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Ez Tax Form

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Ez Tax Form

Ez tax form 5. Ez tax form   Soil and Water Conservation Expenses Table of Contents Introduction Topics - This chapter discusses: Business of Farming Plan Certification Conservation ExpensesWater well. Ez tax form Assessment by Conservation DistrictAssessment for Depreciable Property 25% Limit on DeductionNet operating loss. Ez tax form When to Deduct or Capitalize Sale of a Farm Introduction If you are in the business of farming, you can choose to deduct certain expenses for: Soil or water conservation, Prevention of erosion of land used in farming, or Endangered species recovery. Ez tax form Otherwise, these are capital expenses that must be added to the basis of the land. Ez tax form (See chapter 6 for information on determining basis. Ez tax form ) Conservation expenses for land in a foreign country do not qualify for this special treatment. Ez tax form The deduction for conservation expenses cannot be more than 25% of your gross income from farming. Ez tax form See 25% Limit on Deduction , later. Ez tax form Although some expenses are not deductible as soil and water conservation expenses, they may be deductible as ordinary and necessary farm expenses. Ez tax form These include interest and taxes, the cost of periodically clearing brush from productive land, the regular removal of sediment from a drainage ditch, and expenses paid or incurred primarily to produce an agricultural crop that may also conserve soil. Ez tax form You must include in income most government payments for approved conservation practices. Ez tax form However, you can exclude some payments you receive under certain cost-sharing conservation programs. Ez tax form For more information, see Agricultural Program Payments in chapter 3. Ez tax form To get the full deduction to which you are entitled, you should maintain your records to clearly distinguish between your ordinary and necessary farm business expenses and your soil and water conservation expenses. Ez tax form Topics - This chapter discusses: Business of farming Plan certification Conservation expenses Assessment by conservation district 25% limit on deduction When to deduct or capitalize Sale of a farm Business of Farming For purposes of soil and water conservation expenses, you are in the business of farming if you cultivate, operate, or manage a farm for profit, either as an owner or a tenant. Ez tax form You are not in the business of farming if you cultivate or operate a farm for recreation or pleasure, rather than for profit. Ez tax form You are not farming if you are engaged only in forestry or the growing of timber. Ez tax form Farm defined. Ez tax form   A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. Ez tax form It also includes plantations, ranches, ranges, and orchards. Ez tax form A fish farm is an area where fish and other marine animals are grown or raised and artificially fed, protected, etc. Ez tax form It does not include an area where they are merely caught or harvested. Ez tax form A plant nursery is a farm for purposes of deducting soil and water conservation expenses. Ez tax form Farm rental. Ez tax form   If you own a farm and receive farm rental payments based on farm production, either in cash or crop shares, you are in the business of farming. Ez tax form If you get cash rental for a farm you own that is not used in farm production, you cannot deduct soil and water conservation expenses for that farm. Ez tax form   If you receive a fixed rental payment that is not based on farm production, you are in the business of farming only if you materially participate in operating or managing the farm. Ez tax form Example. Ez tax form You own a farm in Iowa and live in California. Ez tax form You rent the farm for $175 in cash per acre and do not materially participate in producing or managing production of the crops grown on the farm. Ez tax form You cannot deduct your soil conservation expenses for this farm. Ez tax form You must capitalize the expenses and add them to the basis of the land. Ez tax form     For more information, see Material participation for landlords under Landlord Participation in Farming in chapter 12. Ez tax form Plan Certification You can deduct soil and water conservation expenses only if they are consistent with a plan approved by the Natural Resources Conservation Service (NRCS) of the Department of Agriculture. Ez tax form If no such plan exists, the expenses must be consistent with a soil conservation plan of a comparable state agency. Ez tax form Keep a copy of the plan with your books and records to support your deductions. Ez tax form Conservation plan. Ez tax form   A conservation plan includes the farming conservation practices approved for the area where your farmland is located. Ez tax form There are three types of approved plans. Ez tax form NRCS individual site plans. Ez tax form These plans are issued individually to farmers who request assistance from NRCS to develop a conservation plan designed specifically for their farmland. Ez tax form NRCS county plans. Ez tax form These plans include a listing of farm conservation practices approved for the county where the farmland is located. Ez tax form You can deduct expenses for conservation practices not included on the NRCS county plans only if the practice is a part of an individual site plan. Ez tax form Comparable state agency plans. Ez tax form These plans are approved by state agencies and can be approved individual site plans or county plans. Ez tax form   A list of NRCS conservation programs is available at www. Ez tax form nrcs. Ez tax form usda. Ez tax form gov/programs. Ez tax form Individual site plans can be obtained from NRCS offices and the comparable state agencies. Ez tax form Conservation Expenses You can deduct conservation expenses only for land you or your tenant are using, or have used in the past, for farming. Ez tax form These expenses include, but are not limited to, the following. Ez tax form The treatment or movement of earth, such as: Leveling, Conditioning, Grading, Terracing, Contour furrowing, and Restoration of soil fertility. Ez tax form The construction, control, and protection of: Diversion channels, Drainage ditches, Irrigation ditches, Earthen dams, and Watercourses, outlets, and ponds. Ez tax form The eradication of brush. Ez tax form The planting of windbreaks. Ez tax form You cannot deduct expenses to drain or fill wetlands, or to prepare land for center pivot irrigation systems, as soil and water conservation expenses. Ez tax form These expenses are added to the basis of the land. Ez tax form If you choose to deduct soil and water conservation expenses, you cannot exclude from gross income any cost-sharing payments you receive for those expenses. Ez tax form See chapter 3 for information about payments eligible for the cost-sharing exclusion. Ez tax form New farm or farmland. Ez tax form   If you acquire a new farm or new farmland from someone who was using it in farming immediately before you acquired the land, soil and water conservation expenses you incur on it will be treated as made on land used in farming at the time the expenses were paid or incurred. Ez tax form You can deduct soil and water conservation expenses for this land if your use of it is substantially a continuation of its use in farming. Ez tax form The new farming activity does not have to be the same as the old farming activity. Ez tax form For example, if you buy land that was used for grazing cattle and then prepare it for use as an apple orchard, you can deduct your conservation expenses. Ez tax form Land not used for farming. Ez tax form   If your conservation expenses benefit both land that does not qualify as land used for farming and land that does qualify, you must allocate the expenses between the two types of land. Ez tax form For example, if the expenses benefit 200 acres of your land, but only 120 acres of this land are used for farming, then you can deduct 60% (120 ÷ 200) of the expenses. Ez tax form You can use another method to allocate these expenses if you can clearly show that your method is more reasonable. Ez tax form Depreciable conservation assets. Ez tax form   You generally cannot deduct your expenses for depreciable conservation assets. Ez tax form However, you can deduct certain amounts you pay or incur for an assessment for depreciable property that a soil and water conservation or drainage district levies against your farm. Ez tax form See Assessment for Depreciable Property , later. Ez tax form   You must capitalize expenses to buy, build, install, or improve depreciable structures or facilities. Ez tax form These expenses include those for materials, supplies, wages, fuel, hauling, and moving dirt when making structures such as tanks, reservoirs, pipes, culverts, canals, dams, wells, or pumps composed of masonry, concrete, tile, metal, or wood. Ez tax form You recover your capital investment through annual allowances for depreciation. Ez tax form   You can deduct soil and water conservation expenses for nondepreciable earthen items. Ez tax form Nondepreciable earthen items include certain dams, ponds, and terraces described under Property Having a Determinable Useful Life in chapter 7. Ez tax form Water well. Ez tax form   You cannot deduct the cost of drilling a water well for irrigation and other agricultural purposes as a soil and water conservation expense. Ez tax form It is a capital expense. Ez tax form You recover your cost through depreciation. Ez tax form You also must capitalize your cost for drilling a test hole. Ez tax form If the test hole produces no water and you continue drilling, the cost of the test hole is added to the cost of the producing well. Ez tax form You can recover the total cost through depreciation deductions. Ez tax form   If a test hole, dry hole, or dried-up well (resulting from prolonged lack of rain, for instance) is abandoned, you can deduct your unrecovered cost in the year of abandonment. Ez tax form Abandonment means that all economic benefits from the well are terminated. Ez tax form For example, filling or sealing a well excavation or casing so that all economic benefits from the well are terminated constitutes an abandonment. Ez tax form Endangered species recovery expenses. Ez tax form   If you are in the business of farming and meet other specific requirements, you can choose to deduct the conservation expenses discussed earlier as endangered species recovery expenses. Ez tax form Otherwise, these are capital expenses that must be added to the basis of the land. Ez tax form   The expenses must be paid or incurred for the purpose of achieving site-specific management actions recommended in a recovery plan approved under section 4(f) of the Endangered Species Act of 1973. Ez tax form See Internal Revenue Code section 175 for more information. Ez tax form Assessment by Conservation District In some localities, a soil or water conservation or drainage district incurs expenses for soil or water conservation and levies an assessment against the farmers who benefit from the expenses. Ez tax form You can deduct as a conservation expense amounts you pay or incur for the part of an assessment that: Covers expenses you could deduct if you had paid them directly, or Covers expenses for depreciable property used in the district's business. Ez tax form Assessment for Depreciable Property You generally can deduct as a conservation expense amounts you pay or incur for the part of a conservation or drainage district assessment that covers expenses for depreciable property. Ez tax form This includes items such as pumps, locks, concrete structures (including dams and weir gates), draglines, and similar equipment. Ez tax form The depreciable property must be used in the district's soil and water conservation activities. Ez tax form However, the following limits apply to these assessments. Ez tax form The total assessment limit. Ez tax form The yearly assessment limit. Ez tax form After you apply these limits, the amount you can deduct is added to your other conservation expenses for the year. Ez tax form The total for these expenses is then subject to the 25% of gross income from farming limit on the deduction, discussed later. Ez tax form See Table 5-1 for a brief summary of these limits. Ez tax form Table 5-1. Ez tax form Limits on Deducting an Assessment by a Conservation District for Depreciable Property Total Limit on Deduction for Assessment for Depreciable Property Yearly Limit on Deduction for Assessment for Depreciable Property Yearly Limit for All Conservation Expenses 10% of: $500 + 10% of: 25% of: Total assessment against all members of the district for the property. Ez tax form Your deductible share of the cost to the district for the property. Ez tax form Your gross income from farming. Ez tax form No one taxpayer can deduct more than 10% of the total assessment. Ez tax form Any amount over 10% is a capital expense and is added to the basis of your land. Ez tax form If an assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. Ez tax form If the amount you pay or incur for any year is more than the limit, you can deduct for that year only 10% of your deductible share of the cost. Ez tax form You can deduct the remainder in equal amounts over the next 9 tax years. Ez tax form Limit for all conservation expenses, including assessments for depreciable property. Ez tax form Amounts greater than 25% can be carried to the following year and added to that year's expenses. Ez tax form The total is then subject to the 25% of gross income from farming limit in that year. Ez tax form To ensure your deduction is within the deduction limits, keep records to show the following. Ez tax form The total assessment against all members of the district for the depreciable property. Ez tax form Your deductible share of the cost to the district for the depreciable property. Ez tax form Your gross income from farming. Ez tax form Total assessment limit. Ez tax form   You cannot deduct more than 10% of the total amount assessed to all members of the conservation or drainage district for the depreciable property. Ez tax form This applies whether you pay the assessment in one payment or in installments. Ez tax form If your assessment is more than 10% of the total amount assessed, both the following rules apply. Ez tax form The amount over 10% is a capital expense and is added to the basis of your land. Ez tax form If the assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. Ez tax form Yearly assessment limit. Ez tax form   The maximum amount you can deduct in any one year is the total of 10% of your deductible share of the cost as explained earlier, plus $500. Ez tax form If the amount you pay or incur is equal to or less than the maximum amount, you can deduct it in the year it is paid or incurred. Ez tax form If the amount you pay or incur is more, you can deduct in that year only 10% of your deductible share of the cost. Ez tax form You can deduct the remainder in equal amounts over the next 9 tax years. Ez tax form Your total conservation expense deduction for each year is also subject to the 25% of gross income from farming limit on the deduction, discussed later. Ez tax form Example 1. Ez tax form This year, the soil conservation district levies and you pay an assessment of $2,400 against your farm. Ez tax form Of the assessment, $1,500 is for digging drainage ditches. Ez tax form You can deduct this part as a soil or conservation expense as if you had paid it directly. Ez tax form The remaining $900 is for depreciable equipment to be used in the district's irrigation activities. Ez tax form The total amount assessed by the district against all its members for the depreciable equipment is $7,000. Ez tax form The total amount you can deduct for the depreciable equipment is limited to 10% of the total amount assessed by the district against all its members for depreciable equipment, or $700. Ez tax form The $200 excess ($900 − $700) is a capital expense you must add to the basis of your farm. Ez tax form To figure the maximum amount you can deduct for the depreciable equipment this year, multiply your deductible share of the total assessment ($700) by 10%. Ez tax form Add $500 to the result for a total of $570. Ez tax form Your deductible share, $700, is greater than the maximum amount deductible in one year, so you can deduct only $70 of the amount you paid or incurred for depreciable property this year (10% of $700). Ez tax form You can deduct the balance at the rate of $70 a year over the next 9 years. Ez tax form You add $70 to the $1,500 portion of the assessment for drainage ditches. Ez tax form You can deduct $1,570 of the $2,400 assessment as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed later. Ez tax form Example 2. Ez tax form Assume the same facts in Example 1 except that $1,850 of the $2,400 assessment is for digging drainage ditches and $550 is for depreciable equipment. Ez tax form The total amount assessed by the district against all its members for depreciable equipment is $5,500. Ez tax form The total amount you can deduct for the depreciable equipment is limited to 10% of this amount, or $550. Ez tax form The maximum amount you can deduct this year for the depreciable equipment is $555 (10% of your deductible share of the total assessment, $55, plus $500). Ez tax form Since your deductible share is less than the maximum amount deductible in one year, you can deduct the entire $550 this year. Ez tax form You can deduct the entire assessment, $2,400, as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed below. Ez tax form Sale or other disposal of land during 9-year period. Ez tax form   If you dispose of the land during the 9-year period for deducting conservation expenses subject to the yearly limit, any amounts you have not yet deducted because of this limit are added to the basis of the property. Ez tax form Death of farmer during 9-year period. Ez tax form   If a farmer dies during the 9-year period, any remaining amounts not yet deducted are deducted in the year of death. Ez tax form 25% Limit on Deduction The total deduction for conservation expenses in any tax year is limited to 25% of your gross income from farming for the year. Ez tax form Gross income from farming. Ez tax form   Gross income from farming is the income you derive in the business of farming from the production of crops, fish, fruits, other agricultural products, or livestock. Ez tax form Gains from sales of draft, breeding, or dairy livestock are included. Ez tax form Gains from sales of assets such as farm machinery, or from the disposition of land, are not included. Ez tax form Carryover of deduction. Ez tax form   If your deductible conservation expenses in any year are more than 25% of your gross income from farming for that year, you can carry the unused deduction over to later years. Ez tax form However, the deduction in any later year is limited to 25% of the gross income from farming for that year as well. Ez tax form Example. Ez tax form In 2012, you have gross income of $32,000 from two farms. Ez tax form During the year, you incurred $10,000 of deductible soil and water conservation expenses for one of the farms. Ez tax form However, your deduction is limited to 25% of $32,000, or $8,000. Ez tax form The $2,000 excess ($10,000 − $8,000) is carried over to 2013 and added to deductible soil and water conservation expenses made in that year. Ez tax form The total of the 2012 carryover plus 2013 expenses is deductible in 2013, subject to the limit of 25% of your gross income from farming in 2013. Ez tax form Any expenses over the limit in that year are carried to 2014 and later years. Ez tax form Net operating loss. Ez tax form   The deduction for soil and water conservation expenses, after applying the 25% limit, is included when figuring a net operating loss (NOL) for the year. Ez tax form If the NOL is carried to another year, the soil and water conservation deduction included in the NOL is not subject to the 25% limit in the year to which it is carried. Ez tax form When to Deduct or Capitalize If you choose to deduct soil and water conservation expenses, you must deduct the total allowable amount on your tax return for the first year you pay or incur these expenses. Ez tax form If you do not choose to deduct the expenses, you must capitalize them. Ez tax form Change of method. Ez tax form   If you want to change your method for the treatment of soil and water conservation expenses, or you want to treat the expenses for a particular project or a single farm in a different manner, you must get the approval of the IRS. Ez tax form To get this approval, submit a written request by the due date of your return for the first tax year you want the new method to apply. Ez tax form You or your authorized representative must sign the request. Ez tax form   The request must include the following information. Ez tax form Your name and address. Ez tax form The first tax year the method or change of method is to apply. Ez tax form Whether the method or change of method applies to all your soil and water conservation expenses or only to those for a particular project or farm. Ez tax form If the method or change of method does not apply to all your expenses, identify the project or farm to which the expenses apply. Ez tax form The total expenses you paid or incurred in the first tax year the method or change of method is to apply. Ez tax form A statement that you will account separately in your books for the expenses to which this method or change of method relates. Ez tax form Send your request to the following  address. Ez tax form  Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999  For more information, see Change in  Accounting Method in chapter 2. Ez tax form Sale of a Farm If you sell your farm, you cannot adjust the basis of the land at the time of the sale for any unused carryover of soil and water conservation expenses (except for deductions of assessments for depreciable property, discussed earlier). Ez tax form However, if you acquire another farm and return to the business of farming, you can start taking deductions again for the unused carryovers. Ez tax form Gain on sale of farmland. Ez tax form   If you held the land 5 years or less before you sold it, gain on the sale of the land is treated as ordinary income up to the amount you previously deducted for soil and water conservation expenses. Ez tax form If you held the land less than 10 but more than 5 years, the gain is treated as ordinary income up to a specified percentage of the previous deductions. Ez tax form See Section 1252 property under Other Gains in chapter 9. Ez tax form Prev  Up  Next   Home   More Online Publications
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The Ez Tax Form

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