. 1040 ez turbo tax Affected taxpayers can also identify themselves to the IRS or ask hurricane-related questions by calling the special IRS disaster hotline at 1-866-562-5227. 1040 ez turbo tax Acts extended. 1040 ez turbo tax   Deadlines for performing the following acts are extended. 1040 ez turbo tax Filing any return of income, estate, gift, generation-skipping transfer, excise, or employment tax. 1040 ez turbo tax Paying any income, estate, gift, generation-skipping transfer, excise, or employment tax. 1040 ez turbo tax This includes making estimated tax payments. 1040 ez turbo tax Making certain contributions, distributions, recharacterizing contributions, or making a rollover to or from a qualified retirement plan. 1040 ez turbo tax Filing certain petitions with the Tax Court. 1040 ez turbo tax Filing a claim for credit or refund of any tax. 1040 ez turbo tax Bringing suit upon a claim for credit or refund. 1040 ez turbo tax Certain other acts described in Revenue Procedure 2005-27. 1040 ez turbo tax You can find Revenue Procedure 2005-27 on page 1050 of Internal Revenue Bulletin 2005-20 at www. 1040 ez turbo tax irs. 1040 ez turbo tax gov/pub/irs-irbs/irb05-20. 1040 ez turbo tax pdf. 1040 ez turbo tax Forgiveness of interest and penalties. 1040 ez turbo tax   The IRS may forgive the interest and penalties on any underpaid income, estate, gift, employment, or excise tax for the length of any extension. 1040 ez turbo tax Charitable Giving Incentives Temporary Suspension of Limits on Charitable Contributions Individuals. 1040 ez turbo tax   Qualified contributions are not subject to the overall limit on itemized deductions or the 50% adjusted gross income (AGI) limit. 1040 ez turbo tax A qualified contribution is a charitable contribution paid in cash or by check after August 27, 2005, and before January 1, 2006, to a 50% limit organization (other than certain private foundations described in section 509(a)(3)) if you make an election to have the 50% limit not apply to these contributions. 1040 ez turbo tax   Your deduction for qualified contributions is limited to your AGI minus your deduction for all other charitable contributions. 1040 ez turbo tax You can carry over any contributions you are not able to deduct for 2005 because of this limit. 1040 ez turbo tax In 2006, treat the carryover of your unused qualified contributions as a carryover of contributions subject to the 50% limit. 1040 ez turbo tax Exception. 1040 ez turbo tax   Qualified contributions do not include a contribution to a segregated fund or account for which you (or any person you appoint or designate) have or expect to have advisory privileges with respect to distributions or investments based on your contribution. 1040 ez turbo tax Corporations. 1040 ez turbo tax   A corporation may elect to deduct qualified cash contributions without regard to the 10% taxable income limit if the contributions were made after August 27, 2005, and before January 1, 2006, to a qualified charitable organization (other than certain private foundations described in section 509(a)(3)), for Hurricane Katrina, Rita, or Wilma relief efforts. 1040 ez turbo tax The corporation's deduction for these qualified contributions is limited to 100% of taxable income (as modified for the 10% limit) minus the corporation's deduction for all other charitable contributions. 1040 ez turbo tax Any qualified contributions over this limit can be carried over to the next 5 years, subject to the 10% limit. 1040 ez turbo tax Partners and shareholders. 1040 ez turbo tax   Each partner in a partnership and each shareholder in an S corporation makes a separate election to have the appropriate limit not apply. 1040 ez turbo tax More information. 1040 ez turbo tax   For more information, see Publication 526 or Publication 542, Corporations. 1040 ez turbo tax Publication 526 includes a worksheet you can use to figure your deduction if any limits apply to your charitable contributions. 1040 ez turbo tax Standard Mileage Rate for Charitable Use of Vehicles The following are special standard mileage rates in effect in 2005 and 2006 for the cost of operating your automobile for providing charitable services solely related to Hurricane Katrina. 1040 ez turbo tax 29 cents per mile for the period August 25 through August 31, 2005. 1040 ez turbo tax 34 cents per mile for the period September 1 through December 31, 2005. 1040 ez turbo tax 32 cents per mile for the period January 1 through December 31, 2006. 1040 ez turbo tax Mileage Reimbursements to Charitable Volunteers You can exclude from income amounts you receive as mileage reimbursements for the use of a private passenger automobile for the benefit of a qualified charitable organization in providing relief related to Hurricane Katrina during the period beginning on August 25, 2005, and ending on December 31, 2006. 1040 ez turbo tax You cannot claim a deduction or credit for amounts you receive as a mileage reimbursement. 1040 ez turbo tax You must keep records of miles driven, time, place (or use), and purpose of the mileage. 1040 ez turbo tax The amount you can exclude from income cannot exceed the standard business mileage rate (shown below) for expenses incurred during the following periods. 1040 ez turbo tax 40. 1040 ez turbo tax 5 cents per mile for the period August 25 through August 31, 2005. 1040 ez turbo tax 48. 1040 ez turbo tax 5 cents per mile for the period September 1 through December 31, 2005. 1040 ez turbo tax 44. 1040 ez turbo tax 5 cents per mile for the period January 1 through December 31, 2006. 1040 ez turbo tax Charitable Deduction for Contributions of Food Inventory Any taxpayer engaged in a trade or business is eligible to claim a deduction for a contribution of “apparently wholesome food” inventory to a qualified charitable organization described in section 501(c)(3) (except for private nonoperating foundations) after August 27, 2005, and before January 1, 2006. 1040 ez turbo tax “Apparently wholesome food” is food that meets all quality and labeling standards imposed by federal, state, and local laws and regulations even though the food may not be readily marketable due to appearance, age, freshness, grade, size, surplus, or other conditions. 1040 ez turbo tax The deduction is equal to the lesser of: The basis of the donated food plus one-half of the gain that would have been realized if the donated food had been sold at fair market value on the date of the donation, or Two times the basis of the donated food. 1040 ez turbo tax The taxpayer must receive written certification from the donee stating: The donated food is related to the purpose or function of the donee's basis for exemption under section 501(c)(3) and is to be used solely for the care of the ill, the needy, or infants; and The food was not given in exchange for money, other property, or services. 1040 ez turbo tax For a taxpayer other than a C corporation, the deduction is limited to 10% of the taxpayer's total net income from all trades or businesses from which the food contributions were made (figured without regard to the deduction for charitable contributions). 1040 ez turbo tax For example, if a taxpayer is a sole proprietor, a shareholder in an S corporation, and a partner in a partnership, and each made a contribution of apparently wholesome food inventory, the taxpayer's deduction is limited to 10% of the taxpayer's total net income from the sole proprietorship, S corporation, and partnership (figured without regard to the deduction for charitable contributions). 1040 ez turbo tax Charitable Deduction for Contributions of Book Inventories to Public Schools A corporation (other than an S corporation) may be allowed a charitable deduction for a qualified book contribution made after August 27, 2005, and before January 1, 2006, to a public school that: Provides elementary or secondary education (kindergarten through grade 12), and Normally maintains a regular faculty and curriculum and has a regular enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. 1040 ez turbo tax . 1040 ez turbo tax The deduction is equal to the lesser of: The basis of the donated books plus one-half of the gain that would have been realized if the donated books had been sold at fair market value on the date of the donation, or Two times the basis of the donated books. 1040 ez turbo tax The corporation must receive written certification from the school stating that the donated books are suitable for the organization's educational programs and will be used for such programs. 1040 ez turbo tax Casualty and Theft Losses The following paragraphs explain changes to casualty and theft losses that were caused by Hurricane Katrina, Rita, or Wilma. 1040 ez turbo tax For more information, see Publication 547. 1040 ez turbo tax Limits on personal casualty or theft losses caused by Hurricane Katrina, Rita, or Wilma. 1040 ez turbo tax   The following losses to personal use property are not subject to the $100 or 10% of adjusted gross income limits. 1040 ez turbo tax Losses that arose in the Hurricane Katrina disaster area after August 24, 2005, and that were caused by Hurricane Katrina. 1040 ez turbo tax Losses that arose in the Hurricane Rita disaster area after September 22, 2005, and that were caused by Hurricane Rita. 1040 ez turbo tax Losses that arose in the Hurricane Wilma disaster area after October 22, 2005, and that were caused by Hurricane Wilma. 1040 ez turbo tax Qualifying losses include losses from flooding or other casualty, and from theft, that arose in the hurricane disaster area and that were caused by the hurricane. 1040 ez turbo tax Special instructions for individuals who elect to claim a Hurricane Katrina, Rita, or Wilma casualty or theft loss for 2004. 1040 ez turbo tax   Casualty and theft losses are generally deductible only in the year the casualty occurred or theft was discovered. 1040 ez turbo tax However, Hurricane Katrina, Rita, and Wilma are Presidentially declared disasters. 1040 ez turbo tax Therefore, you can elect to deduct losses from these hurricanes on your tax return for the previous year. 1040 ez turbo tax If you make this election, use the following additional instructions to complete your forms. 1040 ez turbo tax   Individuals filing or amending their 2004 tax return whose only casualty or theft losses to personal use property claimed on that return were caused by Hurricane Katrina, Rita, or Wilma should write “Hurricane Katrina,” “Hurricane Rita,” or “Hurricane Wilma” at the top of Form 1040 or 1040X. 1040 ez turbo tax They must also complete and attach the 2004 Form 4684 and write “Hurricane Katrina,”“Hurricane Rita,” or “Hurricane Wilma” on the dotted line next to line 11 and enter -0- on lines 11 and 17. 1040 ez turbo tax   Individuals filing or amending their 2004 tax return who also have casualty or theft losses to personal use property not related to Hurricane Katrina, Rita, or Wilma should disregard the caution directing taxpayers to use only one Form 4684, located above line 13, and complete lines 13 through 18 on two Forms 4684. 1040 ez turbo tax The Form 1040 or 1040X and the first Form 4684 should be prepared as explained above for Hurricane Katrina, Rita, or Wilma losses only. 1040 ez turbo tax The second Form 4684 should be prepared in the normal manner for all gains and non-Hurricane Katrina, Rita or Wilma losses. 1040 ez turbo tax If both Forms 4684 have a loss on line 18, they should carry the combined losses from that line to Schedule A (Form 1040), line 19. 1040 ez turbo tax If there is a gain on line 15 of the second Form 4684, disregard the instruction to enter it on Schedule D (Form 1040), and instead enter on Schedule A (Form 1040), line 19, the excess of the loss from the first Form 4684 over the gain on line 15 of the second Form 4684. 1040 ez turbo tax , Time limit for making election. 1040 ez turbo tax   You must make this election to claim your casualty or theft loss in 2004 by the later of the following dates. 1040 ez turbo tax The due date (without extensions) for filing your 2005 income tax return. 1040 ez turbo tax The due date (with extensions) for filing your 2004 income tax return. 1040 ez turbo tax Example. 1040 ez turbo tax If you are a calendar year individual taxpayer, you have until April 17, 2006, to amend your 2004 tax return to claim a casualty or theft loss that occurred during 2005. 1040 ez turbo tax Replacement Period for Nonrecognition of Gain Generally, an involuntary conversion occurs when property is damaged, destroyed, stolen, seized, requisitioned, or condemned, and you receive other property or money in payment, such as insurance or a condemnation award. 1040 ez turbo tax Generally, you do not have to report a gain (if any) if you replace the property within 2 years (4 years for a main home in a Presidentially declared disaster area). 1040 ez turbo tax However, for property that was involuntarily converted after August 24, 2005, as a result of Hurricane Katrina, a 5-year replacement period applies if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. 1040 ez turbo tax For more information, see the Instructions for Form 4684. 1040 ez turbo tax Net Operating Losses Qualified GO Zone loss. 1040 ez turbo tax   Generally, you can carry a net operating loss (NOL) back to the 2 tax years before the NOL year. 1040 ez turbo tax However, the portion of an NOL that is a qualified GO Zone loss can be carried back to the 5 tax years before the NOL year. 1040 ez turbo tax In addition, the 90% limit on the alternative tax NOL deduction (ATNOLD) does not apply to such portion of the ATNOLD. 1040 ez turbo tax   A qualified GO Zone loss is the smaller of: The excess of the NOL for the year over the specified liability loss for the year to which a 10-year carryback applies, or The total of the following deductions (to the extent they are taken into account in computing the NOL for the tax year): Qualified GO Zone casualty loss (as defined below), Moving expenses paid or incurred after August 27, 2005, and before January 1, 2008, for the employment of an individual whose main home was in the GO Zone before August 28, 2005, who was unable to remain in that home because of Hurricane Katrina, and whose main job location (after the move) is in the GO Zone, Temporary housing expenses paid or incurred after August 27, 2005, and before January 1, 2008, to house employees of the taxpayer whose main job location is in the GO Zone, Depreciation or amortization allowable for any qualified GO Zone property (even if you elected not to claim the special GO Zone depreciation allowance for such property) for the year placed in service, and Repair expenses (including expenses for the removal of debris) paid or incurred after August 27, 2005, and before January 1, 2008, for any damage from Hurricane Katrina to property located in the GO Zone. 1040 ez turbo tax Qualified GO Zone casualty loss. 1040 ez turbo tax   A qualified GO Zone casualty loss is any deductible section 1231 loss of property located in the GO Zone if the loss was caused by Hurricane Katrina. 1040 ez turbo tax For this purpose, the amount of the loss is reduced by any recognized gain from an involuntary conversion caused by Hurricane Katrina of property located in the GO Zone. 1040 ez turbo tax Any such loss taken into account in figuring your qualified GO Zone loss is not eligible for the election to be treated as having occurred in the previous tax year. 1040 ez turbo tax 5-year NOL carryback of certain timber losses. 1040 ez turbo tax   Generally, you can carry the portion of an NOL due to income and deductions attributable to a farming business back to the 5 tax years before the NOL year. 1040 ez turbo tax You can treat income and deductions attributable to qualified timber property as attributable to a farming business if any portion of the property is located in the GO Zone, Rita GO Zone, or Wilma GO Zone, and the income and deductions are allocable to the part of your tax year which is after the applicable date below. 1040 ez turbo tax August 27, 2005, if any portion of the property is located in the GO Zone. 1040 ez turbo tax September 22, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone). 1040 ez turbo tax October 22, 2005, if any portion of the property is located in the Wilma GO Zone (but not in the GO Zone or the RITA GO Zone). 1040 ez turbo tax   These rules will not apply after 2006. 1040 ez turbo tax   However, these rules apply only to a timber producer who: Held qualified timber property (defined in Publication 535, Business Expenses) on the applicable date below: August 28, 2005, if any portion of the property is located in the GO Zone, September 23, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone), or October 23, 2005, if any portion of the property is located in the Wilma GO Zone (but not in the GO Zone or the Rita GO Zone); Is not a corporation with stock publicly traded on an established securities market; Is not a real estate investment trust; and Did not hold more than 500 acres of qualified timber property on the applicable date above. 1040 ez turbo tax More information. 1040 ez turbo tax   For more information on NOLs, see Publication 536 or Publication 542, Corporations. 1040 ez turbo tax IRAs and Other Retirement Plans New rules provide for tax-favored withdrawals, repayments, and loans from certain retirement plans for taxpayers who suffered economic losses as a result of Hurricane Katrina, Rita, or Wilma. 1040 ez turbo tax Definitions Qualified hurricane distribution. 1040 ez turbo tax   A qualified hurricane distribution is any distribution you received from an eligible retirement plan if all of the following apply. 1040 ez turbo tax The distribution was made: After August 24, 2005, and before January 1, 2007, for Hurricane Katrina; After September 22, 2005, and before January 1, 2007, for Hurricane Rita; or After October 22, 2005, and before January 1, 2007, for Hurricane Wilma. 1040 ez turbo tax Your main home was located in a hurricane disaster area listed below on the date shown for that area. 1040 ez turbo tax August 28, 2005, for the Hurricane Katrina disaster area. 1040 ez turbo tax September 23, 2005, for the Hurricane Rita disaster area. 1040 ez turbo tax October 23, 2005, for the Hurricane Wilma disaster area. 1040 ez turbo tax You sustained an economic loss because of Hurricane Katrina, Rita, or Wilma and your main home was in that hurricane disaster area on the date shown in (2) above for that hurricane. 1040 ez turbo tax Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. 1040 ez turbo tax   If (1) through (3) above apply, you can generally designate any distribution (including periodic payments and required minimum distributions) from an eligible retirement plan as a qualified hurricane distribution, regardless of whether the distribution was made on account of Hurricane Katrina, Rita, or Wilma. 1040 ez turbo tax Qualified hurricane distributions are permitted without regard to your need or the actual amount of your economic loss. 1040 ez turbo tax   The total of your qualified hurricane distributions from all plans is limited to $100,000. 1040 ez turbo tax If you have distributions in excess of $100,000 from more than one type of plan, such as a 401(k) plan and an IRA, you may allocate the $100,000 limit among the plans any way you choose. 1040 ez turbo tax   A reduction or offset (after August 24, 2005, for Katrina; after September 22, 2005, for Rita; or after October 22, 2005, for Wilma) of your account balance in an eligible retirement plan in order to repay a loan can also be designated as a qualified hurricane distribution. 1040 ez turbo tax Eligible retirement plan. 1040 ez turbo tax   An eligible retirement plan can be any of the following. 1040 ez turbo tax A qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan). 1040 ez turbo tax A qualified annuity plan. 1040 ez turbo tax A tax-sheltered annuity contract. 1040 ez turbo tax A governmental section 457 deferred compensation plan. 1040 ez turbo tax A traditional, SEP, SIMPLE, or Roth IRA. 1040 ez turbo tax Main home. 1040 ez turbo tax   Generally, your main home is the home where you live most of the time. 1040 ez turbo tax A temporary absence due to special circumstances, such as illness, education, business, military service, evacuation, or vacation, will not change your main home. 1040 ez turbo tax Taxation of Qualified Hurricane Distributions Qualified hurricane distributions are included in income in equal amounts over three years. 1040 ez turbo tax However, if you elect, you can include the entire distribution in your income in the year it was received. 1040 ez turbo tax Qualified hurricane distributions are not subject to the additional 10% tax (or the additional 25% tax for certain distributions from SIMPLE IRAs) on early distributions from qualified retirement plans (including IRAs). 1040 ez turbo tax However, any distributions you receive in excess of the $100,000 qualified hurricane distribution limit may be subject to the additional tax on early distributions. 1040 ez turbo tax For more information, see Form 8915. 1040 ez turbo tax Repayment of Qualified Hurricane Distributions If you choose, you generally can repay any portion of a qualified hurricane distribution that is eligible for tax-free rollover treatment to an eligible retirement plan. 1040 ez turbo tax Also, you can repay a qualified hurricane distribution made on account of a hardship from a retirement plan. 1040 ez turbo tax However, see Exceptions below for qualified hurricane distributions you cannot repay. 1040 ez turbo tax You have three years from the day after the date you received the distribution to make a repayment. 1040 ez turbo tax Amounts that are repaid are treated as a qualified rollover and are not included in income. 1040 ez turbo tax Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. 1040 ez turbo tax See Form 8915 for more information on how to report repayments. 1040 ez turbo tax Exceptions. 1040 ez turbo tax   You cannot repay the following types of distributions. 1040 ez turbo tax Qualified hurricane distributions received as a beneficiary (other than a surviving spouse). 1040 ez turbo tax Required minimum distributions. 1040 ez turbo tax Periodic payments (other than from an IRA) that are for: A period of 10 years or more, Your life or life expectancy, or The joint lives or joint life expectancies of you and your beneficiary. 1040 ez turbo tax Repayment of Qualified Distributions for the Purchase or Construction of a Main Home If you received a qualified distribution to purchase or construct a main home in the Hurricane Katrina, Rita, or Wilma disaster area, you can repay that distribution before March 1, 2006, to an eligible retirement plan after August 24, 2005 (Katrina); after September 22, 2005 (Rita); or after October 22, 2005 (Wilma). 1040 ez turbo tax For this purpose, an eligible retirement plan is any plan, annuity, or IRA to which a qualified rollover can be made. 1040 ez turbo tax To be a qualified distribution, the distribution must meet all of the following requirements. 1040 ez turbo tax The distribution is a hardship distribution from a 401(k) plan, a hardship distribution from a tax-sheltered annuity contract, or a qualified first-time homebuyer distribution from an IRA. 1040 ez turbo tax The distribution was received in 2005 after February 28 and before: August 29 for Hurricane Katrina; September 24 for Hurricane Rita; or October 24 for Hurricane Wilma. 1040 ez turbo tax The distribution was to be used to purchase or construct a main home in the Hurricane Katrina, Rita, or Wilma disaster area that was not purchased or constructed because of Hurricane Katrina, Rita, or Wilma. 1040 ez turbo tax Amounts that are repaid before March 1, 2006, are treated as a qualified rollover and are not included in income. 1040 ez turbo tax Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. 1040 ez turbo tax A qualified distribution not repaid before March 1, 2006, may be taxable for 2005 and subject to the additional 10% tax (or the additional 25% tax for certain SIMPLE IRAs) on early distributions. 1040 ez turbo tax You must file Form 8915 if you received a qualified distribution that you repaid, in whole or in part, before March 1, 2006. 1040 ez turbo tax Loans From Qualified Plans The following benefits are available to qualified individuals. 1040 ez turbo tax Increases to the limits for distributions treated as loans from employer plans. 1040 ez turbo tax A 1-year suspension for payments due on plan loans. 1040 ez turbo tax Qualified individual. 1040 ez turbo tax   You are a qualified individual if any of the following apply. 1040 ez turbo tax Your main home on August 28, 2005, was located in the Hurricane Katrina disaster area and you had an economic loss because of Hurricane Katrina. 1040 ez turbo tax Your main home on September 23, 2005, was located in the Hurricane Rita disaster area and you had an economic loss because of Hurricane Rita. 1040 ez turbo tax Your main home on October 23, 2005, was located in the Hurricane Wilma disaster area and you had an economic loss because of Hurricane Wilma. 1040 ez turbo tax Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. 1040 ez turbo tax Limits on plan loans. 1040 ez turbo tax   The $50,000 limit for distributions treated as plan loans is increased to $100,000. 1040 ez turbo tax In addition, the limit based on 50% of your vested accrued benefit is increased to 100% of that benefit. 1040 ez turbo tax The higher limits apply only to loans received during the following period. 1040 ez turbo tax If your main home was located in the Hurricane Katrina disaster area, the period began on September 24, 2005, and ends on December 31, 2006. 1040 ez turbo tax If your main home was located in the Hurricane Rita or Wilma disaster area, the period began on December 21, 2005, and ends on December 31, 2006. 1040 ez turbo tax If you are a qualified individual based on Hurricane Katrina and another hurricane, use the period based on Hurricane Katrina. 1040 ez turbo tax One-year suspension of loan payments. 1040 ez turbo tax   Payments on plan loans due before 2007 may be suspended for 1 year by the plan administrator. 1040 ez turbo tax To qualify for the suspension, the due date for any loan payment must occur during the period beginning on: August 28, 2005, if your main home was located in the Hurricane Katrina disaster area. 1040 ez turbo tax September 23, 2005, if your main home was located in the Hurricane Rita disaster area. 1040 ez turbo tax October 23, 2005, if your main home was located in the Hurricane Wilma disaster area. 1040 ez turbo tax If you are a qualified individual based on more than one hurricane, use the period with the earliest beginning date. 1040 ez turbo tax Additional Tax Relief for Individuals Earned Income Credit and Child Tax Credit You can elect to use your 2004 earned income to figure your earned income credit (EIC) and additional child tax credit for 2005 if: Your 2005 earned income is less than your 2004 earned income, and At least one of the following statements is true. 1040 ez turbo tax Your main home on August 25, 2005, was in the Gulf Opportunity (GO) Zone. 1040 ez turbo tax Your main home on August 25, 2005, was in the Hurricane Katrina disaster area and you were displaced from that home because of Hurricane Katrina. 1040 ez turbo tax Your main home on September 23, 2005, was in the Rita GO Zone. 1040 ez turbo tax Your main home on September 23, 2005, was in the Hurricane Rita disaster area and you were displaced from that home because of Hurricane Rita. 1040 ez turbo tax Your main home on October 23, 2005, was in the Wilma GO Zone. 1040 ez turbo tax Your main home on October 23, 2005, was in the Hurricane Wilma disaster area and you were displaced from that home because of Hurricane Wilma. 1040 ez turbo tax Earned income. 1040 ez turbo tax    For the purpose of this election, your earned income for both the EIC and the additional child tax credit is the amount of earned income used to figure your EIC, even if you did not take the EIC and even if that amount is different than your earned income for the additional child tax credit. 1040 ez turbo tax If you are claiming only the additional child tax credit, you must figure the amount of your earned income for EIC purposes to determine your eligibility to make the election and the amount of the credit. 1040 ez turbo tax Joint returns. 1040 ez turbo tax   If you file a joint return, you qualify to make this election even if only one spouse meets the requirements. 1040 ez turbo tax If you make the election, your 2004 earned income is the sum of your 2004 earned income and your spouse's 2004 earned income. 1040 ez turbo tax Making the election. 1040 ez turbo tax   If you make the election to use your 2004 earned income, the election applies for figuring both the EIC and the additional child tax credit. 1040 ez turbo tax However, you can make the election for the additional child tax credit even if you do not take the EIC. 1040 ez turbo tax   Electing to use your 2004 earned income may increase or decrease your EIC. 1040 ez turbo tax Take the following steps to decide whether to make the election. 1040 ez turbo tax Figure your 2005 EIC using your 2004 earned income. 1040 ez turbo tax Figure your 2005 additional child tax credit using your 2004 earned income for EIC purposes. 1040 ez turbo tax Add the results of (1) and (2). 1040 ez turbo tax Figure your 2005 EIC using your 2005 earned income. 1040 ez turbo tax Figure your 2005 additional child tax credit using your 2005 earned income for additional child tax credit purposes. 1040 ez turbo tax Add the results of (4) and (5). 1040 ez turbo tax Compare the results of (3) and (6). 1040 ez turbo tax If (3) is larger than (6), it is to your benefit to make the election. 1040 ez turbo tax If (3) is equal to or smaller than (6), making the election will not help you. 1040 ez turbo tax   If you elect to use your 2004 earned income and you are claiming the EIC, enter “PYEI” and the amount of your 2004 earned income on the dotted line next to line 66a of Form 1040, on the line next to line 41a of Form 1040A, or in the space to the left of line 8a of Form 1040EZ. 1040 ez turbo tax   If you elect to use your 2004 earned income and you are claiming the additional child tax credit, enter your 2004 earned income for EIC purposes (even if you did not claim the EIC) on Form 8812, Additional Child Tax Credit, line 4a, and check the box on that line. 1040 ez turbo tax   Because Form 8812 was released before the GO Zone legislation was enacted, the instructions refer only to individuals whose main home was in the Hurricane Katrina disaster area. 1040 ez turbo tax When completing Form 8812, line 4a, use the above rules to determine your eligibility to make the election (instead of the Form 8812 instructions). 1040 ez turbo tax Getting your 2004 tax return information. 1040 ez turbo tax   If you do not have your 2004 tax records, you can get the amount of earned income used to figure your 2004 EIC by calling 1-866-562-5227. 1040 ez turbo tax You can also get this information by visiting the IRS website at www. 1040 ez turbo tax irs. 1040 ez turbo tax gov. 1040 ez turbo tax   If you prefer to figure your 2004 earned income yourself, copies or transcripts of your filed and processed tax returns can help you reconstruct your tax records. 1040 ez turbo tax See Request for Copy or Transcript of Tax Return on page 16. 1040 ez turbo tax Additional Exemption for Housing Individuals Displaced by Hurricane Katrina You may be able to claim an additional exemption amount of $500 for providing housing in your main home for each individual displaced by Hurricane Katrina. 1040 ez turbo tax The additional exemption amount is claimed on new Form 8914. 1040 ez turbo tax The additional exemption amount is allowable once per taxpayer for a specific individual in 2005 or 2006, but not in both years. 1040 ez turbo tax The maximum additional exemption amount you can claim for all displaced individuals is $2,000 ($1,000 if married filing separately). 1040 ez turbo tax The additional exemption amount you claim for displaced individuals in 2005 will reduce the $2,000 maximum for 2006. 1040 ez turbo tax If two or more taxpayers share the same main home, only one taxpayer in that main home can claim the additional exemption amount for a specific displaced individual. 1040 ez turbo tax If married filing separately, only one spouse may claim the additional exemption amount for a specific displaced individual. 1040 ez turbo tax In order for you to be considered to have provided housing, you must have a legal interest in the main home (that is, own or rent the home). 1040 ez turbo tax To qualify as a displaced individual, the individual: Must have had his or her main home in the Hurricane Katrina disaster area on August 28, 2005, and he or she must have been displaced from that home. 1040 ez turbo tax If the individual's main home was located outside the core disaster area, that home must have been damaged by Hurricane Katrina or the individual must have been evacuated from that home because of Hurricane Katrina, Must have been provided housing in your main home for a period of at least 60 consecutive days ending in the tax year in which the exemption is claimed, and Cannot be your spouse or dependent. 1040 ez turbo tax You cannot claim the additional exemption amount if you received rent (or any other amount) from any source for providing the housing. 1040 ez turbo tax You are permitted to receive payments or reimbursements that do not relate to normal housing costs, including the following. 1040 ez turbo tax Food, clothing, or personal items consumed or used by the displaced individual. 1040 ez turbo tax Reimbursement for the cost of any long distance telephone calls made by the displaced individual. 1040 ez turbo tax Reimbursement for the cost of gasoline for the displaced individual's use of your vehicle. 1040 ez turbo tax However, you cannot claim the additional exemption amount if you received any reimbursement for the extra costs of heat, electricity, or water used by the displaced individual. 1040 ez turbo tax Also, you must report on Form 8914 the displaced individual's social security number or individual taxpayer identification number to claim an additional exemption amount. 1040 ez turbo tax For more information, see Form 8914. 1040 ez turbo tax Education Credits The education credits have been expanded for students attending an eligible educational institution located in the Gulf Opportunity Zone (GOZ students) for any tax year beginning in 2005 or 2006. 1040 ez turbo tax The Hope credit for a GOZ student is increased to 100% of the first $2,000 in qualified education expenses and 50% of the next $2,000 of qualified education expenses for a maximum credit of $3,000 per student. 1040 ez turbo tax The lifetime learning credit rate for a GOZ student is increased from 20% to 40%. 1040 ez turbo tax The definition of qualified education expenses for a GOZ student also has been expanded. 1040 ez turbo tax In addition to tuition and fees required for the student's enrollment or attendance at an eligible educational institution, qualified education expenses for a GOZ student include the following. 1040 ez turbo tax Books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. 1040 ez turbo tax For a special needs student, expenses that are necessary for that person's enrollment or attendance at an eligible educational institution. 1040 ez turbo tax For a student who is at least a half-time student, the reasonable costs of room and board, but only to the extent that the costs are not more than the greater of the following two amounts. 1040 ez turbo tax The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. 1040 ez turbo tax The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. 1040 ez turbo tax You will need to contact the eligible educational institution for qualified room and board costs. 1040 ez turbo tax For more information, see Form 8863. 1040 ez turbo tax Recapture of Federal Mortgage Subsidy Generally, if you financed your home under a federally subsidized program (loans from tax-exempt qualified mortgage bonds or loans with mortgage credit certificates), you may have to recapture all or part of the benefit you received from that program when you sell or otherwise dispose of your home. 1040 ez turbo tax However, you do not have to recapture any benefit if your mortgage loan was a qualified home improvement loan of not more than $15,000. 1040 ez turbo tax This amount is increased to $150,000 if the loan was provided before 2011 and was used to: Repair damage caused by Hurricane Katrina to a residence in the Hurricane Katrina disaster area, or Alter, repair, or improve an existing owner-occupied residence in the GO Zone, Rita GO Zone, or Wilma GO Zone. 1040 ez turbo tax Exclusion of Certain Cancellations of Indebtedness by Reason of Hurricane Katrina Generally, discharges of nonbusiness debts (such as mortgages) made after August 24, 2005, and before January 1, 2007, are excluded from income for individuals whose main home was in the Hurricane Katrina disaster area on August 25, 2005. 1040 ez turbo tax If the individual's main home was located outside the core disaster area, the individual also must have had an economic loss because of Hurricane Katrina. 1040 ez turbo tax Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. 1040 ez turbo tax This relief does not apply to any debt secured by real property located outside the Hurricane Katrina disaster area. 1040 ez turbo tax You may also have to reduce certain tax attributes by the amount excluded. 1040 ez turbo tax For more information, see Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). 1040 ez turbo tax Tax Relief for Temporary Relocation Under the Gulf Opportunity Zone Act of 2005, the IRS may adjust the internal revenue laws to ensure that taxpayers do not lose a deduction or credit or experience a change of filing status in 2005 or 2006 as a result of a temporary relocation caused by Hurricane Katrina, Rita, or Wilma. 1040 ez turbo tax However, any such adjustment must ensure that an individual is not taken into account by more than one taxpayer for the same tax benefit. 1040 ez turbo tax The IRS has exercised this authority as follows. 1040 ez turbo tax In determining whether you furnished over one-half of the cost of maintaining a household, you can exclude from total household costs any assistance received from the government or charitable organizations because you were temporarily relocated as a result of Hurricane Katrina, Rita, or Wilma. 1040 ez turbo tax In determining whether you provided more than one-half of an individual's support, you can disregard any assistance received from the government or charitable organizations because you were temporarily relocated as a result of Hurricane Katrina, Rita, or Wilma. 1040 ez turbo tax You can treat as a student an individual who enrolled in school before August 25, 2005, and who is unable to attend classes because of Hurricane Katrina, for each month of the enrollment period that individual is prevented by Hurricane Katrina from attending school as planned. 1040 ez turbo tax You can treat as a student an individual who enrolled in school before September 23, 2005, and who is unable to attend classes because of Hurricane Rita, for each month of the enrollment period that individual is prevented by Hurricane Rita from attending school as planned. 1040 ez turbo tax You can treat as a student an individual who enrolled in school before October 23, 2005, and who is unable to attend classes because of Hurricane Wilma, for each month of the enrollment period that individual is prevented by Hurricane Wilma from attending school as planned. 1040 ez turbo tax Additional Tax Relief for Businesses Special Depreciation Allowance You can take a special depreciation allowance for qualified Gulf Opportunity (GO) Zone property (as defined below) you place in service after August 27, 2005. 1040 ez turbo tax The allowance is an additional deduction of 50% of the property's depreciable basis (after any section 179 deduction and before figuring your regular depreciation deduction). 1040 ez turbo tax The special allowance applies only for the first year the property is placed in service. 1040 ez turbo tax The allowance is deductible for both the regular tax and the alternative minimum tax (AMT). 1040 ez turbo tax There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. 1040 ez turbo tax You can elect not to deduct the special GO Zone depreciation allowance for qualified property. 1040 ez turbo tax If you make this election for any property, it applies to all property in the same class placed in service during the year. 1040 ez turbo tax Qualified GO Zone property. 1040 ez turbo tax   Property that qualifies for the special GO Zone depreciation allowance includes the following. 1040 ez turbo tax Tangible property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. 1040 ez turbo tax Water utility property. 1040 ez turbo tax Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. 1040 ez turbo tax (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. 1040 ez turbo tax ) Qualified leasehold improvement property. 1040 ez turbo tax Nonresidential real property and residential rental property. 1040 ez turbo tax   For more information on this property, see Publication 946. 1040 ez turbo tax Other tests to be met. 1040 ez turbo tax   To be qualified GO Zone property, the property must also meet all of the following tests. 1040 ez turbo tax You must have acquired the property, by purchase, after August 27, 2005, but only if no binding written contract for the acquisition was in effect before August 28, 2005. 1040 ez turbo tax The property must be placed in service before 2008 (2009 in the case of nonresidential real property and residential rental property). 1040 ez turbo tax Substantially all of the use of the property must be in the GO Zone and in the active conduct of your trade or business in the GO Zone. 1040 ez turbo tax The original use of the property in the GO Zone must begin with you after August 27, 2005. 1040 ez turbo tax Used property can be qualified GO Zone property if it has not previously been used within the GO Zone. 1040 ez turbo tax Also, additional capital expenditures you incurred after August 27, 2005, to recondition or rebuild your property meet the original use test if the original use of the property in the GO Zone began with you. 1040 ez turbo tax Excepted property. 1040 ez turbo tax   Qualified GO Zone property does not include any of the following. 1040 ez turbo tax Property required to be depreciated using the Alternative Depreciation System (ADS). 1040 ez turbo tax Property any portion of which is financed with the proceeds of a tax-exempt obligation under section 103. 1040 ez turbo tax Property for which you are claiming a commercial revitalization deduction. 1040 ez turbo tax Any property used in connection with any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, or any store, the principal business of which is the sale of alcoholic beverages for consumption off premises. 1040 ez turbo tax Any gambling or animal racing property (as defined below). 1040 ez turbo tax Property in the same class as that for which you elected not to claim the special GO Zone depreciation allowance. 1040 ez turbo tax   Gambling or animal racing property is: Any equipment, furniture, software, or other property used directly in connection with gambling, the racing of animals, or the on-site viewing of such racing, and The portion of any real property (determined by square footage) that is dedicated to gambling, the racing of animals, or the on-site viewing of such racing, unless this portion is less than 100 square feet. 1040 ez turbo tax Recapture of special allowance. 1040 ez turbo tax   If, in any year after the year you claim the special allowance, the property ceases to be qualified GO Zone property, you may have to recapture as ordinary income any excess benefit you received from claiming the special allowance. 1040 ez turbo tax Increased Section 179 Deduction An increased section 179 deduction is allowable for qualified section 179 Gulf Opportunity (GO) Zone property (as defined later) placed in service in the GO Zone. 1040 ez turbo tax Increased dollar limit. 1040 ez turbo tax   The limit on the section 179 deduction ($105,000 for 2005, $108,000 for 2006) for qualified section 179 GO Zone property acquired after August 27, 2005, is increased by the smaller of: $100,000, or The cost of qualified section 179 GO Zone property placed in service during the year (including such property placed in service by your spouse, even if you are filing a separate return). 1040 ez turbo tax   The amount for which you can make the election is reduced if the cost of all qualified section 179 GO Zone property you placed in service during the year exceeds $420,000 for 2005 ($430,000 for 2006) increased by the smaller of: $600,000, or The cost of qualified section 179 GO Zone property placed in service during the year. 1040 ez turbo tax Qualified section 179 GO Zone property. 1040 ez turbo tax   Qualified section 179 GO Zone property is section 179 property that is qualified GO Zone property (explained earlier under Special Depreciation Allowance). 1040 ez turbo tax Section 179 property does not include nonresidential real property or residential rental property. 1040 ez turbo tax For more information, including the requirements that must be met for property to qualify for the section 179 deduction, see chapter 2 of Publication 946. 1040 ez turbo tax Work Opportunity Credit For the work opportunity credit, the definition of “targeted group employee” has been expanded to include a Hurricane Katrina employee. 1040 ez turbo tax Hurricane Katrina employee. 1040 ez turbo tax   A Hurricane Katrina employee is: A person who, on August 28, 2005, had a main home in the core disaster area and, within a two-year period beginning on that date, is hired to perform services principally in the core disaster area; or A person who, on August 28, 2005, had a main home in the core disaster area, was displaced from that main home as a result of Hurricane Katrina, and was hired during the period beginning on August 28, 2005, and ending on December 31, 2005. 1040 ez turbo tax Qualified wages. 1040 ez turbo tax   Generally, qualified wages do not include wages you paid to a targeted group employee who worked for you previously. 1040 ez turbo tax However, wages will qualify if: You paid them to an employee who is a Hurricane Katrina employee, The employee was not in your employment on August 28, 2005, and This is your first hire of the employee as a Hurricane Katrina employee after August 28, 2005. 1040 ez turbo tax   For more information, see Form 5884. 1040 ez turbo tax Certification requirements. 1040 ez turbo tax   An employee must provide to the employer reasonable evidence that he or she is a Hurricane Katrina employee. 1040 ez turbo tax An employer may accept a completed Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits, as such evidence. 1040 ez turbo tax The certification requirements described in Form 8850 do not apply to a Hurricane Katrina employee. 1040 ez turbo tax Do not send any Forms 8850 that have only box 1 checked to the state employment security agency. 1040 ez turbo tax Instead, the employer should keep these Forms 8850 with the employer's other records. 1040 ez turbo tax For more information, see Form 8850 and its instructions. 1040 ez turbo tax Employee Retention Credit An eligible employer who conducted an active trade or business in the Gulf Opportunity (GO) Zone, the Rita GO Zone, or the Wilma GO Zone can claim the employee retention credit. 1040 ez turbo tax The credit is 40% of qualified wages for each eligible employee (up to a maximum of $6,000 in qualified wages per employee). 1040 ez turbo tax Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). 1040 ez turbo tax Use Form 5884-A to claim the credit. 1040 ez turbo tax See the following rules and definitions for each hurricane. 1040 ez turbo tax Employers affected by Hurricane Katrina. 1040 ez turbo tax   The following definitions apply to employers affected by Hurricane Katrina. 1040 ez turbo tax Eligible employer. 1040 ez turbo tax   For this purpose, an eligible employer is any employer who conducted an active trade or business on August 28, 2005, in the GO Zone and whose trade or business was inoperable on any day after August 28, 2005, and before January 1, 2006, because of damage caused by Hurricane Katrina. 1040 ez turbo tax Eligible employee. 1040 ez turbo tax   For this purpose, an eligible employee is an employee whose principal place of employment on August 28, 2005, with such eligible employer was in the GO Zone. 1040 ez turbo tax An employee is not an eligible employee for purposes of Hurricane Katrina if the employee is treated as an eligible employee for the work opportunity credit. 1040 ez turbo tax Employers affected by Hurricane Rita. 1040 ez turbo tax   The following definitions apply to employers affected by Hurricane Rita. 1040 ez turbo tax Eligible employer. 1040 ez turbo tax   For this purpose, an eligible employer is any employer who conducted an active trade or business on September 23, 2005, in the Rita GO Zone and whose trade or business was inoperable on any day after September 23, 2005, and before January 1, 2006, because of damage caused by Hurricane Rita. 1040 ez turbo tax Eligible employee. 1040 ez turbo tax   For this purpose, an eligible employee is an employee whose principal place of employment on September 23, 2005, with such eligible employer was in the Rita GO Zone. 1040 ez turbo tax An employee is not an eligible employee for purposes of Hurricane Rita if the employee is treated as an eligible employee for the work opportunity credit or the Hurricane Katrina employee retention credit. 1040 ez turbo tax Employers affected by Hurricane Wilma. 1040 ez turbo tax   The following definitions apply to employers affected by Hurricane Wilma. 1040 ez turbo tax Eligible employer. 1040 ez turbo tax   For this purpose, an eligible employer is any employer who conducted an active trade or business on October 23, 2005, in the Wilma GO Zone and whose trade or business was inoperable on any day after October 23, 2005, and before January 1, 2006, because of damage caused by Hurricane Wilma. 1040 ez turbo tax Eligible employee. 1040 ez turbo tax   For this purpose, an eligible employee is an employee whose principal place of employment on October 23, 2005, with such eligible employer was in the Wilma GO Zone. 1040 ez turbo tax An employee is not an eligible employee for purposes of Hurricane Wilma if the employee is treated as an eligible employee for the work opportunity credit or the Hurricane Katrina or Rita employee retention credit. 1040 ez turbo tax Qualified wages. 1040 ez turbo tax   Qualified wages are wages you paid or incurred before January 1, 2006, (up to $6,000 per employee) for an eligible employee beginning on the date your trade or business first became inoperable at the employee's principal place of employment immediately before the applicable hurricane, and ending on the date your trade or business resumed significant operations at that place. 1040 ez turbo tax In addition, the wages must have been paid or incurred after the following date. 1040 ez turbo tax August 28, 2005, for Hurricane Katrina. 1040 ez turbo tax September 23, 2005, for Hurricane Rita. 1040 ez turbo tax October 23, 2005, for Hurricane Wilma. 1040 ez turbo tax    This includes wages paid even if the employee performed no services, performed services at a place of employment other than the principal place of employment, or performed services at the principal place of employment before significant operations resumed. 1040 ez turbo tax    Wages qualifying for the credit generally have the same meaning as wages subject to the Federal Unemployment Tax Act (FUTA). 1040 ez turbo tax Qualified wages also include amounts you paid for medical or hospitalization expenses in connection with sickness or accident disability. 1040 ez turbo tax Qualified wages for any employee must be reduced by the amount of any work supplementation payment you received under the Social Security Act. 1040 ez turbo tax   For agricultural employees, if the work performed by any employee during more than half of any pay period qualified under FUTA as agricultural labor, that employee's wages subject to social security and Medicare taxes are qualified wages. 1040 ez turbo tax For a special rule that applies to railroad employees, see section 51(h)(1)(B). 1040 ez turbo tax   Qualified wages do not include the following. 1040 ez turbo tax Wages paid to your dependent or a related individual. 1040 ez turbo tax See section 51(i)(1). 1040 ez turbo tax Wages paid to any employee during the period for which you received payment for the employee from a federally funded on-the-job training program. 1040 ez turbo tax Wages for services of replacement workers during a strike or lockout. 1040 ez turbo tax   For more information, see Form 5884-A. 1040 ez turbo tax Hurricane Katrina Housing Credit An employer who conducted an active trade or business in the Gulf Opportunity (GO) Zone can claim the Hurricane Katrina housing credit. 1040 ez turbo tax The credit is equal to 30% of the value (up to $600 per month per employee) of in-kind lodging furnished to a qualified employee (and the employee's spouse or dependents) from January 1, 2006, through July 1, 2006. 1040 ez turbo tax The value of the lodging is excluded from the income of the qualified employee but is treated as wages for purposes of taxes imposed under the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA). 1040 ez turbo tax Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). 1040 ez turbo tax The employer must use Form 5884-A to claim the credit. 1040 ez turbo tax A qualified employee is an individual who had a main home in the GO Zone on August 28, 2005, and who performs substantially all employment services in the GO Zone for the employer furnishing the lodging. 1040 ez turbo tax The employee cannot be your dependent or a related individual. 1040 ez turbo tax See section 51(i)(1). 1040 ez turbo tax For more information, see Form 5884-A. 1040 ez turbo tax Reforestation Costs You may be able to elect to deduct a limited amount of reforestation costs for each qualified timber property. 1040 ez turbo tax The deduction for any tax year generally is limited to $10,000 ($5,000 if married filing separately, $0 for a trust). 1040 ez turbo tax However, this limit is increased if you paid or incurred reforestation costs after the applicable date below and any portion of the qualified timber property is located in one of the following areas. 1040 ez turbo tax August 27, 2005, if any portion of the property is located in the GO Zone. 1040 ez turbo tax September 22, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone). 1040 ez turbo tax October 22, 2005, if any portion of the property is located in the Wilma GO Zone. 1040 ez turbo tax The limit for each qualified timber property is increased by the smaller of: $10,000 ($5,000 if married filing separately, $0 for a trust), or The amount of reforestation costs you paid or incurred after the applicable date for the qualified timber property, any portion of which is located in the zone described above. 1040 ez turbo tax The increase in the limit applies only to costs paid or incurred before 2008. 1040 ez turbo tax However, these rules do not apply to any timber producer who: Held more than 500 acres of qualified timber property at any time during the tax year, Is a corporation with stock publicly traded on an established securities market, or Is a real estate investment trust. 1040 ez turbo tax For more information about the election to deduct reforestation costs, see chapter 8 in Publication 535, Business Expenses. 1040 ez turbo tax Demolition and Clean-up Costs You can elect to deduct 50% of any qualified GO Zone clean-up costs for the tax year in which the costs are paid or incurred, instead of capitalizing them. 1040 ez turbo tax Qualified GO Zone clean-up costs are any amounts paid or incurred after August 27, 2005, and before January 1, 2008, for the removal of debris from, or the demolition of structures on, real property located in the GO Zone that is: Held by you for use in a trade or business or for the production of income, or Inventory or other property held primarily for sale to customers in the ordinary course of your trade or business. 1040 ez turbo tax Increase in Rehabilitation Tax Credit The rehabilitation credit is increased for qualified rehabilitation expenditures paid or incurred after August 27, 2005, and before January 1, 2009, on buildings located in the GO Zone as follows. 1040 ez turbo tax For pre-1936 buildings (other than certified historic structures), the credit percentage is increased from 10% to 13%. 1040 ez turbo tax For certified historic structures, the credit percentage is increased from 20% to 26%. 1040 ez turbo tax For more information, see Form 3468, Investment Credit. 1040 ez turbo tax Request for Copy or Transcript of Tax Return Request for copy of tax return. 1040 ez turbo tax   You can use Form 4506 to order a copy of your tax return. 1040 ez turbo tax Generally, there is a $39. 1040 ez turbo tax 00 fee for requesting each copy of a tax return. 1040 ez turbo tax If your main home, principal place of business, or tax records are located in a Presidentially declared disaster area, the fee will be waived if the assigned disaster designation (for example, “Hurricane Katrina”) is written in red across the top of the form when filed. 1040 ez turbo tax Request for transcript of tax return. 1040 ez turbo tax   You can use Form 4506-T to order a free transcript of your tax return. 1040 ez turbo tax A transcript provides most of the line entries from a tax return and usually contains the information that a third party requires. 1040 ez turbo tax You can also call 1-800-829-1040 to order a transcript. 1040 ez turbo tax How To Get Tax Help Special IRS assistance. 1040 ez turbo tax   The IRS is providing special help for those affected by Hurricane Katrina, Rita, or Wilma, as well as survivors and personal representatives of the victims. 1040 ez turbo tax We have set up a special toll-free number for people who may have trouble filing or paying their taxes because they were affected by Hurricane Katrina, Rita, or Wilma, or who have other tax issues related to the hurricanes. 1040 ez turbo tax Call 1-866-562-5227 Monday through Friday In English-7 a. 1040 ez turbo tax m. 1040 ez turbo tax to 10 p. 1040 ez turbo tax m. 1040 ez turbo tax local time In Spanish-8 a. 1040 ez turbo tax m. 1040 ez turbo tax to 9:30 p. 1040 ez turbo tax m. 1040 ez turbo tax local time   The IRS website at www. 1040 ez turbo tax irs. 1040 ez turbo tax gov has notices and other tax relief information. 1040 ez turbo tax Check it periodically for any new guidance. 1040 ez turbo tax Other help from the IRS. 1040 ez turbo tax   You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. 1040 ez turbo tax By selecting the method that is best for you, you will have quick and easy access to tax help. 1040 ez turbo tax Contacting your Taxpayer Advocate. 1040 ez turbo tax   If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate. 1040 ez turbo tax   The Taxpayer Advocate independently represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. 1040 ez turbo tax While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review. 1040 ez turbo tax   To contact your Taxpayer Advocate: Call the Taxpayer Advocate toll free at 1-877-777-4778. 1040 ez turbo tax Call, write, or fax the Taxpayer Advocate office in your area. 1040 ez turbo tax Call 1-800-829-4059 if you are a TTY/TDD user. 1040 ez turbo tax Visit www. 1040 ez turbo tax irs. 1040 ez turbo tax gov/advocate. 1040 ez turbo tax   For more information, see Publication 1546, How To Get Help With Unresolved Tax Problems (now available in Chinese, Korean, Russian, and Vietnamese, in addition to English and Spanish). 1040 ez turbo tax Free tax services. 1040 ez turbo tax   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. 1040 ez turbo tax It contains a list of free tax publications and an index of tax topics. 1040 ez turbo tax It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics. 1040 ez turbo tax Internet. 1040 ez turbo tax You can access the IRS website 24 hours a day, 7 days a week, at www. 1040 ez turbo tax irs. 1040 ez turbo tax gov to: E-file your return. 1040 ez turbo tax Find out about commercial tax preparation and e-file services available free to eligible taxpayers. 1040 ez turbo tax Check the status of your refund. 1040 ez turbo tax Click on Where's My Refund. 1040 ez turbo tax Be sure to wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). 1040 ez turbo tax Have your tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund. 1040 ez turbo tax Download forms, instructions, and publications. 1040 ez turbo tax Order IRS products online. 1040 ez turbo tax Research your tax questions online. 1040 ez turbo tax Search publications online by topic or keyword. 1040 ez turbo tax View Internal Revenue Bulletins (IRBs) published in the last few years. 1040 ez turbo tax Figure your withholdin
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2014 Standard Mileage Rates

IR-2013-95, Dec. 6, 2013

WASHINGTON — The Internal Revenue Service today issued the 2014 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2014, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 56 cents per mile for business miles driven
  • 23.5 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

The business, medical, and moving expense rates decrease one-half cent from the 2013 rates.  The charitable rate is based on statute.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.  Notice 2013-80 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

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Page Last Reviewed or Updated: 06-Dec-2013

The 1040 Ez Turbo Tax

1040 ez turbo tax Publication 936 - Main Content Table of Contents Part I. 1040 ez turbo tax Home Mortgage InterestSecured Debt Qualified Home Special Situations Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement How To Report Special Rule for Tenant-Stockholders in Cooperative Housing Corporations Part II. 1040 ez turbo tax Limits on Home Mortgage Interest DeductionHome Acquisition Debt Home Equity Debt Grandfathered Debt Table 1 Instructions How To Get Tax HelpLow Income Taxpayer Clinics Part I. 1040 ez turbo tax Home Mortgage Interest This part explains what you can deduct as home mortgage interest. 1040 ez turbo tax It includes discussions on points, mortgage insurance premiums, and how to report deductible interest on your tax return. 1040 ez turbo tax Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). 1040 ez turbo tax The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. 1040 ez turbo tax You can deduct home mortgage interest if all the following conditions are met. 1040 ez turbo tax You file Form 1040 and itemize deductions on Schedule A (Form 1040). 1040 ez turbo tax The mortgage is a secured debt on a qualified home in which you have an ownership interest. 1040 ez turbo tax Secured Debt and Qualified Home are explained later. 1040 ez turbo tax  Both you and the lender must intend that the loan be repaid. 1040 ez turbo tax Fully deductible interest. 1040 ez turbo tax   In most cases, you can deduct all of your home mortgage interest. 1040 ez turbo tax How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. 1040 ez turbo tax   If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. 1040 ez turbo tax (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category. 1040 ez turbo tax ) If one or more of your mortgages does not fit into any of these categories, use Part II of this publication to figure the amount of interest you can deduct. 1040 ez turbo tax   The three categories are as follows. 1040 ez turbo tax Mortgages you took out on or before October 13, 1987 (called grandfathered debt). 1040 ez turbo tax Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2013 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately). 1040 ez turbo tax Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2013 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2). 1040 ez turbo tax The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. 1040 ez turbo tax   See Part II for more detailed definitions of grandfathered, home acquisition, and home equity debt. 1040 ez turbo tax    You can use Figure A to check whether your home mortgage interest is fully deductible. 1040 ez turbo tax This image is too large to be displayed in the current screen. 1040 ez turbo tax Please click the link to view the image. 1040 ez turbo tax Figure A. 1040 ez turbo tax Is My Home Mortgage Interest Fully Deductible? Secured Debt You can deduct your home mortgage interest only if your mortgage is a secured debt. 1040 ez turbo tax A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that: Makes your ownership in a qualified home security for payment of the debt, Provides, in case of default, that your home could satisfy the debt, and Is recorded or is otherwise perfected under any state or local law that applies. 1040 ez turbo tax In other words, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. 1040 ez turbo tax If you cannot pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt. 1040 ez turbo tax In this publication, mortgage will refer to secured debt. 1040 ez turbo tax Debt not secured by home. 1040 ez turbo tax   A debt is not secured by your home if it is secured solely because of a lien on your general assets or if it is a security interest that attaches to the property without your consent (such as a mechanic's lien or judgment lien). 1040 ez turbo tax   A debt is not secured by your home if it once was, but is no longer secured by your home. 1040 ez turbo tax Wraparound mortgage. 1040 ez turbo tax   This is not a secured debt unless it is recorded or otherwise perfected under state law. 1040 ez turbo tax Example. 1040 ez turbo tax Beth owns a home subject to a mortgage of $40,000. 1040 ez turbo tax She sells the home for $100,000 to John, who takes it subject to the $40,000 mortgage. 1040 ez turbo tax Beth continues to make the payments on the $40,000 note. 1040 ez turbo tax John pays $10,000 down and gives Beth a $90,000 note secured by a wraparound mortgage on the home. 1040 ez turbo tax Beth does not record or otherwise perfect the $90,000 mortgage under the state law that applies. 1040 ez turbo tax Therefore, the mortgage is not a secured debt and John cannot deduct any of the interest he pays on it as home mortgage interest. 1040 ez turbo tax Choice to treat the debt as not secured by your home. 1040 ez turbo tax   You can choose to treat any debt secured by your qualified home as not secured by the home. 1040 ez turbo tax This treatment begins with the tax year for which you make the choice and continues for all later tax years. 1040 ez turbo tax You can revoke your choice only with the consent of the Internal Revenue Service (IRS). 1040 ez turbo tax   You may want to treat a debt as not secured by your home if the interest on that debt is fully deductible (for example, as a business expense) whether or not it qualifies as home mortgage interest. 1040 ez turbo tax This may allow you, if the limits in Part II apply, more of a deduction for interest on other debts that are deductible only as home mortgage interest. 1040 ez turbo tax Cooperative apartment owner. 1040 ez turbo tax   If you own stock in a cooperative housing corporation, see the Special Rule for Tenant-Stockholders in Cooperative Housing Corporations , near the end of this Part I. 1040 ez turbo tax Qualified Home For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. 1040 ez turbo tax This means your main home or your second home. 1040 ez turbo tax A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. 1040 ez turbo tax The interest you pay on a mortgage on a home other than your main or second home may be deductible if the proceeds of the loan were used for business, investment, or other deductible purposes. 1040 ez turbo tax Otherwise, it is considered personal interest and is not deductible. 1040 ez turbo tax Main home. 1040 ez turbo tax   You can have only one main home at any one time. 1040 ez turbo tax This is the home where you ordinarily live most of the time. 1040 ez turbo tax Second home. 1040 ez turbo tax   A second home is a home that you choose to treat as your second home. 1040 ez turbo tax Second home not rented out. 1040 ez turbo tax   If you have a second home that you do not hold out for rent or resale to others at any time during the year, you can treat it as a qualified home. 1040 ez turbo tax You do not have to use the home during the year. 1040 ez turbo tax Second home rented out. 1040 ez turbo tax   If you have a second home and rent it out part of the year, you also must use it as a home during the year for it to be a qualified home. 1040 ez turbo tax You must use this home more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental, whichever is longer. 1040 ez turbo tax If you do not use the home long enough, it is considered rental property and not a second home. 1040 ez turbo tax For information on residential rental property, see Publication 527. 1040 ez turbo tax More than one second home. 1040 ez turbo tax   If you have more than one second home, you can treat only one as the qualified second home during any year. 1040 ez turbo tax However, you can change the home you treat as a second home during the year in the following situations. 1040 ez turbo tax If you get a new home during the year, you can choose to treat the new home as your second home as of the day you buy it. 1040 ez turbo tax If your main home no longer qualifies as your main home, you can choose to treat it as your second home as of the day you stop using it as your main home. 1040 ez turbo tax If your second home is sold during the year or becomes your main home, you can choose a new second home as of the day you sell the old one or begin using it as your main home. 1040 ez turbo tax Divided use of your home. 1040 ez turbo tax   The only part of your home that is considered a qualified home is the part you use for residential living. 1040 ez turbo tax If you use part of your home for other than residential living, such as a home office, you must allocate the use of your home. 1040 ez turbo tax You must then divide both the cost and fair market value of your home between the part that is a qualified home and the part that is not. 1040 ez turbo tax Dividing the cost may affect the amount of your home acquisition debt, which is limited to the cost of your home plus the cost of any improvements. 1040 ez turbo tax (See Home Acquisition Debt in Part II. 1040 ez turbo tax ) Dividing the fair market value may affect your home equity debt limit, also explained in Part II . 1040 ez turbo tax Renting out part of home. 1040 ez turbo tax   If you rent out part of a qualified home to another person (tenant), you can treat the rented part as being used by you for residential living only if all of the following conditions apply. 1040 ez turbo tax The rented part of your home is used by the tenant primarily for residential living. 1040 ez turbo tax The rented part of your home is not a self-contained residential unit having separate sleeping, cooking, and toilet facilities. 1040 ez turbo tax You do not rent (directly or by sublease) the same or different parts of your home to more than two tenants at any time during the tax year. 1040 ez turbo tax If two persons (and dependents of either) share the same sleeping quarters, they are treated as one tenant. 1040 ez turbo tax Office in home. 1040 ez turbo tax   If you have an office in your home that you use in your business, see Publication 587, Business Use of Your Home. 1040 ez turbo tax It explains how to figure your deduction for the business use of your home, which includes the business part of your home mortgage interest. 1040 ez turbo tax Home under construction. 1040 ez turbo tax   You can treat a home under construction as a qualified home for a period of up to 24 months, but only if it becomes your qualified home at the time it is ready for occupancy. 1040 ez turbo tax   The 24-month period can start any time on or after the day construction begins. 1040 ez turbo tax Home destroyed. 1040 ez turbo tax   You may be able to continue treating your home as a qualified home even after it is destroyed in a fire, storm, tornado, earthquake, or other casualty. 1040 ez turbo tax This means you can continue to deduct the interest you pay on your home mortgage, subject to the limits described in this publication. 1040 ez turbo tax   You can continue treating a destroyed home as a qualified home if, within a reasonable period of time after the home is destroyed, you: Rebuild the destroyed home and move into it, or Sell the land on which the home was located. 1040 ez turbo tax   This rule applies to your main home and to a second home that you treat as a qualified home. 1040 ez turbo tax Time-sharing arrangements. 1040 ez turbo tax   You can treat a home you own under a time-sharing plan as a qualified home if it meets all the requirements. 1040 ez turbo tax A time-sharing plan is an arrangement between two or more people that limits each person's interest in the home or right to use it to a certain part of the year. 1040 ez turbo tax Rental of time-share. 1040 ez turbo tax   If you rent out your time-share, it qualifies as a second home only if you also use it as a home during the year. 1040 ez turbo tax See Second home rented out , earlier, for the use requirement. 1040 ez turbo tax To know whether you meet that requirement, count your days of use and rental of the home only during the time you have a right to use it or to receive any benefits from the rental of it. 1040 ez turbo tax Married taxpayers. 1040 ez turbo tax   If you are married and file a joint return, your qualified home(s) can be owned either jointly or by only one spouse. 1040 ez turbo tax Separate returns. 1040 ez turbo tax   If you are married filing separately and you and your spouse own more than one home, you can each take into account only one home as a qualified home. 1040 ez turbo tax However, if you both consent in writing, then one spouse can take both the main home and a second home into account. 1040 ez turbo tax Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. 1040 ez turbo tax It also describes certain special situations that may affect your deduction. 1040 ez turbo tax Late payment charge on mortgage payment. 1040 ez turbo tax   You can deduct as home mortgage interest a late payment charge if it was not for a specific service performed in connection with your mortgage loan. 1040 ez turbo tax Mortgage prepayment penalty. 1040 ez turbo tax   If you pay off your home mortgage early, you may have to pay a penalty. 1040 ez turbo tax You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. 1040 ez turbo tax Sale of home. 1040 ez turbo tax   If you sell your home, you can deduct your home mortgage interest (subject to any limits that apply) paid up to, but not including, the date of the sale. 1040 ez turbo tax Example. 1040 ez turbo tax John and Peggy Harris sold their home on May 7. 1040 ez turbo tax Through April 30, they made home mortgage interest payments of $1,220. 1040 ez turbo tax The settlement sheet for the sale of the home showed $50 interest for the 6-day period in May up to, but not including, the date of sale. 1040 ez turbo tax Their mortgage interest deduction is $1,270 ($1,220 + $50). 1040 ez turbo tax Prepaid interest. 1040 ez turbo tax   If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. 1040 ez turbo tax You can deduct in each year only the interest that qualifies as home mortgage interest for that year. 1040 ez turbo tax However, there is an exception that applies to points, discussed later. 1040 ez turbo tax Mortgage interest credit. 1040 ez turbo tax    You may be able to claim a mortgage interest credit if you were issued a mortgage credit certificate (MCC) by a state or local government. 1040 ez turbo tax Figure the credit on Form 8396, Mortgage Interest Credit. 1040 ez turbo tax If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. 1040 ez turbo tax   See Form 8396 and Publication 530 for more information on the mortgage interest credit. 1040 ez turbo tax Ministers' and military housing allowance. 1040 ez turbo tax   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you can still deduct your home mortgage interest. 1040 ez turbo tax Hardest Hit Fund and Emergency Homeowners' Loan Programs. 1040 ez turbo tax   You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. 1040 ez turbo tax You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. 1040 ez turbo tax You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. 1040 ez turbo tax If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098–MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received from payer(s) / borrower(s)), box 4 (mortgage insurance premiums), and box 5 (other information including real property taxes paid). 1040 ez turbo tax However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. 1040 ez turbo tax Mortgage assistance payments under section 235 of the National Housing Act. 1040 ez turbo tax   If you qualify for mortgage assistance payments for lower-income families under section 235 of the National Housing Act, part or all of the interest on your mortgage may be paid for you. 1040 ez turbo tax You cannot deduct the interest that is paid for you. 1040 ez turbo tax No other effect on taxes. 1040 ez turbo tax   Do not include these mortgage assistance payments in your income. 1040 ez turbo tax Also, do not use these payments to reduce other deductions, such as real estate taxes. 1040 ez turbo tax Divorced or separated individuals. 1040 ez turbo tax   If a divorce or separation agreement requires you or your spouse or former spouse to pay home mortgage interest on a home owned by both of you, the payment of interest may be alimony. 1040 ez turbo tax See the discussion of Payments for jointly-owned home under Alimony in Publication 504, Divorced or Separated Individuals. 1040 ez turbo tax Redeemable ground rents. 1040 ez turbo tax   In some states (such as Maryland), you can buy your home subject to a ground rent. 1040 ez turbo tax A ground rent is an obligation you assume to pay a fixed amount per year on the property. 1040 ez turbo tax Under this arrangement, you are leasing (rather than buying) the land on which your home is located. 1040 ez turbo tax   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. 1040 ez turbo tax   A ground rent is a redeemable ground rent if all of the following are true. 1040 ez turbo tax Your lease, including renewal periods, is for more than 15 years. 1040 ez turbo tax You can freely assign the lease. 1040 ez turbo tax You have a present or future right (under state or local law) to end the lease and buy the lessor's entire interest in the land by paying a specific amount. 1040 ez turbo tax The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. 1040 ez turbo tax   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. 1040 ez turbo tax Nonredeemable ground rents. 1040 ez turbo tax   Payments on a nonredeemable ground rent are not mortgage interest. 1040 ez turbo tax You can deduct them as rent if they are a business expense or if they are for rental property. 1040 ez turbo tax Reverse mortgages. 1040 ez turbo tax   A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. 1040 ez turbo tax With a reverse mortgage, you retain title to your home. 1040 ez turbo tax Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. 1040 ez turbo tax Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. 1040 ez turbo tax Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full. 1040 ez turbo tax Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Part II. 1040 ez turbo tax Rental payments. 1040 ez turbo tax   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. 1040 ez turbo tax This is true even if the settlement papers call them interest. 1040 ez turbo tax You cannot deduct these payments as home mortgage interest. 1040 ez turbo tax Mortgage proceeds invested in tax-exempt securities. 1040 ez turbo tax   You cannot deduct the home mortgage interest on grandfathered debt or home equity debt if you used the proceeds of the mortgage to buy securities or certificates that produce tax-free income. 1040 ez turbo tax “Grandfathered debt” and “home equity debt” are defined in Part II of this publication. 1040 ez turbo tax Refunds of interest. 1040 ez turbo tax   If you receive a refund of interest in the same tax year you paid it, you must reduce your interest expense by the amount refunded to you. 1040 ez turbo tax If you receive a refund of interest you deducted in an earlier year, you generally must include the refund in income in the year you receive it. 1040 ez turbo tax However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. 1040 ez turbo tax This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. 1040 ez turbo tax If you need to include the refund in income, report it on Form 1040, line 21. 1040 ez turbo tax   If you received a refund of interest you overpaid in an earlier year, you generally will receive a Form 1098, Mortgage Interest Statement, showing the refund in box 3. 1040 ez turbo tax For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. 1040 ez turbo tax   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in Publication 525, Taxable and Nontaxable Income. 1040 ez turbo tax Cooperative apartment owner. 1040 ez turbo tax   If you own a cooperative apartment, you must reduce your home mortgage interest deduction by your share of any cash portion of a patronage dividend that the cooperative receives. 1040 ez turbo tax The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. 1040 ez turbo tax   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. 1040 ez turbo tax Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. 1040 ez turbo tax Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. 1040 ez turbo tax This image is too large to be displayed in the current screen. 1040 ez turbo tax Please click the link to view the image. 1040 ez turbo tax Figure B. 1040 ez turbo tax Are My Points Fully Deductible This Year? A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. 1040 ez turbo tax See Points paid by the seller , later. 1040 ez turbo tax General Rule You generally cannot deduct the full amount of points in the year paid. 1040 ez turbo tax Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. 1040 ez turbo tax See Deduction Allowed Ratably , next. 1040 ez turbo tax For exceptions to the general rule, see Deduction Allowed in Year Paid , later. 1040 ez turbo tax Deduction Allowed Ratably If you do not meet the tests listed under Deduction Allowed in Year Paid , later, the loan is not a home improvement loan, or you choose not to deduct your points in full in the year paid, you can deduct the points ratably (equally) over the life of the loan if you meet all the following tests. 1040 ez turbo tax You use the cash method of accounting. 1040 ez turbo tax This means you report income in the year you receive it and deduct expenses in the year you pay them. 1040 ez turbo tax Most individuals use this method. 1040 ez turbo tax Your loan is secured by a home. 1040 ez turbo tax (The home does not need to be your main home. 1040 ez turbo tax ) Your loan period is not more than 30 years. 1040 ez turbo tax If your loan period is more than 10 years, the terms of your loan are the same as other loans offered in your area for the same or longer period. 1040 ez turbo tax Either your loan amount is $250,000 or less, or the number of points is not more than: 4, if your loan period is 15 years or less, or 6, if your loan period is more than 15 years. 1040 ez turbo tax Example. 1040 ez turbo tax You use the cash method of accounting. 1040 ez turbo tax In 2013, you took out a $100,000 loan payable over 20 years. 1040 ez turbo tax The terms of the loan are the same as for other 20-year loans offered in your area. 1040 ez turbo tax You paid $4,800 in points. 1040 ez turbo tax You made 3 monthly payments on the loan in 2013. 1040 ez turbo tax You can deduct $60 [($4,800 ÷ 240 months) x 3 payments] in 2013. 1040 ez turbo tax In 2014, if you make all twelve payments, you will be able to deduct $240 ($20 x 12). 1040 ez turbo tax Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. 1040 ez turbo tax (You can use Figure B as a quick guide to see whether your points are fully deductible in the year paid. 1040 ez turbo tax ) Your loan is secured by your main home. 1040 ez turbo tax (Your main home is the one you ordinarily live in most of the time. 1040 ez turbo tax ) Paying points is an established business practice in the area where the loan was made. 1040 ez turbo tax The points paid were not more than the points generally charged in that area. 1040 ez turbo tax You use the cash method of accounting. 1040 ez turbo tax This means you report income in the year you receive it and deduct expenses in the year you pay them. 1040 ez turbo tax Most individuals use this method. 1040 ez turbo tax The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. 1040 ez turbo tax The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. 1040 ez turbo tax The funds you provided are not required to have been applied to the points. 1040 ez turbo tax They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. 1040 ez turbo tax You cannot have borrowed these funds from your lender or mortgage broker. 1040 ez turbo tax You use your loan to buy or build your main home. 1040 ez turbo tax The points were computed as a percentage of the principal amount of the mortgage. 1040 ez turbo tax The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. 1040 ez turbo tax The points may be shown as paid from either your funds or the seller's. 1040 ez turbo tax Note. 1040 ez turbo tax If you meet all of these tests, you can choose to either fully deduct the points in the year paid, or deduct them over the life of the loan. 1040 ez turbo tax Home improvement loan. 1040 ez turbo tax   You can also fully deduct in the year paid points paid on a loan to improve your main home, if tests (1) through (6) are met. 1040 ez turbo tax Second home. 1040 ez turbo tax You cannot fully deduct in the year paid points you pay on loans secured by your second home. 1040 ez turbo tax You can deduct these points only over the life of the loan. 1040 ez turbo tax Refinancing. 1040 ez turbo tax   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. 1040 ez turbo tax This is true even if the new mortgage is secured by your main home. 1040 ez turbo tax   However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first 6 tests listed under Deduction Allowed in Year Paid , you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. 1040 ez turbo tax You can deduct the rest of the points over the life of the loan. 1040 ez turbo tax Example 1. 1040 ez turbo tax In 1998, Bill Fields got a mortgage to buy a home. 1040 ez turbo tax In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. 1040 ez turbo tax The mortgage is secured by his home. 1040 ez turbo tax To get the new loan, he had to pay three points ($3,000). 1040 ez turbo tax Two points ($2,000) were for prepaid interest, and one point ($1,000) was charged for services, in place of amounts that ordinarily are stated separately on the settlement statement. 1040 ez turbo tax Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. 1040 ez turbo tax The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. 1040 ez turbo tax Bill's first payment on the new loan was due July 1. 1040 ez turbo tax He made six payments on the loan in 2013 and is a cash basis taxpayer. 1040 ez turbo tax Bill used the funds from the new mortgage to repay his existing mortgage. 1040 ez turbo tax Although the new mortgage loan was for Bill's continued ownership of his main home, it was not for the purchase or improvement of that home. 1040 ez turbo tax He cannot deduct all of the points in 2013. 1040 ez turbo tax He can deduct two points ($2,000) ratably over the life of the loan. 1040 ez turbo tax He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. 1040 ez turbo tax The other point ($1,000) was a fee for services and is not deductible. 1040 ez turbo tax Example 2. 1040 ez turbo tax The facts are the same as in Example 1, except that Bill used $25,000 of the loan proceeds to improve his home and $75,000 to repay his existing mortgage. 1040 ez turbo tax Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. 1040 ez turbo tax His deduction is $500 ($2,000 × 25%). 1040 ez turbo tax Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. 1040 ez turbo tax This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. 1040 ez turbo tax The total amount Bill deducts in 2013 is $550 ($500 + $50). 1040 ez turbo tax Special Situations This section describes certain special situations that may affect your deduction of points. 1040 ez turbo tax Original issue discount. 1040 ez turbo tax   If you do not qualify to either deduct the points in the year paid or deduct them ratably over the life of the loan, or if you choose not to use either of these methods, the points reduce the issue price of the loan. 1040 ez turbo tax This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. 1040 ez turbo tax Amounts charged for services. 1040 ez turbo tax    Amounts charged by the lender for specific services connected to the loan are not interest. 1040 ez turbo tax Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. 1040 ez turbo tax  You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. 1040 ez turbo tax Points paid by the seller. 1040 ez turbo tax   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. 1040 ez turbo tax Treatment by seller. 1040 ez turbo tax   The seller cannot deduct these fees as interest. 1040 ez turbo tax But they are a selling expense that reduces the amount realized by the seller. 1040 ez turbo tax See Publication 523 for information on selling your home. 1040 ez turbo tax Treatment by buyer. 1040 ez turbo tax   The buyer reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them. 1040 ez turbo tax If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. 1040 ez turbo tax If any of those tests are not met, the buyer deducts the points over the life of the loan. 1040 ez turbo tax   If you need information about the basis of your home, see Publication 523 or Publication 530. 1040 ez turbo tax Funds provided are less than points. 1040 ez turbo tax   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the funds you provided were less than the points charged to you (test (6)), you can deduct the points in the year paid, up to the amount of funds you provided. 1040 ez turbo tax In addition, you can deduct any points paid by the seller. 1040 ez turbo tax Example 1. 1040 ez turbo tax When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). 1040 ez turbo tax You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. 1040 ez turbo tax Of the $1,000 charged for points, you can deduct $750 in the year paid. 1040 ez turbo tax You spread the remaining $250 over the life of the mortgage. 1040 ez turbo tax Example 2. 1040 ez turbo tax The facts are the same as in Example 1, except that the person who sold you your home also paid one point ($1,000) to help you get your mortgage. 1040 ez turbo tax In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). 1040 ez turbo tax You spread the remaining $250 over the life of the mortgage. 1040 ez turbo tax You must reduce the basis of your home by the $1,000 paid by the seller. 1040 ez turbo tax Excess points. 1040 ez turbo tax   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the points paid were more than generally paid in your area (test (3)), you deduct in the year paid only the points that are generally charged. 1040 ez turbo tax You must spread any additional points over the life of the mortgage. 1040 ez turbo tax Mortgage ending early. 1040 ez turbo tax   If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. 1040 ez turbo tax However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. 1040 ez turbo tax Instead, deduct the remaining balance over the term of the new loan. 1040 ez turbo tax   A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. 1040 ez turbo tax Example. 1040 ez turbo tax Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. 1040 ez turbo tax He deducts $200 points per year. 1040 ez turbo tax Through 2012, Dan has deducted $2,200 of the points. 1040 ez turbo tax Dan prepaid his mortgage in full in 2013. 1040 ez turbo tax He can deduct the remaining $800 of points in 2013. 1040 ez turbo tax Limits on deduction. 1040 ez turbo tax   You cannot fully deduct points paid on a mortgage that exceeds the limits discussed in Part II . 1040 ez turbo tax See the Table 1 Instructions for line 10. 1040 ez turbo tax Form 1098. 1040 ez turbo tax    The mortgage interest statement you receive should show not only the total interest paid during the year, but also your deductible points paid during the year. 1040 ez turbo tax See Form 1098, Mortgage Interest Statement , later. 1040 ez turbo tax Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. 1040 ez turbo tax The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006. 1040 ez turbo tax Qualified mortgage insurance. 1040 ez turbo tax   Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). 1040 ez turbo tax   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. 1040 ez turbo tax If provided by the Rural Housing Service, it is commonly known as a guarantee fee. 1040 ez turbo tax The funding fee and guarantee fee can either be included in the amount of the loan or paid in full at the time of closing. 1040 ez turbo tax These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. 1040 ez turbo tax Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. 1040 ez turbo tax Special rules for prepaid mortgage insurance. 1040 ez turbo tax   Generally, if you paid premiums for qualified mortgage insurance that are properly allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. 1040 ez turbo tax You must allocate the premiums over the shorter of the stated term of the mortgage or 84 months, beginning with the month the insurance was obtained. 1040 ez turbo tax No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. 1040 ez turbo tax This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. 1040 ez turbo tax Example. 1040 ez turbo tax Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. 1040 ez turbo tax Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. 1040 ez turbo tax Since the $9,240 in private mortgage insurance is allocable to periods after 2012, Ryan must allocate the $9,240 over the shorter of the life of the mortgage or 84 months. 1040 ez turbo tax Ryan's adjusted gross income (AGI) for 2012 is $76,000. 1040 ez turbo tax Ryan can deduct $880 ($9,240 ÷ 84 x 8 months) for qualified mortgage insurance premiums in 2012. 1040 ez turbo tax For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 x 12 months) if his AGI is $100,000 or less. 1040 ez turbo tax In this example, the mortgage insurance premiums are allocated over 84 months, which is shorter than the life of the mortgage of 15 years (180 months). 1040 ez turbo tax Limit on deduction. 1040 ez turbo tax   If your adjusted gross income on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are otherwise deductible is reduced and may be eliminated. 1040 ez turbo tax See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. 1040 ez turbo tax If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. 1040 ez turbo tax Form 1098. 1040 ez turbo tax   The mortgage interest statement you receive should show not only the total interest paid during the year, but also your mortgage insurance premiums paid during the year, which may qualify to be treated as deductible mortgage interest. 1040 ez turbo tax See Form 1098, Mortgage Interest Statement, next. 1040 ez turbo tax Form 1098, Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement from the mortgage holder. 1040 ez turbo tax You will receive the statement if you pay interest to a person (including a financial institution or cooperative housing corporation) in the course of that person's trade or business. 1040 ez turbo tax A governmental unit is a person for purposes of furnishing the statement. 1040 ez turbo tax The statement for each year should be sent to you by January 31 of the following year. 1040 ez turbo tax A copy of this form will also be sent to the IRS. 1040 ez turbo tax The statement will show the total interest you paid during the year, any mortgage insurance premiums you paid, and if you purchased a main home during the year, it also will show the deductible points paid during the year, including seller-paid points. 1040 ez turbo tax However, it should not show any interest that was paid for you by a government agency. 1040 ez turbo tax As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. 1040 ez turbo tax However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. 1040 ez turbo tax See the earlier discussion of Points to determine whether you can deduct points not shown on Form 1098. 1040 ez turbo tax Prepaid interest on Form 1098. 1040 ez turbo tax   If you prepaid interest in 2013 that accrued in full by January 15, 2014, this prepaid interest may be included in box 1 of Form 1098. 1040 ez turbo tax However, you cannot deduct the prepaid amount for January 2014 in 2013. 1040 ez turbo tax (See Prepaid interest , earlier. 1040 ez turbo tax ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. 1040 ez turbo tax You will include the interest for January 2014 with other interest you pay for 2014. 1040 ez turbo tax Refunded interest. 1040 ez turbo tax   If you received a refund of mortgage interest you overpaid in an earlier year, you generally will receive a Form 1098 showing the refund in box 3. 1040 ez turbo tax See Refunds of interest , earlier. 1040 ez turbo tax Mortgage insurance premiums. 1040 ez turbo tax   The amount of mortgage insurance premiums you paid during 2013 may be shown in Box 4 of Form 1098. 1040 ez turbo tax See Mortgage Insurance Premiums , earlier. 1040 ez turbo tax How To Report Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. 1040 ez turbo tax If you paid more deductible interest to the financial institution than the amount shown on Form 1098, show the larger deductible amount on line 10. 1040 ez turbo tax Attach a statement explaining the difference and print “See attached” next to line 10. 1040 ez turbo tax Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. 1040 ez turbo tax If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and taxpayer identification number (TIN) on the dotted lines next to line 11. 1040 ez turbo tax The seller must give you this number and you must give the seller your TIN. 1040 ez turbo tax A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. 1040 ez turbo tax Failure to meet any of these requirements may result in a $50 penalty for each failure. 1040 ez turbo tax The TIN can be either a social security number, an individual taxpayer identification number (issued by the Internal Revenue Service), or an employer identification number. 1040 ez turbo tax If you can take a deduction for points that were not reported to you on Form 1098, deduct those points on Schedule A (Form 1040), line 12. 1040 ez turbo tax Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. 1040 ez turbo tax More than one borrower. 1040 ez turbo tax   If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. 1040 ez turbo tax Show how much of the interest each of you paid, and give the name and address of the person who received the form. 1040 ez turbo tax Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. 1040 ez turbo tax Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. 1040 ez turbo tax   Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. 1040 ez turbo tax Let each of the other borrowers know what his or her share is. 1040 ez turbo tax Mortgage proceeds used for business or investment. 1040 ez turbo tax   If your home mortgage interest deduction is limited under the rules explained in Part II , but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 2 near the end of this publication. 1040 ez turbo tax It shows where to deduct the part of your excess interest that is for those activities. 1040 ez turbo tax The Table 1 Instructions for line 13 in Part II explain how to divide the excess interest among the activities for which the mortgage proceeds were used. 1040 ez turbo tax Special Rule for Tenant-Stockholders in Cooperative Housing Corporations A qualified home includes stock in a cooperative housing corporation owned by a tenant-stockholder. 1040 ez turbo tax This applies only if the tenant-stockholder is entitled to live in the house or apartment because of owning stock in the cooperative. 1040 ez turbo tax Cooperative housing corporation. 1040 ez turbo tax   This is a corporation that meets all of the following conditions. 1040 ez turbo tax Has only one class of stock outstanding, Has no stockholders other than those who own the stock that can live in a house, apartment, or house trailer owned or leased by the corporation, Has no stockholders who can receive any distribution out of capital other than on a liquidation of the corporation, and Meets at least one of the following requirements. 1040 ez turbo tax Receives at least 80% of its gross income for the year in which the mortgage interest is paid or incurred from tenant-stockholders. 1040 ez turbo tax For this purpose, gross income is all income received during the entire year, including amounts received before the corporation changed to cooperative ownership. 1040 ez turbo tax At all times during the year, at least 80% of the total square footage of the corporation's property is used or available for use by the tenant-stockholders for residential or residential-related use. 1040 ez turbo tax At least 90% of the corporation's expenditures paid or incurred during the year are for the acquisition, construction, management, maintenance, or care of corporate property for the benefit of the tenant-stockholders. 1040 ez turbo tax Stock used to secure debt. 1040 ez turbo tax   In some cases, you cannot use your cooperative housing stock to secure a debt because of either: Restrictions under local or state law, or Restrictions in the cooperative agreement (other than restrictions in which the main purpose is to permit the tenant- stockholder to treat unsecured debt as secured debt). 1040 ez turbo tax However, you can treat a debt as secured by the stock to the extent that the proceeds are used to buy the stock under the allocation of interest rules. 1040 ez turbo tax See chapter 4 of Publication 535 for details on these rules. 1040 ez turbo tax Figuring deductible home mortgage interest. 1040 ez turbo tax   Generally, if you are a tenant-stockholder, you can deduct payments you make for your share of the interest paid or incurred by the cooperative. 1040 ez turbo tax The interest must be on a debt to buy, build, change, improve, or maintain the cooperative's housing, or on a debt to buy the land. 1040 ez turbo tax   Figure your share of this interest by multiplying the total by the following fraction. 1040 ez turbo tax      Your shares of stock in the cooperative   The total shares of stock in the cooperative Limits on deduction. 1040 ez turbo tax   To figure how the limits discussed in Part II apply to you, treat your share of the cooperative's debt as debt incurred by you. 1040 ez turbo tax The cooperative should determine your share of its grandfathered debt, its home acquisition debt, and its home equity debt. 1040 ez turbo tax (Your share of each of these types of debt is equal to the average balance of each debt multiplied by the fraction just given. 1040 ez turbo tax ) After your share of the average balance of each type of debt is determined, you include it with the average balance of that type of debt secured by your stock. 1040 ez turbo tax Form 1098. 1040 ez turbo tax    The cooperative should give you a Form 1098 showing your share of the interest. 1040 ez turbo tax Use the rules in this publication to determine your deductible mortgage interest. 1040 ez turbo tax Part II. 1040 ez turbo tax Limits on Home Mortgage Interest Deduction This part of the publication discusses the limits on deductible home mortgage interest. 1040 ez turbo tax These limits apply to your home mortgage interest expense if you have a home mortgage that does not fit into any of the three categories listed at the beginning of Part I under Fully deductible interest . 1040 ez turbo tax Your home mortgage interest deduction is limited to the interest on the part of your home mortgage debt that is not more than your qualified loan limit. 1040 ez turbo tax This is the part of your home mortgage debt that is grandfathered debt or that is not more than the limits for home acquisition debt and home equity debt. 1040 ez turbo tax Table 1 can help you figure your qualified loan limit and your deductible home mortgage interest. 1040 ez turbo tax Home Acquisition Debt Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home (your main or second home). 1040 ez turbo tax It also must be secured by that home. 1040 ez turbo tax If the amount of your mortgage is more than the cost of the home plus the cost of any substantial improvements, only the debt that is not more than the cost of the home plus improvements qualifies as home acquisition debt. 1040 ez turbo tax The additional debt may qualify as home equity debt (discussed later). 1040 ez turbo tax Home acquisition debt limit. 1040 ez turbo tax   The total amount you can treat as home acquisition debt at any time on your main home and second home cannot be more than $1 million ($500,000 if married filing separately). 1040 ez turbo tax This limit is reduced (but not below zero) by the amount of your grandfathered debt (discussed later). 1040 ez turbo tax Debt over this limit may qualify as home equity debt (also discussed later). 1040 ez turbo tax Refinanced home acquisition debt. 1040 ez turbo tax   Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. 1040 ez turbo tax However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. 1040 ez turbo tax Any additional debt not used to buy, build, or substantially improve a qualified home is not home acquisition debt, but may qualify as home equity debt (discussed later). 1040 ez turbo tax Mortgage that qualifies later. 1040 ez turbo tax   A mortgage that does not qualify as home acquisition debt because it does not meet all the requirements may qualify at a later time. 1040 ez turbo tax For example, a debt that you use to buy your home may not qualify as home acquisition debt because it is not secured by the home. 1040 ez turbo tax However, if the debt is later secured by the home, it may qualify as home acquisition debt after that time. 1040 ez turbo tax Similarly, a debt that you use to buy property may not qualify because the property is not a qualified home. 1040 ez turbo tax However, if the property later becomes a qualified home, the debt may qualify after that time. 1040 ez turbo tax Mortgage treated as used to buy, build, or improve home. 1040 ez turbo tax   A mortgage secured by a qualified home may be treated as home acquisition debt, even if you do not actually use the proceeds to buy, build, or substantially improve the home. 1040 ez turbo tax This applies in the following situations. 1040 ez turbo tax You buy your home within 90 days before or after the date you take out the mortgage. 1040 ez turbo tax The home acquisition debt is limited to the home's cost, plus the cost of any substantial improvements within the limit described below in (2) or (3). 1040 ez turbo tax (See Example 1 later. 1040 ez turbo tax ) You build or improve your home and take out the mortgage before the work is completed. 1040 ez turbo tax The home acquisition debt is limited to the amount of the expenses incurred within 24 months before the date of the mortgage. 1040 ez turbo tax You build or improve your home and take out the mortgage within 90 days after the work is completed. 1040 ez turbo tax The home acquisition debt is limited to the amount of the expenses incurred within the period beginning 24 months before the work is completed and ending on the date of the mortgage. 1040 ez turbo tax (See Example 2 later. 1040 ez turbo tax ) Example 1. 1040 ez turbo tax You bought your main home on June 3 for $175,000. 1040 ez turbo tax You paid for the home with cash you got from the sale of your old home. 1040 ez turbo tax On July 15, you took out a mortgage of $150,000 secured by your main home. 1040 ez turbo tax You used the $150,000 to invest in stocks. 1040 ez turbo tax You can treat the mortgage as taken out to buy your home because you bought the home within 90 days before you took out the mortgage. 1040 ez turbo tax The entire mortgage qualifies as home acquisition debt because it was not more than the home's cost. 1040 ez turbo tax Example 2. 1040 ez turbo tax On January 31, John began building a home on the lot that he owned. 1040 ez turbo tax He used $45,000 of his personal funds to build the home. 1040 ez turbo tax The home was completed on October 31. 1040 ez turbo tax On November 21, John took out a $36,000 mortgage that was secured by the home. 1040 ez turbo tax The mortgage can be treated as used to build the home because it was taken out within 90 days after the home was completed. 1040 ez turbo tax The entire mortgage qualifies as home acquisition debt because it was not more than the expenses incurred within the period beginning 24 months before the home was completed. 1040 ez turbo tax This is illustrated by Figure C. 1040 ez turbo tax   Please click here for the text description of the image. 1040 ez turbo tax Figure C. 1040 ez turbo tax John's example Date of the mortgage. 1040 ez turbo tax   The date you take out your mortgage is the day the loan proceeds are disbursed. 1040 ez turbo tax This is generally the closing date. 1040 ez turbo tax You can treat the day you apply in writing for your mortgage as the date you take it out. 1040 ez turbo tax However, this applies only if you receive the loan proceeds within a reasonable time (such as within 30 days) after your application is approved. 1040 ez turbo tax If a timely application you make is rejected, a reasonable additional time will be allowed to make a new application. 1040 ez turbo tax Cost of home or improvements. 1040 ez turbo tax   To determine your cost, include amounts paid to acquire any interest in a qualified home or to substantially improve the home. 1040 ez turbo tax   The cost of building or substantially improving a qualified home includes the costs to acquire real property and building materials, fees for architects and design plans, and required building permits. 1040 ez turbo tax Substantial improvement. 1040 ez turbo tax   An improvement is substantial if it: Adds to the value of your home, Prolongs your home's useful life, or Adapts your home to new uses. 1040 ez turbo tax    Repairs that maintain your home in good condition, such as repainting your home, are not substantial improvements. 1040 ez turbo tax However, if you paint your home as part of a renovation that substantially improves your qualified home, you can include the painting costs in the cost of the improvements. 1040 ez turbo tax Acquiring an interest in a home because of a divorce. 1040 ez turbo tax   If you incur debt to acquire the interest of a spouse or former spouse in a home, because of a divorce or legal separation, you can treat that debt as home acquisition debt. 1040 ez turbo tax Part of home not a qualified home. 1040 ez turbo tax    To figure your home acquisition debt, you must divide the cost of your home and improvements between the part of your home that is a qualified home and any part that is not a qualified home. 1040 ez turbo tax See Divided use of your home under Qualified Home in Part I. 1040 ez turbo tax Home Equity Debt If you took out a loan for reasons other than to buy, build, or substantially improve your home, it may qualify as home equity debt. 1040 ez turbo tax In addition, debt you incurred to buy, build, or substantially improve your home, to the extent it is more than the home acquisition debt limit (discussed earlier), may qualify as home equity debt. 1040 ez turbo tax Home equity debt is a mortgage you took out after October 13, 1987, that: Does not qualify as home acquisition debt or as grandfathered debt, and Is secured by your qualified home. 1040 ez turbo tax Example. 1040 ez turbo tax You bought your home for cash 10 years ago. 1040 ez turbo tax You did not have a mortgage on your home until last year, when you took out a $50,000 loan, secured by your home, to pay for your daughter's college tuition and your father's medical bills. 1040 ez turbo tax This loan is home equity debt. 1040 ez turbo tax Home equity debt limit. 1040 ez turbo tax   There is a limit on the amount of debt that can be treated as home equity debt. 1040 ez turbo tax The total home equity debt on your main home and second home is limited to the smaller of: $100,000 ($50,000 if married filing separately), or The total of each home's fair market value (FMV) reduced (but not below zero) by the amount of its home acquisition debt and grandfathered debt. 1040 ez turbo tax Determine the FMV and the outstanding home acquisition and grandfathered debt for each home on the date that the last debt was secured by the home. 1040 ez turbo tax Example. 1040 ez turbo tax You own one home that you bought in 2000. 1040 ez turbo tax Its FMV now is $110,000, and the current balance on your original mortgage (home acquisition debt) is $95,000. 1040 ez turbo tax Bank M offers you a home mortgage loan of 125% of the FMV of the home less any outstanding mortgages or other liens. 1040 ez turbo tax To consolidate some of your other debts, you take out a $42,500 home mortgage loan [(125% × $110,000) − $95,000] with Bank M. 1040 ez turbo tax Your home equity debt is limited to $15,000. 1040 ez turbo tax This is the smaller of: $100,000, the maximum limit, or $15,000, the amount that the FMV of $110,000 exceeds the amount of home acquisition debt of $95,000. 1040 ez turbo tax Debt higher than limit. 1040 ez turbo tax   Interest on amounts over the home equity debt limit (such as the interest on $27,500 [$42,500 − $15,000] in the preceding example) generally is treated as personal interest and is not deductible. 1040 ez turbo tax But if the proceeds of the loan were used for investment, business, or other deductible purposes, the interest may be deductible. 1040 ez turbo tax If it is, see the Table 1 Instructions for line 13 for an explanation of how to allocate the excess interest. 1040 ez turbo tax Part of home not a qualified home. 1040 ez turbo tax   To figure the limit on your home equity debt, you must divide the FMV of your home between the part that is a qualified home and any part that is not a qualified home. 1040 ez turbo tax See Divided use of your home under Qualified Home in Part I. 1040 ez turbo tax Fair market value (FMV). 1040 ez turbo tax    This is the price at which the home would change hands between you and a buyer, neither having to sell or buy, and both having reasonable knowledge of all relevant facts. 1040 ez turbo tax Sales of similar homes in your area, on about the same date your last debt was secured by the home, may be helpful in figuring the FMV. 1040 ez turbo tax Grandfathered Debt If you took out a mortgage on your home before October 14, 1987, or you refinanced such a mortgage, it may qualify as grandfathered debt. 1040 ez turbo tax To qualify, it must have been secured by your qualified home on October 13, 1987, and at all times after that date. 1040 ez turbo tax How you used the proceeds does not matter. 1040 ez turbo tax Grandfathered debt is not limited. 1040 ez turbo tax All of the interest you paid on grandfathered debt is fully deductible home mortgage interest. 1040 ez turbo tax However, the amount of your grandfathered debt reduces the $1 million limit for home acquisition debt and the limit based on your home's fair market value for home equity debt. 1040 ez turbo tax Refinanced grandfathered debt. 1040 ez turbo tax   If you refinanced grandfathered debt after October 13, 1987, for an amount that was not more than the mortgage principal left on the debt, then you still treat it as grandfathered debt. 1040 ez turbo tax To the extent the new debt is more than that mortgage principal, it is treated as home acquisition or home equity debt, and the mortgage is a mixed-use mortgage (discussed later under Average Mortgage Balance in the Table 1 instructions). 1040 ez turbo tax The debt must be secured by the qualified home. 1040 ez turbo tax   You treat grandfathered debt that was refinanced after October 13, 1987, as grandfathered debt only for the term left on the debt that was refinanced. 1040 ez turbo tax After that, you treat it as home acquisition debt or home equity debt, depending on how you used the proceeds. 1040 ez turbo tax Exception. 1040 ez turbo tax   If the debt before refinancing was like a balloon note (the principal on the debt was not amortized over the term of the debt), then you treat the refinanced debt as grandfathered debt for the term of the first refinancing. 1040 ez turbo tax This term cannot be more than 30 years. 1040 ez turbo tax Example. 1040 ez turbo tax Chester took out a $200,000 first mortgage on his home in 1986. 1040 ez turbo tax The mortgage was a five-year balloon note and the entire balance on the note was due in 1991. 1040 ez turbo tax Chester refinanced the debt in 1991 with a new 20-year mortgage. 1040 ez turbo tax The refinanced debt is treated as grandfathered debt for its entire term (20 years). 1040 ez turbo tax Line-of-credit mortgage. 1040 ez turbo tax    If you had a line-of-credit mortgage on October 13, 1987, and borrowed additional amounts against it after that date, then the additional amounts are either home acquisition debt or home equity debt depending on how you used the proceeds. 1040 ez turbo tax The balance on the mortgage before you borrowed the additional amounts is grandfathered debt. 1040 ez turbo tax The newly borrowed amounts are not grandfathered debt because the funds were borrowed after October 13, 1987. 1040 ez turbo tax See Average Mortgage Balance in the Table 1 Instructions that follow. 1040 ez turbo tax Table 1 Instructions Unless you are subject to the overall limit on itemized deductions, you can deduct all of the interest you paid during the year on mortgages secured by your main home or second home in either of the following two situations. 1040 ez turbo tax All the mortgages are grandfathered debt. 1040 ez turbo tax The total of the mortgage balances for the entire year is within the limits discussed earlier under Home Acquisition Debt and Home Equity Debt . 1040 ez turbo tax In either of those cases, you do not need Table 1. 1040 ez turbo tax Otherwise, you can use Table 1 to determine your qualified loan limit and deductible home mortgage interest. 1040 ez turbo tax Fill out only one Table 1 for both your main and second home regardless of how many mortgages you have. 1040 ez turbo tax Table 1. 1040 ez turbo tax Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. 1040 ez turbo tax Part I Qualified Loan Limit 1. 1040 ez turbo tax Enter the average balance of all your grandfathered debt. 1040 ez turbo tax See line 1 instructions 1. 1040 ez turbo tax   2. 1040 ez turbo tax Enter the average balance of all your home acquisition debt. 1040 ez turbo tax See line 2 instructions 2. 1040 ez turbo tax   3. 1040 ez turbo tax Enter $1,000,000 ($500,000 if married filing separately) 3. 1040 ez turbo tax   4. 1040 ez turbo tax Enter the larger of the amount on line 1 or the amount on line 3 4. 1040 ez turbo tax   5. 1040 ez turbo tax Add the amounts on lines 1 and 2. 1040 ez turbo tax Enter the total here 5. 1040 ez turbo tax   6. 1040 ez turbo tax Enter the smaller of the amount on line 4 or the amount on line 5 6. 1040 ez turbo tax   7. 1040 ez turbo tax If you have home equity debt, enter the smaller of $100,000 ($50,000 if married filing separately) or your limited amount. 1040 ez turbo tax See the line 7 instructions for the limit which may apply to you. 1040 ez turbo tax 7. 1040 ez turbo tax   8. 1040 ez turbo tax Add the amounts on lines 6 and 7. 1040 ez turbo tax Enter the total. 1040 ez turbo tax This is your qualified loan limit. 1040 ez turbo tax 8. 1040 ez turbo tax   Part II Deductible Home Mortgage Interest 9. 1040 ez turbo tax Enter the total of the average balances of all mortgages on all qualified homes. 1040 ez turbo tax  See line 9 instructions 9. 1040 ez turbo tax     If line 8 is less than line 9, go on to line 10. 1040 ez turbo tax If line 8 is equal to or more than line 9, stop here. 1040 ez turbo tax All of your interest on all the mortgages included on line 9 is deductible as home mortgage interest on Schedule A (Form 1040). 1040 ez turbo tax     10. 1040 ez turbo tax Enter the total amount of interest that you paid. 1040 ez turbo tax See line 10 instructions 10. 1040 ez turbo tax   11. 1040 ez turbo tax Divide the amount on line 8 by the amount on line 9. 1040 ez turbo tax Enter the result as a decimal amount (rounded to three places) 11. 1040 ez turbo tax × . 1040 ez turbo tax 12. 1040 ez turbo tax Multiply the amount on line 10 by the decimal amount on line 11. 1040 ez turbo tax Enter the result. 1040 ez turbo tax This is your deductible home mortgage interest. 1040 ez turbo tax Enter this amount on Schedule A (Form 1040) 12. 1040 ez turbo tax   13. 1040 ez turbo tax Subtract the amount on line 12 from the amount on line 10. 1040 ez turbo tax Enter the result. 1040 ez turbo tax This is not home mortgage interest. 1040 ez turbo tax See line 13 instructions 13. 1040 ez turbo tax   Home equity debt only. 1040 ez turbo tax   If all of your mortgages are home equity debt, do not fill in lines 1 through 5. 1040 ez turbo tax Enter zero on line 6 and complete the rest of Table 1. 1040 ez turbo tax Average Mortgage Balance You have to figure the average balance of each mortgage to determine your qualified loan limit. 1040 ez turbo tax You need these amounts to complete lines 1, 2, and 9 of Table 1. 1040 ez turbo tax You can use the highest mortgage balances during the year, but you may benefit most by using the average balances. 1040 ez turbo tax The following are methods you can use to figure your average mortgage balances. 1040 ez turbo tax However, if a mortgage has more than one category of debt, see Mixed-use mortgages , later, in this section. 1040 ez turbo tax Average of first and last balance method. 1040 ez turbo tax   You can use this method if all the following apply. 1040 ez turbo tax You did not borrow any new amounts on the mortgage during the year. 1040 ez turbo tax (This does not include borrowing the original mortgage amount. 1040 ez turbo tax ) You did not prepay more than one month's principal during the year. 1040 ez turbo tax (This includes prepayment by refinancing your home or by applying proceeds from its sale. 1040 ez turbo tax ) You had to make level payments at fixed equal intervals on at least a semi-annual basis. 1040 ez turbo tax You treat your payments as level even if they were adjusted from time to time because of changes in the interest rate. 1040 ez turbo tax    To figure your average balance, complete the following worksheet. 1040 ez turbo tax    1. 1040 ez turbo tax Enter the balance as of the first day of the year that the mortgage was secured by your qualified home during the year (generally January 1)   2. 1040 ez turbo tax Enter the balance as of the last day of the year that the mortgage was secured by your qualified home during the year (generally December 31)   3. 1040 ez turbo tax Add amounts on lines 1 and 2   4. 1040 ez turbo tax Divide the amount on line 3 by 2. 1040 ez turbo tax Enter the result   Interest paid divided by interest rate method. 1040 ez turbo tax   You can use this method if at all times in 2013 the mortgage was secured by your qualified home and the interest was paid at least monthly. 1040 ez turbo tax    Complete the following worksheet to figure your average balance. 1040 ez turbo tax    1. 1040 ez turbo tax Enter the interest paid in 2013. 1040 ez turbo tax Do not include points, mortgage insurance premiums, or any interest paid in 2013 that is for a year after 2013. 1040 ez turbo tax However, do include interest that is for 2013 but was paid in an earlier year   2. 1040 ez turbo tax Enter the annual interest rate on the mortgage. 1040 ez turbo tax If the interest rate varied in 2013, use the lowest rate for the year   3. 1040 ez turbo tax Divide the amount on line 1 by the amount on line 2. 1040 ez turbo tax Enter the result   Example. 1040 ez turbo tax Mr. 1040 ez turbo tax Blue had a line of credit secured by his main home all year. 1040 ez turbo tax He paid interest of $2,500 on this loan. 1040 ez turbo tax The interest rate on the loan was 9% (. 1040 ez turbo tax 09) all year. 1040 ez turbo tax His average balance using this method is $27,778, figured as follows. 1040 ez turbo tax 1. 1040 ez turbo tax Enter the interest paid in 2013. 1040 ez turbo tax Do not include points, mortgage insurance premiums, or any interest paid in 2013 that is for a year after 2013. 1040 ez turbo tax However, do include interest that is for 2013 but was paid in an earlier year $2,500 2. 1040 ez turbo tax Enter the annual interest rate on the mortgage. 1040 ez turbo tax If the interest rate varied in 2013, use the lowest rate for the year . 1040 ez turbo tax 09 3. 1040 ez turbo tax Divide the amount on line 1 by the amount on line 2. 1040 ez turbo tax Enter the result $27,778 Statements provided by your lender. 1040 ez turbo tax   If you receive monthly statements showing the closing balance or the average balance for the month, you can use either to figure your average balance for the year. 1040 ez turbo tax You can treat the balance as zero for any month the mortgage was not secured by your qualified home. 1040 ez turbo tax   For each mortgage, figure your average balance by adding your monthly closing or average balances and dividing that total by the number of months the home secured by that mortgage was a qualified home during the year. 1040 ez turbo tax   If your lender can give you your average balance for the year, you can use that amount. 1040 ez turbo tax Example. 1040 ez turbo tax Ms. 1040 ez turbo tax Brown had a home equity loan secured by her main home all year. 1040 ez turbo tax She received monthly statements showing her average balance for each month. 1040 ez turbo tax She can figure her average balance for the year by adding her monthly average balances and dividing the total by 12. 1040 ez turbo tax Mixed-use mortgages. 1040 ez turbo tax   A mixed-use mortgage is a loan that consists of more than one of the three categories of debt (grandfathered debt, home acquisition debt, and home equity debt). 1040 ez turbo tax For example, a mortgage you took out during the year is a mixed-use mortgage if you used its proceeds partly to refinance a mortgage that you took out in an earlier year to buy your home (home acquisition debt) and partly to buy a car (home equity debt). 1040 ez turbo tax   Complete lines 1 and 2 of Table 1 by including the separate average balances of any grandfathered debt and home acquisition debt in your mixed-use mortgage. 1040 ez turbo tax Do not use the methods described earlier in this section to figure the average balance of either category. 1040 ez turbo tax Instead, for each category, use the following method. 1040 ez turbo tax Figure the balance of that category of debt for each month. 1040 ez turbo tax This is the amount of the loan proceeds allocated to that category, reduced by your principal payments on the mortgage previously applied to that category. 1040 ez turbo tax Principal payments on a mixed-use mortgage are applied in full to each category of debt, until its balance is zero, in the following order: First, any home equity debt, Next, any grandfathered debt, and Finally, any home acquisition debt. 1040 ez turbo tax Add together the monthly balances figured in (1). 1040 ez turbo tax Divide the result in (2) by 12. 1040 ez turbo tax   Complete line 9 of Table 1 by including the average balance of the entire mixed-use mortgage, figured under one of the methods described earlier in this section. 1040 ez turbo tax Example 1. 1040 ez turbo tax In 1986, Sharon took out a $1,400,000 mortgage to buy her main home (grandfathered debt). 1040 ez turbo tax On March 2, 2013, when the home had a fair market value of $1,700,000 and she owed $1,100,000 on the mortgage, Sharon took out a second mortgage for $200,000. 1040 ez turbo tax She used $180,000 of the proceeds to make substantial improvements to her home (home acquisition debt) and the remaining $20,000 to buy a car (home equity debt). 1040 ez turbo tax Under the loan agreement, Sharon must make principal payments of $1,000 at the end of each month. 1040 ez turbo tax During 2013, her principal payments on the second mortgage totaled $10,000. 1040 ez turbo tax To complete Table 1, line 2, Sharon must figure a separate average balance for the part of her second mortgage that is home acquisition debt. 1040 ez turbo tax The January and February balances were zero. 1040 ez turbo tax The March through December balances were all $180,000, because none of her principal payments are applied to the home acquisition debt. 1040 ez turbo tax (They are all applied to the home equity debt, reducing it to $10,000 [$20,000 − $10,000]. 1040 ez turbo tax ) The monthly balances of the home acquisition debt total $1,800,000 ($180,000 × 10). 1040 ez turbo tax Therefore, the average balance of the home acquisition debt for 2013 was $150,000 ($1,800,000 ÷ 12). 1040 ez turbo tax Example 2. 1040 ez turbo tax The facts are the same as in Example 1. 1040 ez turbo tax In 2014, Sharon's January through October principal payments on her second mortgage are applied to the home equity debt, reducing it to zero. 1040 ez turbo tax The balance of the home acquisition debt remains $180,000 for each of those months. 1040 ez turbo tax Because her November and December principal payments are applied to the home acquisition debt, the November balance is $179,000 ($180,000 − $1,000) and the December balance is $178,000 ($180,000 − $2,000). 1040 ez turbo tax The monthly balances total $2,157,000 [($180,000 × 10) + $179,000 + $178,000]. 1040 ez turbo tax Therefore, the average balance of the home acquisition debt for 2014 is $179,750 ($2,157,000 ÷ 12). 1040 ez turbo tax L