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Turbo tax ez Publication 936 - Main Content Table of Contents Part I. Turbo tax ez 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. Turbo tax ez 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. Turbo tax ez Home Mortgage Interest This part explains what you can deduct as home mortgage interest. Turbo tax ez It includes discussions on points, mortgage insurance premiums, and how to report deductible interest on your tax return. Turbo tax ez Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). Turbo tax ez The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. Turbo tax ez You can deduct home mortgage interest if all the following conditions are met. Turbo tax ez You file Form 1040 and itemize deductions on Schedule A (Form 1040). Turbo tax ez The mortgage is a secured debt on a qualified home in which you have an ownership interest. Turbo tax ez Secured Debt and Qualified Home are explained later. Turbo tax ez  Both you and the lender must intend that the loan be repaid. Turbo tax ez Fully deductible interest. Turbo tax ez   In most cases, you can deduct all of your home mortgage interest. Turbo tax ez How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. Turbo tax ez   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. Turbo tax ez (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. Turbo tax ez ) 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. Turbo tax ez   The three categories are as follows. Turbo tax ez Mortgages you took out on or before October 13, 1987 (called grandfathered debt). Turbo tax ez 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). Turbo tax ez 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). Turbo tax ez The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. Turbo tax ez   See Part II for more detailed definitions of grandfathered, home acquisition, and home equity debt. Turbo tax ez    You can use Figure A to check whether your home mortgage interest is fully deductible. Turbo tax ez This image is too large to be displayed in the current screen. Turbo tax ez Please click the link to view the image. Turbo tax ez Figure A. Turbo tax ez Is My Home Mortgage Interest Fully Deductible? Secured Debt You can deduct your home mortgage interest only if your mortgage is a secured debt. Turbo tax ez 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. Turbo tax ez In other words, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. Turbo tax ez If you cannot pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt. Turbo tax ez In this publication, mortgage will refer to secured debt. Turbo tax ez Debt not secured by home. Turbo tax ez   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). Turbo tax ez   A debt is not secured by your home if it once was, but is no longer secured by your home. Turbo tax ez Wraparound mortgage. Turbo tax ez   This is not a secured debt unless it is recorded or otherwise perfected under state law. Turbo tax ez Example. Turbo tax ez Beth owns a home subject to a mortgage of $40,000. Turbo tax ez She sells the home for $100,000 to John, who takes it subject to the $40,000 mortgage. Turbo tax ez Beth continues to make the payments on the $40,000 note. Turbo tax ez John pays $10,000 down and gives Beth a $90,000 note secured by a wraparound mortgage on the home. Turbo tax ez Beth does not record or otherwise perfect the $90,000 mortgage under the state law that applies. Turbo tax ez Therefore, the mortgage is not a secured debt and John cannot deduct any of the interest he pays on it as home mortgage interest. Turbo tax ez Choice to treat the debt as not secured by your home. Turbo tax ez   You can choose to treat any debt secured by your qualified home as not secured by the home. Turbo tax ez This treatment begins with the tax year for which you make the choice and continues for all later tax years. Turbo tax ez You can revoke your choice only with the consent of the Internal Revenue Service (IRS). Turbo tax ez   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. Turbo tax ez 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. Turbo tax ez Cooperative apartment owner. Turbo tax ez   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. Turbo tax ez Qualified Home For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. Turbo tax ez This means your main home or your second home. Turbo tax ez A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. Turbo tax ez 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. Turbo tax ez Otherwise, it is considered personal interest and is not deductible. Turbo tax ez Main home. Turbo tax ez   You can have only one main home at any one time. Turbo tax ez This is the home where you ordinarily live most of the time. Turbo tax ez Second home. Turbo tax ez   A second home is a home that you choose to treat as your second home. Turbo tax ez Second home not rented out. Turbo tax ez   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. Turbo tax ez You do not have to use the home during the year. Turbo tax ez Second home rented out. Turbo tax ez   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. Turbo tax ez 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. Turbo tax ez If you do not use the home long enough, it is considered rental property and not a second home. Turbo tax ez For information on residential rental property, see Publication 527. Turbo tax ez More than one second home. Turbo tax ez   If you have more than one second home, you can treat only one as the qualified second home during any year. Turbo tax ez However, you can change the home you treat as a second home during the year in the following situations. Turbo tax ez 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. Turbo tax ez 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. Turbo tax ez 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. Turbo tax ez Divided use of your home. Turbo tax ez   The only part of your home that is considered a qualified home is the part you use for residential living. Turbo tax ez 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. Turbo tax ez 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. Turbo tax ez 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. Turbo tax ez (See Home Acquisition Debt in Part II. Turbo tax ez ) Dividing the fair market value may affect your home equity debt limit, also explained in Part II . Turbo tax ez Renting out part of home. Turbo tax ez   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. Turbo tax ez The rented part of your home is used by the tenant primarily for residential living. Turbo tax ez The rented part of your home is not a self-contained residential unit having separate sleeping, cooking, and toilet facilities. Turbo tax ez 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. Turbo tax ez If two persons (and dependents of either) share the same sleeping quarters, they are treated as one tenant. Turbo tax ez Office in home. Turbo tax ez   If you have an office in your home that you use in your business, see Publication 587, Business Use of Your Home. Turbo tax ez It explains how to figure your deduction for the business use of your home, which includes the business part of your home mortgage interest. Turbo tax ez Home under construction. Turbo tax ez   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. Turbo tax ez   The 24-month period can start any time on or after the day construction begins. Turbo tax ez Home destroyed. Turbo tax ez   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. Turbo tax ez This means you can continue to deduct the interest you pay on your home mortgage, subject to the limits described in this publication. Turbo tax ez   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. Turbo tax ez   This rule applies to your main home and to a second home that you treat as a qualified home. Turbo tax ez Time-sharing arrangements. Turbo tax ez   You can treat a home you own under a time-sharing plan as a qualified home if it meets all the requirements. Turbo tax ez 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. Turbo tax ez Rental of time-share. Turbo tax ez   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. Turbo tax ez See Second home rented out , earlier, for the use requirement. Turbo tax ez 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. Turbo tax ez Married taxpayers. Turbo tax ez   If you are married and file a joint return, your qualified home(s) can be owned either jointly or by only one spouse. Turbo tax ez Separate returns. Turbo tax ez   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. Turbo tax ez However, if you both consent in writing, then one spouse can take both the main home and a second home into account. Turbo tax ez Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. Turbo tax ez It also describes certain special situations that may affect your deduction. Turbo tax ez Late payment charge on mortgage payment. Turbo tax ez   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. Turbo tax ez Mortgage prepayment penalty. Turbo tax ez   If you pay off your home mortgage early, you may have to pay a penalty. Turbo tax ez 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. Turbo tax ez Sale of home. Turbo tax ez   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. Turbo tax ez Example. Turbo tax ez John and Peggy Harris sold their home on May 7. Turbo tax ez Through April 30, they made home mortgage interest payments of $1,220. Turbo tax ez 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. Turbo tax ez Their mortgage interest deduction is $1,270 ($1,220 + $50). Turbo tax ez Prepaid interest. Turbo tax ez   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. Turbo tax ez You can deduct in each year only the interest that qualifies as home mortgage interest for that year. Turbo tax ez However, there is an exception that applies to points, discussed later. Turbo tax ez Mortgage interest credit. Turbo tax ez    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. Turbo tax ez Figure the credit on Form 8396, Mortgage Interest Credit. Turbo tax ez If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. Turbo tax ez   See Form 8396 and Publication 530 for more information on the mortgage interest credit. Turbo tax ez Ministers' and military housing allowance. Turbo tax ez   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. Turbo tax ez Hardest Hit Fund and Emergency Homeowners' Loan Programs. Turbo tax ez   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. Turbo tax ez 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. Turbo tax ez 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. Turbo tax ez 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). Turbo tax ez 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. Turbo tax ez Mortgage assistance payments under section 235 of the National Housing Act. Turbo tax ez   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. Turbo tax ez You cannot deduct the interest that is paid for you. Turbo tax ez No other effect on taxes. Turbo tax ez   Do not include these mortgage assistance payments in your income. Turbo tax ez Also, do not use these payments to reduce other deductions, such as real estate taxes. Turbo tax ez Divorced or separated individuals. Turbo tax ez   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. Turbo tax ez See the discussion of Payments for jointly-owned home under Alimony in Publication 504, Divorced or Separated Individuals. Turbo tax ez Redeemable ground rents. Turbo tax ez   In some states (such as Maryland), you can buy your home subject to a ground rent. Turbo tax ez A ground rent is an obligation you assume to pay a fixed amount per year on the property. Turbo tax ez Under this arrangement, you are leasing (rather than buying) the land on which your home is located. Turbo tax ez   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. Turbo tax ez   A ground rent is a redeemable ground rent if all of the following are true. Turbo tax ez Your lease, including renewal periods, is for more than 15 years. Turbo tax ez You can freely assign the lease. Turbo tax ez 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. Turbo tax ez The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. Turbo tax ez   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. Turbo tax ez Nonredeemable ground rents. Turbo tax ez   Payments on a nonredeemable ground rent are not mortgage interest. Turbo tax ez You can deduct them as rent if they are a business expense or if they are for rental property. Turbo tax ez Reverse mortgages. Turbo tax ez   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. Turbo tax ez With a reverse mortgage, you retain title to your home. Turbo tax ez 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. Turbo tax ez Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Turbo tax ez 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. Turbo tax ez Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Part II. Turbo tax ez Rental payments. Turbo tax ez   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. Turbo tax ez This is true even if the settlement papers call them interest. Turbo tax ez You cannot deduct these payments as home mortgage interest. Turbo tax ez Mortgage proceeds invested in tax-exempt securities. Turbo tax ez   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. Turbo tax ez “Grandfathered debt” and “home equity debt” are defined in Part II of this publication. Turbo tax ez Refunds of interest. Turbo tax ez   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. Turbo tax ez 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. Turbo tax ez However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. Turbo tax ez This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. Turbo tax ez If you need to include the refund in income, report it on Form 1040, line 21. Turbo tax ez   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. Turbo tax ez For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. Turbo tax ez   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in Publication 525, Taxable and Nontaxable Income. Turbo tax ez Cooperative apartment owner. Turbo tax ez   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. Turbo tax ez The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. Turbo tax ez   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. Turbo tax ez Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Turbo tax ez Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. Turbo tax ez This image is too large to be displayed in the current screen. Turbo tax ez Please click the link to view the image. Turbo tax ez Figure B. Turbo tax ez 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. Turbo tax ez See Points paid by the seller , later. Turbo tax ez General Rule You generally cannot deduct the full amount of points in the year paid. Turbo tax ez Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. Turbo tax ez See Deduction Allowed Ratably , next. Turbo tax ez For exceptions to the general rule, see Deduction Allowed in Year Paid , later. Turbo tax ez 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. Turbo tax ez You use the cash method of accounting. Turbo tax ez This means you report income in the year you receive it and deduct expenses in the year you pay them. Turbo tax ez Most individuals use this method. Turbo tax ez Your loan is secured by a home. Turbo tax ez (The home does not need to be your main home. Turbo tax ez ) Your loan period is not more than 30 years. Turbo tax ez 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. Turbo tax ez 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. Turbo tax ez Example. Turbo tax ez You use the cash method of accounting. Turbo tax ez In 2013, you took out a $100,000 loan payable over 20 years. Turbo tax ez The terms of the loan are the same as for other 20-year loans offered in your area. Turbo tax ez You paid $4,800 in points. Turbo tax ez You made 3 monthly payments on the loan in 2013. Turbo tax ez You can deduct $60 [($4,800 ÷ 240 months) x 3 payments] in 2013. Turbo tax ez In 2014, if you make all twelve payments, you will be able to deduct $240 ($20 x 12). Turbo tax ez Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. Turbo tax ez (You can use Figure B as a quick guide to see whether your points are fully deductible in the year paid. Turbo tax ez ) Your loan is secured by your main home. Turbo tax ez (Your main home is the one you ordinarily live in most of the time. Turbo tax ez ) Paying points is an established business practice in the area where the loan was made. Turbo tax ez The points paid were not more than the points generally charged in that area. Turbo tax ez You use the cash method of accounting. Turbo tax ez This means you report income in the year you receive it and deduct expenses in the year you pay them. Turbo tax ez Most individuals use this method. Turbo tax ez 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. Turbo tax ez The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. Turbo tax ez The funds you provided are not required to have been applied to the points. Turbo tax ez They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. Turbo tax ez You cannot have borrowed these funds from your lender or mortgage broker. Turbo tax ez You use your loan to buy or build your main home. Turbo tax ez The points were computed as a percentage of the principal amount of the mortgage. Turbo tax ez The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. Turbo tax ez The points may be shown as paid from either your funds or the seller's. Turbo tax ez Note. Turbo tax ez 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. Turbo tax ez Home improvement loan. Turbo tax ez   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. Turbo tax ez Second home. Turbo tax ez You cannot fully deduct in the year paid points you pay on loans secured by your second home. Turbo tax ez You can deduct these points only over the life of the loan. Turbo tax ez Refinancing. Turbo tax ez   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. Turbo tax ez This is true even if the new mortgage is secured by your main home. Turbo tax ez   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. Turbo tax ez You can deduct the rest of the points over the life of the loan. Turbo tax ez Example 1. Turbo tax ez In 1998, Bill Fields got a mortgage to buy a home. Turbo tax ez In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. Turbo tax ez The mortgage is secured by his home. Turbo tax ez To get the new loan, he had to pay three points ($3,000). Turbo tax ez 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. Turbo tax ez Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. Turbo tax ez The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. Turbo tax ez Bill's first payment on the new loan was due July 1. Turbo tax ez He made six payments on the loan in 2013 and is a cash basis taxpayer. Turbo tax ez Bill used the funds from the new mortgage to repay his existing mortgage. Turbo tax ez 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. Turbo tax ez He cannot deduct all of the points in 2013. Turbo tax ez He can deduct two points ($2,000) ratably over the life of the loan. Turbo tax ez He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. Turbo tax ez The other point ($1,000) was a fee for services and is not deductible. Turbo tax ez Example 2. Turbo tax ez 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. Turbo tax ez Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. Turbo tax ez His deduction is $500 ($2,000 × 25%). Turbo tax ez Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. Turbo tax ez This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. Turbo tax ez The total amount Bill deducts in 2013 is $550 ($500 + $50). Turbo tax ez Special Situations This section describes certain special situations that may affect your deduction of points. Turbo tax ez Original issue discount. Turbo tax ez   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. Turbo tax ez This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. Turbo tax ez Amounts charged for services. Turbo tax ez    Amounts charged by the lender for specific services connected to the loan are not interest. Turbo tax ez Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. Turbo tax ez  You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. Turbo tax ez Points paid by the seller. Turbo tax ez   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Turbo tax ez Treatment by seller. Turbo tax ez   The seller cannot deduct these fees as interest. Turbo tax ez But they are a selling expense that reduces the amount realized by the seller. Turbo tax ez See Publication 523 for information on selling your home. Turbo tax ez Treatment by buyer. Turbo tax ez   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. Turbo tax ez If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. Turbo tax ez If any of those tests are not met, the buyer deducts the points over the life of the loan. Turbo tax ez   If you need information about the basis of your home, see Publication 523 or Publication 530. Turbo tax ez Funds provided are less than points. Turbo tax ez   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. Turbo tax ez In addition, you can deduct any points paid by the seller. Turbo tax ez Example 1. Turbo tax ez When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). Turbo tax ez You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. Turbo tax ez Of the $1,000 charged for points, you can deduct $750 in the year paid. Turbo tax ez You spread the remaining $250 over the life of the mortgage. Turbo tax ez Example 2. Turbo tax ez 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. Turbo tax ez In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). Turbo tax ez You spread the remaining $250 over the life of the mortgage. Turbo tax ez You must reduce the basis of your home by the $1,000 paid by the seller. Turbo tax ez Excess points. Turbo tax ez   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. Turbo tax ez You must spread any additional points over the life of the mortgage. Turbo tax ez Mortgage ending early. Turbo tax ez   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. Turbo tax ez However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. Turbo tax ez Instead, deduct the remaining balance over the term of the new loan. Turbo tax ez   A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Turbo tax ez Example. Turbo tax ez Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. Turbo tax ez He deducts $200 points per year. Turbo tax ez Through 2012, Dan has deducted $2,200 of the points. Turbo tax ez Dan prepaid his mortgage in full in 2013. Turbo tax ez He can deduct the remaining $800 of points in 2013. Turbo tax ez Limits on deduction. Turbo tax ez   You cannot fully deduct points paid on a mortgage that exceeds the limits discussed in Part II . Turbo tax ez See the Table 1 Instructions for line 10. Turbo tax ez Form 1098. Turbo tax ez    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. Turbo tax ez See Form 1098, Mortgage Interest Statement , later. Turbo tax ez Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. Turbo tax ez The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006. Turbo tax ez Qualified mortgage insurance. Turbo tax ez   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). Turbo tax ez   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. Turbo tax ez If provided by the Rural Housing Service, it is commonly known as a guarantee fee. Turbo tax ez 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. Turbo tax ez These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. Turbo tax ez Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. Turbo tax ez Special rules for prepaid mortgage insurance. Turbo tax ez   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. Turbo tax ez 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. Turbo tax ez No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. Turbo tax ez This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. Turbo tax ez Example. Turbo tax ez Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. Turbo tax ez Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. Turbo tax ez 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. Turbo tax ez Ryan's adjusted gross income (AGI) for 2012 is $76,000. Turbo tax ez Ryan can deduct $880 ($9,240 ÷ 84 x 8 months) for qualified mortgage insurance premiums in 2012. Turbo tax ez For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 x 12 months) if his AGI is $100,000 or less. Turbo tax ez 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). Turbo tax ez Limit on deduction. Turbo tax ez   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. Turbo tax ez 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. Turbo tax ez If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. Turbo tax ez Form 1098. Turbo tax ez   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. Turbo tax ez See Form 1098, Mortgage Interest Statement, next. Turbo tax ez 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. Turbo tax ez 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. Turbo tax ez A governmental unit is a person for purposes of furnishing the statement. Turbo tax ez The statement for each year should be sent to you by January 31 of the following year. Turbo tax ez A copy of this form will also be sent to the IRS. Turbo tax ez 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. Turbo tax ez However, it should not show any interest that was paid for you by a government agency. Turbo tax ez As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. Turbo tax ez However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. Turbo tax ez See the earlier discussion of Points to determine whether you can deduct points not shown on Form 1098. Turbo tax ez Prepaid interest on Form 1098. Turbo tax ez   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. Turbo tax ez However, you cannot deduct the prepaid amount for January 2014 in 2013. Turbo tax ez (See Prepaid interest , earlier. Turbo tax ez ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. Turbo tax ez You will include the interest for January 2014 with other interest you pay for 2014. Turbo tax ez Refunded interest. Turbo tax ez   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. Turbo tax ez See Refunds of interest , earlier. Turbo tax ez Mortgage insurance premiums. Turbo tax ez   The amount of mortgage insurance premiums you paid during 2013 may be shown in Box 4 of Form 1098. Turbo tax ez See Mortgage Insurance Premiums , earlier. Turbo tax ez How To Report Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. Turbo tax ez 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. Turbo tax ez Attach a statement explaining the difference and print “See attached” next to line 10. Turbo tax ez Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. Turbo tax ez 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. Turbo tax ez The seller must give you this number and you must give the seller your TIN. Turbo tax ez A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Turbo tax ez Failure to meet any of these requirements may result in a $50 penalty for each failure. Turbo tax ez 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. Turbo tax ez 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. Turbo tax ez Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. Turbo tax ez More than one borrower. Turbo tax ez   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. Turbo tax ez Show how much of the interest each of you paid, and give the name and address of the person who received the form. Turbo tax ez Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. Turbo tax ez Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. Turbo tax ez   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. Turbo tax ez Let each of the other borrowers know what his or her share is. Turbo tax ez Mortgage proceeds used for business or investment. Turbo tax ez   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. Turbo tax ez It shows where to deduct the part of your excess interest that is for those activities. Turbo tax ez 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. Turbo tax ez Special Rule for Tenant-Stockholders in Cooperative Housing Corporations A qualified home includes stock in a cooperative housing corporation owned by a tenant-stockholder. Turbo tax ez This applies only if the tenant-stockholder is entitled to live in the house or apartment because of owning stock in the cooperative. Turbo tax ez Cooperative housing corporation. Turbo tax ez   This is a corporation that meets all of the following conditions. Turbo tax ez 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. Turbo tax ez Receives at least 80% of its gross income for the year in which the mortgage interest is paid or incurred from tenant-stockholders. Turbo tax ez For this purpose, gross income is all income received during the entire year, including amounts received before the corporation changed to cooperative ownership. Turbo tax ez 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. Turbo tax ez 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. Turbo tax ez Stock used to secure debt. Turbo tax ez   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). Turbo tax ez 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. Turbo tax ez See chapter 4 of Publication 535 for details on these rules. Turbo tax ez Figuring deductible home mortgage interest. Turbo tax ez   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. Turbo tax ez 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. Turbo tax ez   Figure your share of this interest by multiplying the total by the following fraction. Turbo tax ez      Your shares of stock in the cooperative   The total shares of stock in the cooperative Limits on deduction. Turbo tax ez   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. Turbo tax ez The cooperative should determine your share of its grandfathered debt, its home acquisition debt, and its home equity debt. Turbo tax ez (Your share of each of these types of debt is equal to the average balance of each debt multiplied by the fraction just given. Turbo tax ez ) 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. Turbo tax ez Form 1098. Turbo tax ez    The cooperative should give you a Form 1098 showing your share of the interest. Turbo tax ez Use the rules in this publication to determine your deductible mortgage interest. Turbo tax ez Part II. Turbo tax ez Limits on Home Mortgage Interest Deduction This part of the publication discusses the limits on deductible home mortgage interest. Turbo tax ez 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 . Turbo tax ez 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. Turbo tax ez 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. Turbo tax ez Table 1 can help you figure your qualified loan limit and your deductible home mortgage interest. Turbo tax ez 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). Turbo tax ez It also must be secured by that home. Turbo tax ez 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. Turbo tax ez The additional debt may qualify as home equity debt (discussed later). Turbo tax ez Home acquisition debt limit. Turbo tax ez   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). Turbo tax ez This limit is reduced (but not below zero) by the amount of your grandfathered debt (discussed later). Turbo tax ez Debt over this limit may qualify as home equity debt (also discussed later). Turbo tax ez Refinanced home acquisition debt. Turbo tax ez   Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. Turbo tax ez 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. Turbo tax ez 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). Turbo tax ez Mortgage that qualifies later. Turbo tax ez   A mortgage that does not qualify as home acquisition debt because it does not meet all the requirements may qualify at a later time. Turbo tax ez 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. Turbo tax ez However, if the debt is later secured by the home, it may qualify as home acquisition debt after that time. Turbo tax ez Similarly, a debt that you use to buy property may not qualify because the property is not a qualified home. Turbo tax ez However, if the property later becomes a qualified home, the debt may qualify after that time. Turbo tax ez Mortgage treated as used to buy, build, or improve home. Turbo tax ez   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. Turbo tax ez This applies in the following situations. Turbo tax ez You buy your home within 90 days before or after the date you take out the mortgage. Turbo tax ez 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). Turbo tax ez (See Example 1 later. Turbo tax ez ) You build or improve your home and take out the mortgage before the work is completed. Turbo tax ez The home acquisition debt is limited to the amount of the expenses incurred within 24 months before the date of the mortgage. Turbo tax ez You build or improve your home and take out the mortgage within 90 days after the work is completed. Turbo tax ez 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. Turbo tax ez (See Example 2 later. Turbo tax ez ) Example 1. Turbo tax ez You bought your main home on June 3 for $175,000. Turbo tax ez You paid for the home with cash you got from the sale of your old home. Turbo tax ez On July 15, you took out a mortgage of $150,000 secured by your main home. Turbo tax ez You used the $150,000 to invest in stocks. Turbo tax ez 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. Turbo tax ez The entire mortgage qualifies as home acquisition debt because it was not more than the home's cost. Turbo tax ez Example 2. Turbo tax ez On January 31, John began building a home on the lot that he owned. Turbo tax ez He used $45,000 of his personal funds to build the home. Turbo tax ez The home was completed on October 31. Turbo tax ez On November 21, John took out a $36,000 mortgage that was secured by the home. Turbo tax ez The mortgage can be treated as used to build the home because it was taken out within 90 days after the home was completed. Turbo tax ez 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. Turbo tax ez This is illustrated by Figure C. Turbo tax ez   Please click here for the text description of the image. Turbo tax ez Figure C. Turbo tax ez John's example Date of the mortgage. Turbo tax ez   The date you take out your mortgage is the day the loan proceeds are disbursed. Turbo tax ez This is generally the closing date. Turbo tax ez You can treat the day you apply in writing for your mortgage as the date you take it out. Turbo tax ez However, this applies only if you receive the loan proceeds within a reasonable time (such as within 30 days) after your application is approved. Turbo tax ez If a timely application you make is rejected, a reasonable additional time will be allowed to make a new application. Turbo tax ez Cost of home or improvements. Turbo tax ez   To determine your cost, include amounts paid to acquire any interest in a qualified home or to substantially improve the home. Turbo tax ez   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. Turbo tax ez Substantial improvement. Turbo tax ez   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. Turbo tax ez    Repairs that maintain your home in good condition, such as repainting your home, are not substantial improvements. Turbo tax ez 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. Turbo tax ez Acquiring an interest in a home because of a divorce. Turbo tax ez   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. Turbo tax ez Part of home not a qualified home. Turbo tax ez    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. Turbo tax ez See Divided use of your home under Qualified Home in Part I. Turbo tax ez 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. Turbo tax ez 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. Turbo tax ez 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. Turbo tax ez Example. Turbo tax ez You bought your home for cash 10 years ago. Turbo tax ez 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. Turbo tax ez This loan is home equity debt. Turbo tax ez Home equity debt limit. Turbo tax ez   There is a limit on the amount of debt that can be treated as home equity debt. Turbo tax ez 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. Turbo tax ez 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. Turbo tax ez Example. Turbo tax ez You own one home that you bought in 2000. Turbo tax ez Its FMV now is $110,000, and the current balance on your original mortgage (home acquisition debt) is $95,000. Turbo tax ez Bank M offers you a home mortgage loan of 125% of the FMV of the home less any outstanding mortgages or other liens. Turbo tax ez To consolidate some of your other debts, you take out a $42,500 home mortgage loan [(125% × $110,000) − $95,000] with Bank M. Turbo tax ez Your home equity debt is limited to $15,000. Turbo tax ez 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. Turbo tax ez Debt higher than limit. Turbo tax ez   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. Turbo tax ez But if the proceeds of the loan were used for investment, business, or other deductible purposes, the interest may be deductible. Turbo tax ez If it is, see the Table 1 Instructions for line 13 for an explanation of how to allocate the excess interest. Turbo tax ez Part of home not a qualified home. Turbo tax ez   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. Turbo tax ez See Divided use of your home under Qualified Home in Part I. Turbo tax ez Fair market value (FMV). Turbo tax ez    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. Turbo tax ez 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. Turbo tax ez 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. Turbo tax ez To qualify, it must have been secured by your qualified home on October 13, 1987, and at all times after that date. Turbo tax ez How you used the proceeds does not matter. Turbo tax ez Grandfathered debt is not limited. Turbo tax ez All of the interest you paid on grandfathered debt is fully deductible home mortgage interest. Turbo tax ez 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. Turbo tax ez Refinanced grandfathered debt. Turbo tax ez   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. Turbo tax ez 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). Turbo tax ez The debt must be secured by the qualified home. Turbo tax ez   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. Turbo tax ez After that, you treat it as home acquisition debt or home equity debt, depending on how you used the proceeds. Turbo tax ez Exception. Turbo tax ez   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. Turbo tax ez This term cannot be more than 30 years. Turbo tax ez Example. Turbo tax ez Chester took out a $200,000 first mortgage on his home in 1986. Turbo tax ez The mortgage was a five-year balloon note and the entire balance on the note was due in 1991. Turbo tax ez Chester refinanced the debt in 1991 with a new 20-year mortgage. Turbo tax ez The refinanced debt is treated as grandfathered debt for its entire term (20 years). Turbo tax ez Line-of-credit mortgage. Turbo tax ez    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. Turbo tax ez The balance on the mortgage before you borrowed the additional amounts is grandfathered debt. Turbo tax ez The newly borrowed amounts are not grandfathered debt because the funds were borrowed after October 13, 1987. Turbo tax ez See Average Mortgage Balance in the Table 1 Instructions that follow. Turbo tax ez 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. Turbo tax ez All the mortgages are grandfathered debt. Turbo tax ez The total of the mortgage balances for the entire year is within the limits discussed earlier under Home Acquisition Debt and Home Equity Debt . Turbo tax ez In either of those cases, you do not need Table 1. Turbo tax ez Otherwise, you can use Table 1 to determine your qualified loan limit and deductible home mortgage interest. Turbo tax ez Fill out only one Table 1 for both your main and second home regardless of how many mortgages you have. Turbo tax ez Table 1. Turbo tax ez Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. Turbo tax ez Part I Qualified Loan Limit 1. Turbo tax ez Enter the average balance of all your grandfathered debt. Turbo tax ez See line 1 instructions 1. Turbo tax ez   2. Turbo tax ez Enter the average balance of all your home acquisition debt. Turbo tax ez See line 2 instructions 2. Turbo tax ez   3. Turbo tax ez Enter $1,000,000 ($500,000 if married filing separately) 3. Turbo tax ez   4. Turbo tax ez Enter the larger of the amount on line 1 or the amount on line 3 4. Turbo tax ez   5. Turbo tax ez Add the amounts on lines 1 and 2. Turbo tax ez Enter the total here 5. Turbo tax ez   6. Turbo tax ez Enter the smaller of the amount on line 4 or the amount on line 5 6. Turbo tax ez   7. Turbo tax ez If you have home equity debt, enter the smaller of $100,000 ($50,000 if married filing separately) or your limited amount. Turbo tax ez See the line 7 instructions for the limit which may apply to you. Turbo tax ez 7. Turbo tax ez   8. Turbo tax ez Add the amounts on lines 6 and 7. Turbo tax ez Enter the total. Turbo tax ez This is your qualified loan limit. Turbo tax ez 8. Turbo tax ez   Part II Deductible Home Mortgage Interest 9. Turbo tax ez Enter the total of the average balances of all mortgages on all qualified homes. Turbo tax ez  See line 9 instructions 9. Turbo tax ez     If line 8 is less than line 9, go on to line 10. Turbo tax ez If line 8 is equal to or more than line 9, stop here. Turbo tax ez All of your interest on all the mortgages included on line 9 is deductible as home mortgage interest on Schedule A (Form 1040). Turbo tax ez     10. Turbo tax ez Enter the total amount of interest that you paid. Turbo tax ez See line 10 instructions 10. Turbo tax ez   11. Turbo tax ez Divide the amount on line 8 by the amount on line 9. Turbo tax ez Enter the result as a decimal amount (rounded to three places) 11. Turbo tax ez × . Turbo tax ez 12. Turbo tax ez Multiply the amount on line 10 by the decimal amount on line 11. Turbo tax ez Enter the result. Turbo tax ez This is your deductible home mortgage interest. Turbo tax ez Enter this amount on Schedule A (Form 1040) 12. Turbo tax ez   13. Turbo tax ez Subtract the amount on line 12 from the amount on line 10. Turbo tax ez Enter the result. Turbo tax ez This is not home mortgage interest. Turbo tax ez See line 13 instructions 13. Turbo tax ez   Home equity debt only. Turbo tax ez   If all of your mortgages are home equity debt, do not fill in lines 1 through 5. Turbo tax ez Enter zero on line 6 and complete the rest of Table 1. Turbo tax ez Average Mortgage Balance You have to figure the average balance of each mortgage to determine your qualified loan limit. Turbo tax ez You need these amounts to complete lines 1, 2, and 9 of Table 1. Turbo tax ez You can use the highest mortgage balances during the year, but you may benefit most by using the average balances. Turbo tax ez The following are methods you can use to figure your average mortgage balances. Turbo tax ez However, if a mortgage has more than one category of debt, see Mixed-use mortgages , later, in this section. Turbo tax ez Average of first and last balance method. Turbo tax ez   You can use this method if all the following apply. Turbo tax ez You did not borrow any new amounts on the mortgage during the year. Turbo tax ez (This does not include borrowing the original mortgage amount. Turbo tax ez ) You did not prepay more than one month's principal during the year. Turbo tax ez (This includes prepayment by refinancing your home or by applying proceeds from its sale. Turbo tax ez ) You had to make level payments at fixed equal intervals on at least a semi-annual basis. Turbo tax ez You treat your payments as level even if they were adjusted from time to time because of changes in the interest rate. Turbo tax ez    To figure your average balance, complete the following worksheet. Turbo tax ez    1. Turbo tax ez 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. Turbo tax ez 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. Turbo tax ez Add amounts on lines 1 and 2   4. Turbo tax ez Divide the amount on line 3 by 2. Turbo tax ez Enter the result   Interest paid divided by interest rate method. Turbo tax ez   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. Turbo tax ez    Complete the following worksheet to figure your average balance. Turbo tax ez    1. Turbo tax ez Enter the interest paid in 2013. Turbo tax ez Do not include points, mortgage insurance premiums, or any interest paid in 2013 that is for a year after 2013. Turbo tax ez However, do include interest that is for 2013 but was paid in an earlier year   2. Turbo tax ez Enter the annual interest rate on the mortgage. Turbo tax ez If the interest rate varied in 2013, use the lowest rate for the year   3. Turbo tax ez Divide the amount on line 1 by the amount on line 2. Turbo tax ez Enter the result   Example. Turbo tax ez Mr. Turbo tax ez Blue had a line of credit secured by his main home all year. Turbo tax ez He paid interest of $2,500 on this loan. Turbo tax ez The interest rate on the loan was 9% (. Turbo tax ez 09) all year. Turbo tax ez His average balance using this method is $27,778, figured as follows. Turbo tax ez 1. Turbo tax ez Enter the interest paid in 2013. Turbo tax ez Do not include points, mortgage insurance premiums, or any interest paid in 2013 that is for a year after 2013. Turbo tax ez However, do include interest that is for 2013 but was paid in an earlier year $2,500 2. Turbo tax ez Enter the annual interest rate on the mortgage. Turbo tax ez If the interest rate varied in 2013, use the lowest rate for the year . Turbo tax ez 09 3. Turbo tax ez Divide the amount on line 1 by the amount on line 2. Turbo tax ez Enter the result $27,778 Statements provided by your lender. Turbo tax ez   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. Turbo tax ez You can treat the balance as zero for any month the mortgage was not secured by your qualified home. Turbo tax ez   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. Turbo tax ez   If your lender can give you your average balance for the year, you can use that amount. Turbo tax ez Example. Turbo tax ez Ms. Turbo tax ez Brown had a home equity loan secured by her main home all year. Turbo tax ez She received monthly statements showing her average balance for each month. Turbo tax ez She can figure her average balance for the year by adding her monthly average balances and dividing the total by 12. Turbo tax ez Mixed-use mortgages. Turbo tax ez   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). Turbo tax ez 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). Turbo tax ez   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. Turbo tax ez Do not use the methods described earlier in this section to figure the average balance of either category. Turbo tax ez Instead, for each category, use the following method. Turbo tax ez Figure the balance of that category of debt for each month. Turbo tax ez 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. Turbo tax ez 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. Turbo tax ez Add together the monthly balances figured in (1). Turbo tax ez Divide the result in (2) by 12. Turbo tax ez   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. Turbo tax ez Example 1. Turbo tax ez In 1986, Sharon took out a $1,400,000 mortgage to buy her main home (grandfathered debt). Turbo tax ez 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. Turbo tax ez 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). Turbo tax ez Under the loan agreement, Sharon must make principal payments of $1,000 at the end of each month. Turbo tax ez During 2013, her principal payments on the second mortgage totaled $10,000. Turbo tax ez 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. Turbo tax ez The January and February balances were zero. Turbo tax ez The March through December balances were all $180,000, because none of her principal payments are applied to the home acquisition debt. Turbo tax ez (They are all applied to the home equity debt, reducing it to $10,000 [$20,000 − $10,000]. Turbo tax ez ) The monthly balances of the home acquisition debt total $1,800,000 ($180,000 × 10). Turbo tax ez Therefore, the average balance of the home acquisition debt for 2013 was $150,000 ($1,800,000 ÷ 12). Turbo tax ez Example 2. Turbo tax ez The facts are the same as in Example 1. Turbo tax ez In 2014, Sharon's January through October principal payments on her second mortgage are applied to the home equity debt, reducing it to zero. Turbo tax ez The balance of the home acquisition debt remains $180,000 for each of those months. Turbo tax ez 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). Turbo tax ez The monthly balances total $2,157,000 [($180,000 × 10) + $179,000 + $178,000]. Turbo tax ez Therefore, the average balance of the home acquisition debt for 2014 is $179,750 ($2,157,000 ÷ 12). Turbo tax ez L
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Turbo tax ez Publication 1212 - Introductory Material Table of Contents Future Developments Photographs of Missing Children IntroductionOrdering forms and publications. Turbo tax ez Tax questions. Turbo tax ez Useful Items - You may want to see: Future Developments For the latest information about developments related to Pub. Turbo tax ez 1212, such as legislation enacted after it was published, go to www. Turbo tax ez irs. Turbo tax ez gov/pub1212. Turbo tax ez Photographs of Missing Children The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Turbo tax ez Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Turbo tax ez You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Turbo tax ez Introduction This publication has two purposes. Turbo tax ez Its primary purpose is to help brokers and other middlemen identify publicly offered original issue discount (OID) debt instruments they may hold as nominees for the true owners, so they can file Forms 1099-OID or Forms 1099-INT as required. Turbo tax ez The other purpose of the publication is to help owners of publicly offered OID debt instruments determine how much OID to report on their income tax returns. Turbo tax ez The list of publicly offered OID debt instruments (OID list) is on the IRS website. Turbo tax ez The original issue discount tables, Sections I-A through III-F, are only available on the IRS website at www. Turbo tax ez irs. Turbo tax ez gov/pub1212 by clicking the link under Recent Developments. Turbo tax ez The tables are posted to the website in late November or early December of each year. Turbo tax ez The information on these lists come from the issuers of the debt instruments and from financial publications and is updated annually. Turbo tax ez (However, see Debt Instruments Not on the OID List, later. Turbo tax ez ) Brokers and other middlemen can rely on this list to determine, for information reporting purposes, whether a debt instrument was issued at a discount and the OID to be reported on information returns. Turbo tax ez However, because the information in the list has generally not been verified by the IRS as correct, the following tax matters are subject to change upon examination by the IRS. Turbo tax ez The OID reported by owners of a debt instrument on their income tax returns. Turbo tax ez The issuer's classification of an instrument as debt for federal income tax purposes. Turbo tax ez Instructions for issuers of OID debt instruments. Turbo tax ez   In general, issuers of publicly offered OID debt instruments must, within 30 days after the issue date, report information about the instruments to the IRS on Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments. Turbo tax ez See the form instructions for more information. Turbo tax ez Issuers should report errors in and omissions from the list in writing at the following address:  IRS OID Publication Project SE:W:CAR:MP:T  1111 Constitution Ave. Turbo tax ez NW, IR-6526 Washington, D. Turbo tax ez C. Turbo tax ez 20224 REMIC and CDO information reporting requirements. Turbo tax ez   Brokers and other middlemen must follow special information reporting requirements for real estate mortgage investment conduits (REMIC) regular, and collateralized debt obligations (CDO) interests. Turbo tax ez The rules are explained in Publication 938, Real Estate Mortgage Investment Conduits (REMICs) Reporting Information (And Other Collateralized Debt Obligations (CDOs)). Turbo tax ez   Holders of interests in REMICs and CDOs should see chapter 1 of Publication 550 for information on REMICs and CDOs. Turbo tax ez Comments and suggestions. Turbo tax ez   We welcome your comments about this publication and your suggestions for future editions. Turbo tax ez   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Turbo tax ez NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Turbo tax ez Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Turbo tax ez   You can send your comments from www. Turbo tax ez irs. Turbo tax ez gov/formspubs/. Turbo tax ez Click on “More Information” and then on “Comment on Tax Forms and Publications. Turbo tax ez ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Turbo tax ez Ordering forms and publications. Turbo tax ez   Visit www. Turbo tax ez irs. Turbo tax ez gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Turbo tax ez Internal Revenue Service 1201 N. Turbo tax ez Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Turbo tax ez   If you have a tax question, check the information available on IRS. Turbo tax ez gov or call 1-800-829-1040. Turbo tax ez We cannot answer tax questions sent to any of the preceding addresses. Turbo tax ez Useful Items - You may want to see: Publication 515 Withholding of Tax on Nonresident Aliens and Foreign Entities 550 Investment Income and Expenses 938 Real Estate Mortgage Investment Conduits (REMICs) Reporting Information (And Other Collateralized Debt Obligations (CDOs)). Turbo tax ez Form (and Instructions) 1096 Annual Summary and Transmittal of U. Turbo tax ez S. Turbo tax ez Information Returns 1099-B Proceeds From Broker and Barter Exchange Transactions 1099-INT Interest Income 1099-OID Original Issue Discount 8949 Sales and Other Dispositions of Capital Assets Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends Schedule D (Form 1040) Capital Gains and Losses W-8 Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY See How To Get Tax Help near the end of this publication for information about getting publications and forms. Turbo tax ez Prev  Up  Next   Home   More Online Publications