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Mortgage and Taxes
Publication 936 -
Main Contents |
Part I. Home Mortgage Interest
This part explains what you can
deduct as home mortgage interest. It includes discussions on
points and on how to report deductible interest on your tax
return.
Generally, home mortgage
interest is any interest you pay on a loan secured by your home
(main home or a second home). The loan may be a mortgage to buy
your home, a second mortgage, a line of credit, or a home equity
loan.
You can deduct home mortgage
interest only if you meet all the following conditions.
- You must file Form
1040 and itemize deductions on Schedule A (Form 1040).
- You must be legally
liable for the loan. You cannot deduct payments you make
for someone else if you are not legally liable to make
them. Both you and the lender must intend that the loan
be repaid. In addition, there must be a true
debtor-creditor relationship between you and the lender.
- The mortgage must be a
secured debt on a qualified home. “Secured
debt” and “qualified home”
are explained later.
Fully
deductible interest.
In most cases, you will be able to deduct all of your home
mortgage interest. Whether it is all deductible depends on
the date you took out the mortgage, the amount of the
mortgage, and your use of its proceeds.
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. (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.) 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.
The three categories are as
follows.
- Mortgages you took
out on or before October 13, 1987 (called
grandfathered debt).
- Mortgages you took
out after October 13, 1987, to buy, build, or
improve your home (called
home acquisition debt), but only if
throughout 2003 these mortgages plus any
grandfathered debt totaled $1 million or less
($500,000 or less if married filing separately).
- 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 2003 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).
The dollar limits for the
second and third categories apply to the combined mortgages
on your main home and second home.
See
Part II for more detailed definitions of
grandfathered, home acquisition, and home equity debt.
You can use
Figure A to check
whether your home mortgage interest is fully deductible.
You can deduct your home
mortgage interest only if your mortgage is a secured debt. 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.
In other words, your
mortgage is a secured debt if you put your home up as
collateral to protect the interests of the lender. If you
cannot pay the debt, your home can then serve as payment to
the lender to satisfy (pay) the debt. In this publication,
mortgage will refer to
secured debt.
Debt not
secured by home.
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).
A debt is not secured by
your home if it once was, but is no longer secured by
your home.
Wraparound mortgage.
This is not a secured debt unless it is recorded or
otherwise perfected under state law.
Example.
Beth owns a home
subject to a mortgage of $40,000. She sells the home
for $100,000 to John, who takes it subject to the
$40,000 mortgage. Beth continues to make the
payments on the $40,000 note. John pays $10,000 down
and gives Beth a $90,000 note secured by a
wraparound mortgage on the home. Beth does not
record or otherwise perfect the $90,000 mortgage
under the state law that applies. Therefore, that
mortgage is not a secured debt, and the interest
John pays on it is not deductible as home mortgage
interest.
Choice to
treat the debt as not secured by your home. You
can choose to treat any debt secured by your qualified
home as not secured by the home. This treatment begins
with the tax year for which you make the choice and
continues for all later tax years. You may revoke your
choice only with the consent of the Internal Revenue
Service (IRS).
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. This may allow you, if the limits in
Part II apply to
you, more of a deduction for interest on other debts
that are deductible only as home mortgage interest.
Cooperative apartment owner. 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.
For you to take a home
mortgage interest deduction, your debt must be secured by a
qualified home. This means your main home or your second
home. A home includes a house, condominium, cooperative,
mobile home, house trailer, boat, or similar property that
has sleeping, cooking, and toilet facilities.
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.
Otherwise, it is considered personal interest and is not
deductible.
Main
home.
You can have only one main home at any one time. This
is the home where you ordinarily live most of the time.
Second
home.
A second home is a home that you choose to treat as
your second home.
Second home not rented out. 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. You do not have to use the home
during the year.
Second home rented out.
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. 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. If you do not use the home
long enough, it is considered rental property and not a
second home. For information on residential rental
property, see Publication 527.
More
than one second home. If you have more than
one second home, you can treat only one as the qualified
second home during any year. However, you can change the
home you treat as a second home during the year in the
following three situations.
- 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.
- 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.
- 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.
Divided
use of your home.
The only part of your home that is considered a
qualified home is the part you use for residential
living. 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. 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.
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. (See
Home Acquisition Debt
in Part II.)
Dividing the fair market value may affect your home
equity debt limit, also explained in
Part II.
Renting out part of home.
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 three of
the following conditions apply.
- The rented
part of your home is used by the tenant
primarily for residential living.
- The rented
part of your home is not a self-contained
residential unit having separate sleeping,
cooking, and toilet facilities.
- 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. If two
persons (and dependents of either) share the
same sleeping quarters, they are treated as one
tenant.
Office in home.
If you have an office in your home that you use in
your business, see Publication 587,
Business Use of Your Home. It explains how
to figure your deduction for the business use of your
home, which includes the business part of your home
mortgage interest.
Home
under construction.
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.
The 24-month period can
start any time on or after the day construction begins.
Home
destroyed.
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. This
means you can continue to deduct the interest you pay on
your home mortgage, subject to the limits described in
this publication.
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.
This rule applies to
your main home and to a second home that you treat as a
qualified home.
Time-sharing arrangements.
You can treat a home you own under a time-sharing plan
as a qualified home if it meets all the requirements. 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.
Rental of time-share.
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. See Second home rented
out, earlier, for the use requirement. 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.
Married
taxpayers.
If you are married and file a joint return, your
qualified home(s) can be owned either jointly or by only
one spouse.
Separate returns. 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. However, if you both consent in writing,
then one spouse can take both the main home and a second
home into account.
This section describes
certain items that can be included as home mortgage interest
and others that cannot. It also describes certain special
situations that may affect your deduction.
Late
payment charge on mortgage payment.
You can deduct as home mortgage interest a late
payment charge if it was not for a specific service in
connection with your mortgage loan.
Mortgage
prepayment penalty.
If you pay off your home mortgage early, you may have
to pay a penalty. 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.
Sale of
home.
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.
Example.
John and Peggy
Harris sold their home on May 7. Through April 30,
they made home mortgage interest payments of $1,220.
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. Their mortgage
interest deduction is $1,270 ($1,220 + $50).
Prepaid
interest.
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. You can
deduct in each year only the interest that qualifies as
home mortgage interest for that year. However, there is
an exception that applies to points, discussed later.
Mortgage
interest credit.
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. Figure the credit on
Form 8396,
Mortgage Interest Credit. If you take
this credit, you must reduce your mortgage interest
deduction by the amount of the credit.
See Form 8396 and
Publication 530 for more information on the mortgage
interest credit.
Ministers' and military housing allowance.
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.
Mortgage
assistance payments.
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. You cannot deduct the
interest that is paid for you.
No
other effect on taxes. Do not include these
mortgage assistance payments in your income. Also, do
not use these payments to reduce other deductions, such
as real estate taxes.
Divorced
or separated individuals.
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. See the discussion of
Payments for jointly-owned
home under
Alimony in Publication 504,
Divorced or Separated
Individuals.
Redeemable ground rents.
In some states (such as Maryland), you may buy your
home subject to a ground rent. A ground rent is an
obligation you assume to pay a fixed amount per year on
the property. Under this arrangement, you are leasing
(rather than buying) the land on which your home is
located.
If you make annual or
periodic rental payments on a redeemable ground rent,
you can deduct them as mortgage interest.
A ground rent is a
redeemable ground rent if all of the following are true.
- Your lease,
including renewal periods, is for more than 15
years.
- You can freely
assign the lease.
- 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.
- The lessor's
interest in the land is primarily a security
interest to protect the rental payments to which
he or she is entitled.
Payments made to end the
lease and to buy the lessor's entire interest in the
land are not ground rents. You cannot deduct them.
Nonredeemable ground rent.
Payments on a nonredeemable ground rent are not
mortgage interest. You can deduct them as rent if they
are a business expense or if they are for rental
property.
Rental
payments.
If you live in a house before final settlement on the
purchase, any payments you make for that period are rent
and not interest. This is true even if the settlement
papers call them interest. You cannot deduct these
payments as home mortgage interest.
Mortgage
proceeds invested in tax-exempt securities.
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. Grandfathered
debt and home equity debt are defined in
Part II of this
publication.
Refunds
of interest.
If you receive a refund of interest in the same year
you paid it, you must reduce your interest expense by
the amount refunded to you. 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. However, you need to include it only up to
the amount of the deduction that reduced your tax in the
earlier year. This is true whether the interest
overcharge was refunded to you or was used to reduce the
outstanding principal on your mortgage. If you need to
include the refund in income, report it on line 21, Form
1040.
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. For information
about Form 1098, see Mortgage
Interest Statement, later.
For more information on
how to treat refunds of interest deducted in earlier
years, see Recoveries
in Publication 525,
Taxable and Nontaxable Income.
Cooperative apartment owner.
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. The patronage dividend is a
partial refund to the cooperative housing corporation of
mortgage interest it paid in a prior year.
If you receive a Form
1098 from the cooperative housing corporation, the form
should show only the amount you can deduct.
The term “points”
is used to describe certain charges paid, or treated as
paid, by a borrower to obtain a home mortgage. Points may
also be called loan origination fees, maximum loan charges,
loan discount, or discount points.
A borrower is treated as
paying any points that a home seller pays for the borrower's
mortgage. See Points paid by the
seller, later.
General
rule.
You generally cannot deduct the full amount of points
in the year paid. Because they are prepaid interest, you
generally must deduct them over the life (term) of the
mortgage.
Exception.
You can fully deduct points in the year paid if you
meet all the following tests. (You can use
Figure B as a
quick guide to see whether your points are fully
deductible in the year paid.)
- Your loan is
secured by your main home. (Your main home is
the one you ordinarily live in most of the
time.)
- Paying points
is an established business practice in the area
where the loan was made.
- The points
paid were not more than the points generally
charged in that area.
- You use the
cash method of accounting. This means you report
income in the year you receive it and deduct
expenses in the year you pay them. Most
individuals use this method.
- 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.
- The funds you
provided at or before closing, plus any points
the seller paid, were at least as much as the
points charged. The funds you provided do not
have to have been applied to the points. They
can include a down payment, an escrow deposit,
earnest money, and other funds you paid at or
before closing for any purpose. You cannot have
borrowed these funds from your lender or
mortgage broker.
- You use your
loan to buy or build your main home.
- The points
were computed as a percentage of the principal
amount of the mortgage.
- The amount is
clearly shown on the settlement statement (such
as the Uniform Settlement Statement, Form HUD-1)
as points charged for the mortgage. The points
may be shown as paid from either your funds or
the seller's.
Note.
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.
Home
improvement loan.
You can also fully deduct in the year paid points paid
on a loan to improve your main home, if tests (1)
through (6) above are met.
Second home.
The Exception does not apply
to points you pay on loans secured by your second home. You
can deduct these points only over the life of the loan.
Exception does not apply. If you do not
qualify under the exception, or choose not, to deduct
the full amount of points in the year paid, see
Points in chapter
5 of Publication 535 for the rules on when and how much
you can deduct. However, if the points relate to
refinancing a home mortgage, see
Refinancing, later.
Amounts
charged for services.
Amounts charged by the lender for specific services
connected to the loan are not interest. Examples of
these charges are:
- Appraisal
fees,
- Notary fees,
- Preparation
costs for the mortgage note or deed of trust,
- Mortgage
insurance premiums, and
- VA funding
fees.
You cannot deduct these
amounts as points either in the year paid or over the
life of the mortgage. For information about the tax
treatment of these amounts and other settlement fees and
closing costs, get Publication 530.
Points
paid by the seller.
The term “points” includes
loan placement fees that the seller pays to the lender
to arrange financing for the buyer.
Treatment by seller. The seller
cannot deduct these
fees as interest. But they are a selling expense that
reduces the amount realized by the seller. See
Publication 523 for information on selling your home.
Treatment by buyer. 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. If all the tests under the
Exception, earlier, are met, the buyer
can deduct the points in the year paid. If any of those
tests is not met, the buyer deducts the points over the
life of the loan.
If you need information
about the basis of your home, see Publication 523 or
Publication 530.
Funds
provided are less than points.
If you meet all the tests in the
Exception,
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. In addition, you can deduct any
points paid by the seller.
Example 1.
When you took out a
$100,000 mortgage loan to buy your home in December,
you were charged one point ($1,000). You meet all
the tests for deducting points in the year paid,
except the only funds you provided were a $750 down
payment. Of the $1,000 charged for points, you can
deduct $750 in the year paid. You spread the
remaining $250 over the life of the mortgage.
Example 2.
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. In the year paid, you can deduct
$1,750 ($750 of the amount you were charged plus the
$1,000 paid by the seller). You spread the remaining
$250 over the life of the mortgage. You must reduce
the basis of your home by the $1,000 paid by the
seller.
Excess
points.
If you meet all the tests in the
Exception,
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. You must spread any additional points over the
life of the mortgage.
Mortgage
ending early.
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. However, if you refinance
the mortgage with the same lender, you cannot deduct any
remaining balance of spread points. Instead, deduct the
remaining balance over the term of the new loan.
A mortgage may end early
due to a prepayment, refinancing, foreclosure, or
similar event.
Example.
Dan paid $3,000 in
points in 1993 that he had to spread out over the
15-year life of the mortgage. He had deducted $2,000
of these points through 2002.
Dan prepaid his
mortgage in full in 2003. He can deduct the
remaining $1,000 of points in 2003.
Refinancing.
Generally, points you pay to refinance a mortgage are
not deductible in full in the year you pay them. This is
true even if the new mortgage is secured by your main
home.
However, if you use part
of the refinanced mortgage proceeds to
improve your main home
and you meet the first 6 tests listed under
Exception,
earlier, you can fully deduct the part of the points
related to the improvement in the year you paid them
with your own funds. You can deduct the rest of the
points over the life of the loan.
Example 1.
In 1991, Bill
Fields got a mortgage to buy a home. In 2003, Bill
refinanced that mortgage with a 15-year $100,000
mortgage loan. The mortgage is secured by his home.
To get the new loan, he had to pay three points
($3,000). 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. Bill
paid the points out of his private funds, rather
than out of the proceeds of the new loan. The
payment of points is an established practice in the
area, and the points charged are not more than the
amount generally charged there. Bill's first payment
on the new loan was due July 1. He made six payments
on the loan in 2003 and is a cash basis taxpayer.
Bill used the funds
from the new mortgage to repay his existing
mortgage. 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. He
cannot deduct all of the points in 2003. He can
deduct two points ($2,000) ratably over the life of
the loan. He deducts $67 [($2,000 ÷ 180 months) × 6
payments] of the points in 2003. The other point
($1,000) was a fee for services and is not
deductible.
Example 2.
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. Bill deducts 25% ($25,000 ÷ $100,000) of
the points ($2,000) in 2003. His deduction is $500
($2,000 × 25%).
Bill also deducts
the ratable part of the remaining $1,500 ($2,000 -
$500) that must be spread over the life of the loan.
This is $50 [($1,500 ÷ 180 months) × 6 payments] in
2003. The total amount Bill deducts in 2003 is $550
($500 + $50).
Limits on
deduction. You cannot fully deduct points paid on
a mortgage that exceeds the limits discussed in
Part II. See the
Table 1 Instructions
for line 10.
Form
1098.
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.
See Mortgage Interest
Statement, next.
If you paid $600 or more of
mortgage interest (including certain points) during the year
on any one mortgage, you generally will receive a
Form 1098,
Mortgage Interest Statement, or a similar
statement from the mortgage holder. 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. A
governmental unit is a person for purposes of furnishing the
statement.
The statement for each year
should be sent to you by January 31 of the following year. A
copy of this form will also be sent to the IRS.
The statement will show the
total interest you paid during the year. If you purchased a
main home during the year, it also will show the deductible
points paid during the year, including seller-paid points.
However, it should not show any interest that was paid for
you by a government agency.
As a general rule, Form
1098 will include only points that you can fully deduct in
the year paid. However, certain points not included on Form
1098 also may be deductible, either in the year paid or over
the life of the loan. See the earlier discussion of
Points to determine
whether you can deduct points not shown on Form 1098.
Prepaid
interest on Form 1098.
If you prepaid interest in 2003 that accrued in full
by January 15, 2004, this prepaid interest may be
included in box 1 of Form 1098. However, you cannot
deduct the prepaid amount for January 2004 in 2003. (See
Prepaid interest,
earlier.) You will have to figure the interest
that accrued for 2004 and subtract it from the amount in
box 1. You will include the interest for January 2004
with other interest you pay for 2004.
Refunded
interest.
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. See
Refunds of interest
under Special Situations,
earlier.
Deduct the home mortgage
interest and points reported to you on Form 1098 on line 10,
Schedule A (Form 1040). 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. Attach a
statement explaining the difference and print “See
attached” next to line 10.
Deduct home mortgage
interest that was not
reported to you on Form 1098 on line 11 of Schedule A (Form
1040). If you paid home mortgage interest to the person from
whom you bought your home, show that person's name, address,
and social security number (SSN) or employer identification
number (EIN) on the dotted lines next to line 11. The seller
must give you this number and you must give the seller your
SSN. A Form W–9, Request for
Taxpayer Identification Number and Certification,
can be used for this purpose. Failure to meet any of
these requirements may result in a $50 penalty for each
failure.
If you can take a deduction
for points that were not
reported to you on Form 1098, deduct those points on line 12
of Schedule A (Form 1040).
More than
one borrower.
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. Show how much
of the interest each of you paid, and give the name and
address of the person who received the form. Deduct your
share of the interest on line 11 of Schedule A (Form
1040), and print “See attached”
next to the line.
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 line 10 of Schedule A (Form
1040). You should let each of the other borrowers know
what his or her share is.
Mortgage
proceeds used for business or investment.
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. It
shows where to deduct the part of your excess interest
that is for those activities. 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.
Special Rule for
Tenant-Stockholders in Cooperative Housing
Corporations
A qualified home includes
stock in a cooperative housing corporation owned by a
tenant-stockholder. This applies only if the
tenant-stockholder is entitled to live in the house or
apartment because of owning stock in the cooperative.
Cooperative housing corporation.
This is a corporation that meets all of the following
conditions.
- The
corporation has only one class of stock
outstanding.
- Each of the
stockholders, only because of owning the stock,
can live in a house, apartment, or house trailer
owned or leased by the corporation.
- No stockholder
can receive any distribution out of capital,
except on a partial or complete liquidation of
the corporation.
- The
tenant-stockholders must pay at least 80% of the
corporation's gross income for the tax year. For
this purpose, gross income means all income
received during the entire tax year, including
any received before the corporation changed to
cooperative ownership.
Stock
used to secure debt.
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).
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. See chapter 5 of Publication 535 for
details on these rules.
Figuring
deductible home mortgage interest.
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. 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.
Figure your share of
this interest by multiplying the total by the following
fraction.
Limits on deduction. 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. The
cooperative should determine your share of its
grandfathered debt, its home acquisition debt, and its
home equity debt. (Your share of each of these types of
debt is equal to the average balance of each debt
multiplied by the fraction just given.) 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.
Form
1098.
The cooperative should give you a Form 1098 showing
your share of the interest. Use the rules in this
publication to determine your deductible mortgage
interest.
Part II. Limits on Home
Mortgage Interest Deduction
This part of the publication
discusses the limits on deductible home mortgage interest. 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.
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.
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.
Table 1 can help you figure your qualified loan
limit and your deductible home mortgage interest.
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). It also must be secured by that home.
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. The additional debt may qualify as
home equity debt (discussed later).
Home
acquisition debt limit.
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). This limit is reduced (but not below
zero) by the amount of your grandfathered debt
(discussed later). Debt over this limit may qualify as
home equity debt (also discussed later).
Refinanced home acquisition debt.
Any secured debt you use to refinance home acquisition
debt is treated as home acquisition debt. 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. Any additional
debt is not home acquisition debt, but may qualify as
home equity debt (discussed later).
Mortgage
that qualifies later.
A mortgage that does not qualify as home acquisition
debt because it does not meet all the requirements may
qualify at a later time. 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. However, if
the debt is later secured by the home, it may qualify as
home acquisition debt after that time. Similarly, a debt
that you use to buy property may not qualify because the
property is not a qualified home. However, if the
property later becomes a qualified home, the debt may
qualify after that time.
Mortgage
treated as used to buy, build, or improve home.
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. This applies in the following situations.
- You buy your
home within 90 days before or after the date you
take out the mortgage. 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). (See
Example 1.)
- You build or
improve your home and take out the mortgage
before the work is completed. The home
acquisition debt is limited to the amount of the
expenses incurred within 24 months before the
date of the mortgage.
- You build or
improve your home and take out the mortgage
within 90 days after the work is completed. 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. (See
Example 2.)
Example 1.
You bought your
main home on June 3 for $175,000. You paid for the
home with cash you got from the sale of your old
home. On July 15, you took out a mortgage of
$150,000 secured by your main home. You used the
$150,000 to invest in stocks. 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. The entire mortgage qualifies as home
acquisition debt because it was not more than the
home's cost.
Example 2.
On January 31, John
began building a home on the lot that he owned. He
used $45,000 of his personal funds to build the
home. The home was completed on October 31. On
November 21, John took out a $36,000 mortgage that
was secured by the home. The mortgage can be treated
as used to build the home because it was taken out
within 90 days after the home was completed. 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. This is illustrated by
Figure C.
Date
of the mortgage.
The date you take out your mortgage is the day the
loan proceeds are disbursed. This is generally the
closing date. You can treat the day you apply in writing
for your mortgage as the date you take it out. However,
this applies only if you receive the loan proceeds
within a reasonable time (such as within 30 days) after
your application is approved. If a timely application
you make is rejected, a reasonable additional time will
be allowed to make a new application.
Cost of
home or improvements.
To determine your cost, include amounts paid to
acquire any interest in a qualified home or to
substantially improve the home.
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.
Substantial improvement.
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.
Repairs that maintain
your home in good condition, such as repainting your
home, are not substantial improvements. 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.
Acquiring an interest in a home because of a divorce.
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.
Part
of home not a qualified home.
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. See
Divided use of your home under
Qualified Home in
Part I.
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. 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.
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.
Example.
You bought your home
for cash 10 years ago. You did not have a mortgage on
your home until last year, when you took out a $20,000
loan, secured by your home, to pay for your daughter's
college tuition and your father's medical bills. This
loan is home equity debt.
Home
equity debt limit.
There is a limit on the amount of debt that can be
treated as home equity debt. 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.
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.
Example.
You own one home
that you bought in 1998. Its FMV now is $110,000,
and the current balance on your original mortgage
(home acquisition debt) is $95,000. Bank M offers
you a home mortgage loan of 125% of the FMV of the
home less any outstanding mortgages or other liens.
To consolidate some of your other debts, you take
out a $42,500 home mortgage loan [(125% × $110,000)
- $95,000] with Bank M.
Your home equity
debt is limited to $15,000. 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.
Debt
higher than limit.
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. But if the proceeds of
the loan were used for investment, business, or other
deductible purposes, the interest may be deductible. If
it is, see the Table 1
Instructions for line 13 for an explanation
of how to allocate the excess interest.
Part
of home not a qualified home.
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. See Divided use of your
home under
Qualified Home in
Part I.
Fair
market value (FMV).
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. 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.
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. To
qualify, it must have been secured by your qualified home on
October 13, 1987, and at all times after that date. How you
used the proceeds does not matter.
Grandfathered debt is not
limited. All of the interest you paid on grandfathered debt
is fully deductible home mortgage interest. 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.
Refinanced grandfathered debt.
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. 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). The debt must be secured by
the qualified home.
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. After that, you treat it as home
acquisition debt or home equity debt, depending on how
you used the proceeds.
Exception. 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. This term cannot be more than 30
years.
Example.
Chester took out a
$200,000 first mortgage on his home in 1985. The
mortgage was a five-year balloon note and the entire
balance on the note was due in 1990. Chester
refinanced the debt in 1990 with a new 20-year
mortgage. The refinanced debt is treated as
grandfathered debt for its entire term (20 years).
Line-of-credit mortgage.
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. The balance on the mortgage
before you borrowed the additional amounts is
grandfathered debt. The newly borrowed amounts are not
grandfathered debt because the funds were borrowed after
October 13, 1987. See
Mixed-use mortgages under
Average Mortgage Balance
in the Table 1
Instructions that follow.
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.
- All the mortgages
are grandfathered debt.
- The total of the
mortgage balances for the entire year is within the
limits discussed earlier under
Home Acquisition Debt
and Home
Equity Debt.
In either of those cases,
you do not need Table 1.
Otherwise, you may use
Table 1 to determine your qualified loan limit
and deductible home mortgage interest.
Fill out only one Table
1 for both your main and second home regardless of how many
mortgages you have.
Table 1. Worksheet To Figure Your
Qualified Loan Limit and Deductible Home Mortgage
Interest For the Current Year See the
Table 1 Instructions.
|
Part I
Qualified Loan Limit |
|
1. |
Enter the
average balance of all your grandfathered
debt. See line 1 instructions |
1. |
|
|
2. |
Enter the
average balance of all your home acquisition
debt. See line 2 instructions |
2. |
|
|
3. |
Enter
$1,000,000 ($500,000 if married filing
separately) |
3. |
|
|
4. |
Enter the
larger of
the amount on line 1 or the amount on line 3
|
4. |
|
|
5. |
Add the
amounts on lines 1 and 2. Enter the total
here |
5. |
|
|
6. |
Enter the
smaller of
the amount on line 4 or the amount on line 5
|
6. |
|
|
7. |
Enter $100,000
($50,000 if married filing separately).
See the line 7 instructions for a limit that
may apply |
7. |
|
|
8. |
Add the
amounts on lines 6 and 7. Enter the total.
This is your qualified loan limit |
8. |
|
|
Part II
Deductible Home Mortgage Interest
|
|
9. |
Enter the
total of the average balances of all
mortgages on all qualified homes.
See line 9 instructions |
9. |
|
|
|
-
If
line 8 is less than line 9, go on to
line 10.
-
If
line 8 is equal to or more than line
9, stop here. All of your interest
on all the mortgages included on
line 9 is deductible as home
mortgage
interest on Schedule A (Form 1040).
|
|
|
|
10. |
Enter the
total amount of interest that you paid. See
line 10 instructions |
10. |
|
|
11. |
Divide the
amount on line 8 by the amount on line 9.
Enter the result as a decimal amount
(rounded to three places) |
11. |
× . |
|
12. |
Multiply the
amount on line 10 by the decimal amount on
line 11.
Enter the result. This is your
deductible home
mortgage interest.
Enter this amount on Schedule A (Form 1040)
|
12. |
|
|
13. |
Subtract the
amount on line 12 from the amount on line
10. Enter the result.
This is not
home mortgage interest. See line 13
instructions |
13. |
|
Home
equity debt only.
If all of your mortgages are home equity debt, do not
fill in lines 1 through 5. Enter zero on line 6 and
complete the rest of Table 1.
You have to figure the
average balance of each mortgage to determine your
qualified loan limit. You need these amounts to complete
lines 1, 2, and 9 of Table 1.
You can use the highest mortgage balances during the
year, but you may benefit most by using the average
balances. The following are methods you can use to
figure your average mortgage balances. However, if a
mortgage has more than one category of debt, see
Mixed-use mortgages,
later, in this section.
Average of first and last balance method. You
can use this method if all the following apply.
-
You did
not borrow any new amounts on the mortgage
during the year. (This does not include
borrowing the original mortgage amount.)
-
You did
not prepay more than one month's principal
during the year. (This includes prepayment
by refinancing your home or by applying
proceeds from its sale.)
-
You had to
make level payments at fixed equal intervals
on at least a semi-annual basis. You treat
your payments as level even if they were
adjusted from time to time because of
changes in the interest rate.
To figure your
average balance, complete the following worksheet.
|
1. |
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. |
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. |
Add
amounts on lines 1 and 2 |
|
|
4. |
Divide the
amount on line 3 by 2. Enter the result |
|
Interest paid divided by interest rate method.
You can use this method if at all times in 2003
the mortgage was secured by your qualified home and
the interest was paid at least monthly.
Complete the
following worksheet to figure your average balance.
|
1. |
Enter the
interest paid in 2003. Do not include
points or any other interest paid in
2003 that is for a year after 2003.
However, do include interest that is for
2003 but was paid in an earlier year
|
|
|
2. |
Enter the
annual interest rate on the mortgage. If
the interest rate varied in 2003, use
the lowest rate for the year
|
|
|
3. |
Divide the
amount on line 1 by the amount on line
2. Enter the result |
|
Example.
Mr. Blue had a
line of credit secured by his main home all
year. He paid interest of $2,500 on this loan.
The interest rate on the loan was 9% (.09) all
year. His average balance using this method is
$27,778, figured as follows.
|
1. |
Enter
the interest paid in 2003. Do not
include points or any other interest
paid in 2003 that is for a year
after 2003. However, do include
interest that is for 2003 but was
paid in an earlier year |
$2,500 |
|
2. |
Enter
the annual interest rate on the
mortgage. If the interest rate
varied in 2003, use the lowest rate
for the year |
.09 |
|
3. |
Divide
the amount on line 1 by the amount
on line 2. Enter the result |
$27,778 |
Statements provided by your lender. 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. You can treat the balance as zero for any
month the mortgage was not secured by your qualified
home.
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.
If your lender can
give you your average balance for the year, you can
use that amount.
Example.
Ms. Brown had a
home equity loan secured by her main home all
year. She received monthly statements showing
her average balance for each month. She may
figure her average balance for the year by
adding her monthly average balances and dividing
the total by 12.
Mixed-use mortgages.
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). 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).
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. Do not use the methods described
earlier in this section to figure the average
balance of either category. Instead, for each
category, use the following method.
-
Figure the
balance of that category of debt for each
month. 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.
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.
-
Add
together the monthly balances figured in
(1).
-
Divide the
result in (2) by 12.
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.
Example 1.
In 1986, Sharon
took out a $1,400,000 mortgage to buy her main
home (grandfathered debt). On March 2, 2003,
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. 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). Under the loan
agreement, Sharon must make principal payments
of $1,000 at the end of each month. During 2003,
her principal payments on the second mortgage
totaled $10,000.
To complete
line 2 of Table 1,
Sharon must figure a separate average balance
for the part of her second mortgage that is home
acquisition debt. The January and February
balances were zero. The March through December
balances were all $180,000, because none of her
principal payments are applied to the home
acquisition debt. (They are all applied to the
home equity debt, reducing it to $10,000
[$20,000 - $10,000].) The monthly balances of
the home acquisition debt total $1,800,000
($180,000 × 10). Therefore, the average balance
of the home acquisition debt for 2003 was
$150,000 ($1,800,000 ÷ 12).
Example 2.
The facts are
the same as in
Example 1. In 2004, Sharon's January
through October principal payments on her second
mortgage are applied to the home equity debt,
reducing it to zero. The balance of the home
acquisition debt remains $180,000 for each of
those months. 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). The
monthly balances total $2,157,000 [($180,000 ×
10) + $179,000 + $178,000]. Therefore, the
average balance of the home acquisition debt for
2004 is $179,750 ($2,157,000 ÷ 12).
Figure the average
balance for the current year of each mortgage you had on
all qualified homes on October 13, 1987 (grandfathered
debt). Add the results together and enter the total on
line 1. Include the average balance for the current year
for any grandfathered debt part of a mixed-use mortgage.
Figure the average
balance for the current year of each mortgage you took
out on all qualified homes after October 13, 1987, to
buy, build, or substantially improve the home (home
acquisition debt). Add the results together and enter
the total on line 2. Include the average balance for the
current year for any home acquisition debt part of a
mixed-use mortgage.
The amount on line 7
cannot be more than 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.
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.
See
Home equity debt limit
under Home Equity
Debt, earlier, for more information about
fair market value.
Figure the average
balance for the current year of each outstanding home
mortgage. Add the average balances together and enter
the total on line 9. See
Average Mortgage Balance, earlier.
Note. When figuring the
average balance of a mixed-use mortgage, for line 9
determine the average balance of the entire mortgage.
If you make payments to
a financial institution, or to a person whose business
is making loans, you should get Form 1098 or a similar
statement from the lender. This form will show the
amount of interest to enter on line 10. Also include on
this line any other interest payments made on debts
secured by a qualified home for which you did not
receive a Form 1098. Do not include points on this line.
Claiming your deductible points.
Figure your deductible points as follows.
-
Figure
your deductible points for the current year
using the rules explained under
Points
in Part I.
-
Multiply
the amount in item (1) by the decimal amount
on line 11. Enter the result on Schedule A
(Form 1040), line 10 or 12, whichever
applies. This amount is fully deductible.
-
Subtract
the result in item (2) from the amount in
item (1). This amount is not deductible as
home mortgage interest. However, if you used
any of the loan proceeds for business or
investment activities, see the instructions
for line 13, next.
You
cannot deduct the
amount of interest on line 13 as home mortgage interest.
If you did not use any of the proceeds of any mortgage
included on line 9 of the worksheet for business,
investment, or other deductible activities, then all the
interest on line 13 is personal interest. Personal
interest is not deductible.
If you did use all or
part of any mortgage proceeds for business, investment,
or other deductible activities, the part of the interest
on line 13 that is allocable to those activities may be
deducted as business, investment, or other deductible
expense, subject to any limits that apply.
Table 2 shows
where to deduct that interest. See
Allocation of Interest
in chapter 5 of Publication 535 for an
explanation of how to determine the use of loan
proceeds.
The following two rules
describe how to allocate the interest on line 13 to a
business or investment activity.
- If you used
all of the proceeds of the mortgages on line 9
for one activity, then all the interest on line
13 is allocated to that activity. In this case,
deduct the interest on the form or schedule to
which it applies.
- If you used
the proceeds of the mortgages on line 9 for more
than one activity, then you can allocate the
interest on line 13 among the activities in any
manner you select (up to the total amount of
interest otherwise allocable to each activity,
explained next).
You figure the “total
amount of interest otherwise allocable to each activity”
by multiplying the amount on line 10 by the following
fraction.
Example.
Don had two
mortgages (A and B) on his main home during the
entire year. Mortgage A had an average balance of
$90,000, and mortgage B had an average balance of
$110,000.
Don determines that
the proceeds of mortgage A are allocable to personal
expenses for the entire year. The proceeds of
mortgage B are allocable to his business for the
entire year. Don paid $14,000 of interest on
mortgage A and $16,000 of interest on mortgage B. He
figures the amount of home mortgage interest he can
deduct by using Table 1.
Since both mortgages are home equity
debt, Don determines that $15,000 of the interest
can be deducted as home mortgage interest.
The interest Don
can allocate to his business is the
smaller of:
-
The amount
on line 13 of the
Table 1 worksheet ($15,000),
or
-
The total
amount of interest allocable to the business
($16,500), figured by multiplying the amount
on line 10 (the $30,000 total interest paid)
by the following fraction.
Because $15,000 is
the smaller of items (1) and (2), that is the amount
of interest Don can allocate to his business. He
deducts this amount on his Schedule C (Form 1040).
Table 2. Where To Deduct
Your Interest Expense
|
IF you have
... |
THEN deduct it on
... |
AND for more
information go to ...
|
|
deductible
student loan interest |
Form 1040,
line 25, or Form 1040A, line 18 |
Publication 970,
Tax Benefits for Education. |
|
deductible
home mortgage interest and points
reported on Form 1098 |
Schedule A
(Form 1040), line 10 |
this
publication (936). |
|
deductible
home mortgage interest not reported on
Form 1098 |
Schedule A
(Form 1040), line 11 |
this
publication (936). |
|
deductible
points not reported on Form 1098 |
Schedule A
(Form 1040), line 12 |
this
publication (936). |
|
deductible
investment interest (other than incurred
to produce rents or royalties) |
Schedule A
(Form 1040), line 13 |
Publication 550,
Investment Income and Expenses. |
|
deductible
business interest (non-farm) |
Schedule C
or C-EZ (Form 1040) |
Publication 535,
Business Expenses. |
|
deductible
farm business interest |
Schedule F
(Form 1040) |
Publications 225,
Farmer's Tax Guide, and
535. |
|
deductible
interest incurred to produce rents or
royalties |
Schedule E
(Form 1040) |
Publication 527,
Residential Rental Property,
and 535. |
|
personal
interest |
not
deductible. |
You can get help with
unresolved tax issues, order free publications and forms, ask
tax questions, and get more information from the IRS in several
ways. By selecting the method that is best for you, you will
have quick and easy access to tax help.
Contacting
your Taxpayer Advocate.
If you have attempted to deal with an IRS problem
unsuccessfully, you should contact your Taxpayer Advocate.
The Taxpayer Advocate
independently represents your interests and concerns within
the IRS by protecting your rights and resolving problems
that have not been fixed through normal channels. While
Taxpayer Advocates cannot change the tax law or make a
technical tax decision, they can clear up problems that
resulted from previous contacts and ensure that your case is
given a complete and impartial review.
To contact your Taxpayer
Advocate:
- Call the Taxpayer
Advocate toll free at
1–877–777–4778.
- Call, write, or
fax the Taxpayer Advocate office in your area.
- Call
1–800–829–4059 if
you are a
TTY/TDD user.
- Visit the web site
at
www.irs.gov/advocate.
For more information, see
Publication 1546, The Taxpayer
Advocate Service of the IRS.
Free tax
services. To find out what services are available, get
Publication 910, Guide to Free
Tax Services. It contains a list of free tax
publications and an index of tax topics. It also describes
other free tax information services, including tax education
and assistance programs and a list of TeleTax topics.
Internet. You can access the IRS web site 24 hours a
day, 7 days a week at
www.irs.gov to:
-
E-file. Access
commercial tax preparation and
e-file services available for free to
eligible taxpayers.
- Check the amount of
advance child tax credit payments you received in 2003.
- Check the status of
your 2003 refund. Click on “Where's
My Refund” and then on “Go
Get My Refund Status.” Be sure to wait at least 6
weeks from the date you filed your return (3 weeks if
you filed electronically) and have your 2003 tax return
available because you will need to know your filing
status and the exact whole dollar amount of your refund.
- Download forms,
instructions, and publications.
- Order IRS products
on-line.
- See answers to
frequently asked tax questions.
- Search publications
on-line by topic or keyword.
- Figure your
withholding allowances using our Form W-4 calculator.
- Send us comments or
request help by e-mail.
- Sign up to receive
local and national tax news by e-mail.
- Get information on
starting and operating a small business.
You can also reach us using
File Transfer Protocol at ftp.irs.gov.
Fax.
You can get over 100 of the most requested forms and
instructions 24 hours a day, 7 days a week, by fax. Just call
703–368–9694 from your fax
machine. Follow the directions from the prompts. When you order
forms, enter the catalog number for the form you need. The items
you request will be faxed to you.
For help with transmission
problems, call 703–487–4608.
Long-distance charges may
apply.
Phone. Many services are available by phone.
-
Ordering forms, instructions,
and publications. Call
1–800–829–3676 to order current-year
forms, instructions, and publications and prior-year
forms and instructions. You should receive your order
within 10 days.
-
Asking tax questions.
Call the IRS with your tax questions at
1–800–829–1040.
-
Solving problems.
You can get face-to-face help solving tax
problems every business day in IRS Taxpayer Assistance
Centers. An employee can explain IRS letters, request
adjustments to your account, or help you set up a
payment plan. Call your local Taxpayer Assistance Center
for an appointment. To find the number, go to
www.irs.gov
or look in the phone book under “United
States Government, Internal Revenue Service.”
-
TTY/TDD equipment.
If you have access to TTY/TDD equipment, call
1–800–829–4059 to ask
tax or account questions or to order forms and
publications.
-
TeleTax topics.
Call 1–800–829–4477 to
listen to pre-recorded messages covering various tax
topics.
-
Refund information.
If you would like to check the status of your
2003 refund, call 1–800–829–4477
for automated refund information and follow the recorded
instructions or call
1–800–829–1954. Be sure to wait at least 6
weeks from the date you filed your return (3 weeks if
you filed electronically) and have your 2003 tax return
available because you will need to know your filing
status and the exact whole dollar amount of your refund.
Evaluating the quality of our
telephone services. To ensure that IRS representatives
give accurate, courteous, and professional answers, we use
several methods to evaluate the quality of our telephone
services. One method is for a second IRS representative to
sometimes listen in on or record telephone calls. Another is to
ask some callers to complete a short survey at the end of the
call.
Walk-in. Many products and services are available on
a walk-in basis.
-
Products. You can
walk in to many post offices, libraries, and IRS offices
to pick up certain forms, instructions, and
publications. Some IRS offices, libraries, grocery
stores, copy centers, city and county government
offices, credit unions, and office supply stores have a
collection of products available to print from a CD-ROM
or photocopy from reproducible proofs. Also, some IRS
offices and libraries have the Internal Revenue Code,
regulations, Internal Revenue Bulletins, and Cumulative
Bulletins available for research purposes.
-
Services. You can
walk in to your local Taxpayer Assistance Center every
business day to ask tax questions or get help with a tax
problem. An employee can explain IRS letters, request
adjustments to your account, or help you set up a
payment plan. You can set up an appointment by calling
your local Center and, at the prompt, leaving a message
requesting Everyday Tax Solutions help. A representative
will call you back within 2 business days to schedule an
in-person appointment at your convenience. To find the
number, go to
www.irs.gov or look in the phone book under “United
States Government, Internal Revenue Service.”
Mail.
You can send your order for forms, instructions, and
publications to the Distribution Center nearest to you and
receive a response within 10 workdays after your request is
received. Use the address that applies to your part of the
country.
-
Western part of U.S.:
Western Area Distribution Center
Rancho Cordova, CA 95743–0001
-
Central part of U.S.:
Central Area Distribution Center
P.O. Box 8903
Bloomington, IL 61702–8903
-
Eastern part of U.S. and foreign addresses:
Eastern Area Distribution Center
P.O. Box 85074
Richmond, VA 23261–5074
CD-ROM for tax products. You can order IRS
Publication 1796, Federal Tax
Products on CD-ROM, and obtain:
- Current-year forms,
instructions, and publications.
- Prior-year forms and
instructions.
- Frequently requested
tax forms that may be filled in electronically, printed
out for submission, and saved for recordkeeping.
- Internal Revenue
Bulletins.
Buy the CD-ROM from National
Technical Information Service (NTIS) on the Internet at
www.irs.gov/cdorders for $22 (no handling fee) or call
1–877–233–6767 toll free to buy
the CD-ROM for $22 (plus a $5 handling fee). The first release
is available in early January and the final release is available
in late February.
CD-ROM for small businesses. IRS Publication 3207,
Small Business Resource Guide,
is a must for every small business owner or any taxpayer
about to start a business. This handy, interactive CD contains
all the business tax forms, instructions and publications needed
to successfully manage a business. In addition, the CD provides
an abundance of other helpful information, such as how to
prepare a business plan, finding financing for your business,
and much more. The design of the CD makes finding information
easy and quick and incorporates file formats and browsers that
can be run on virtually any desktop or laptop computer.
It is available in early April.
You can get a free copy by calling
1–800–829–3676 or by visiting the web site at
www.irs.gov/smallbiz.
www.irs.gov |
Publication 936
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