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

E-file to Remain Open for Hurricane Irene Victims through Oct. 31

Updated 9/7/11 to add the following counties: Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Ocean, Salem, Sussex, Union and Warren.

NJ-2011-42, Sept. 1, 2011

MOUNTAINSIDE, N.J. — Victims of Hurricane Irene that began on Aug. 27, 2011 in parts of New Jersey may qualify for tax relief from the Internal Revenue Service.

The President has declared the following counties a federal disaster area: Atlantic, Bergen, Burlington, Camden, Cape May, Cumberland, Essex, Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Salem, Somerset, Sussex, Union and Warren. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Aug. 27, and on or before Oct. 31, have been postponed to Oct. 31, 2011. This includes corporations and other businesses that previously obtained an extension until Sept. 15 to file their 2010 returns, and individuals and businesses that received a similar extension until Oct. 17. It also includes the estimated tax payment for the third quarter, normally due Sept. 15.  

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Aug. 27, and on or before Sept. 12, as long as the deposits are made by Sept. 12, 2011.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Oct. 31 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Aug. 27 and on or before Oct. 31.

The IRS also gives affected taxpayers until Oct. 31 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Aug. 27 and on or before Oct. 31.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Aug. 27 and on or before Sept. 12 provided the taxpayer makes these deposits by Sept. 12.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.
Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “New Jersey/Hurricane Irene” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

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Page Last Reviewed or Updated: 24-Mar-2014

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