Table of Contents
This part explains what you can deduct as home mortgage interest. It includes discussions on points, mortgage insurance premiums, and 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 if all the following conditions are met.
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You file Form 1040 and itemize deductions on Schedule A (Form 1040).
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The mortgage is a secured debt on a qualified home in which you have an ownership interest. Secured Debt and Qualified Home are explained later.
Both you and the lender must intend that the loan be repaid.
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Mortgages you took out on or before October 13, 1987 (called grandfathered debt).
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Mortgages you (or your spouse if married filing a joint return) took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2016 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately).
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Mortgages you (or your spouse if married filing a joint return) took out after October 13, 1987, that are home equity debt but that are not home acquisition debt, but only if throughout 2016 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).
Please click here for the text description of the image.
Figure A. Is My Home Mortgage Interest 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:
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Makes your ownership in a qualified home security for payment of the debt,
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Provides, in case of default, that your home could satisfy the debt, and
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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.
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, the mortgage is not a secured debt and John cannot deduct any of the interest he pays on it as home mortgage interest.
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.
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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.
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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.
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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.
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The rented part of your home is used by the tenant primarily for residential living.
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The rented part of your home is not a self-contained residential unit having separate sleeping, cooking, and toilet facilities.
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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.
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Rebuild the destroyed home and move into it, or
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Sell the land on which the home was located.
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.
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).
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You received assistance under:
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A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or
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An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state.
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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.
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Your lease, including renewal periods, is for more than 15 years.
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You can freely assign the lease.
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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.
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The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled.
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.
Figure B. 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. See Points paid by the seller , later.
You generally cannot deduct the full amount of points in the year paid. Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. See Deduction Allowed Ratably , next.
For exceptions to the general rule, see Deduction Allowed in Year Paid , later.
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.
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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.
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Your loan is secured by a home. (The home does not need to be your main home.)
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Your loan period is not more than 30 years.
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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.
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Either your loan amount is $250,000 or less, or the number of points is not more than:
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4, if your loan period is 15 years or less, or
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6, if your loan period is more than 15 years.
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Example.
You use the cash method of accounting. In 2016, you took out a $100,000 loan payable over 20 years. The terms of the loan are the same as for other 20-year loans offered in your area. You paid $4,800 in points. You made 3 monthly payments on the loan in 2016. You can deduct $60 [($4,800 ÷ 240 months) x 3 payments] in 2016. In 2017, if you make all twelve payments, you will be able to deduct $240 ($20 x 12).
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.)
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Your loan is secured by your main home. (Your main home is the one you ordinarily live in most of the time.)
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Paying points is an established business practice in the area where the loan was made.
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The points paid were not more than the points generally charged in that area.
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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.
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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.
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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 are not required 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.
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You use your loan to buy or build your main home.
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The points were computed as a percentage of the principal amount of the mortgage.
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The amount is clearly shown on the settlement statement (such as the 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.
Example 1.
In 1998, Bill Fields got a mortgage to buy a home. In 2016, 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 2016 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 2016. 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 2016. 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 2016. 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 2016. The total amount Bill deducts in 2016 is $550 ($500 + $50).
This section describes certain special situations that may affect your deduction of points.
You cannot deduct these amounts as points either in the year paid or over the life of the mortgage.
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.
You can treat amounts you paid during 2016 for qualified mortgage insurance as home mortgage interest. The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006.
Example.
Ryan purchased a home in May of 2015 and financed the home with a 15-year mortgage. Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. Since the $9,240 in private mortgage insurance is allocable to periods after 2015, Ryan must allocate the $9,240 over the shorter of the life of the mortgage or 84 months. Ryan's adjusted gross income (AGI) for 2015 is $76,000. Ryan can deduct $880 ($9,240 ÷ 84 x 8 months) for qualified mortgage insurance premiums in 2015. For 2016, Ryan can deduct $1,320 ($9,240 ÷ 84 x 12 months) if his AGI is $100,000 or less.
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).
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. 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, 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. 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.
Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. 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 to your paper return 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 Schedule A (Form 1040), line 11. 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. The seller must give you this number and you must give the seller your TIN. 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. 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.
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.
Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13.
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.
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Has only one class of stock outstanding,
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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,
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Has no stockholders who can receive any distribution out of capital other than on a liquidation of the corporation, and
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Meets at least one of the following requirements.
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Receives at least 80% of its gross income for the year in which the mortgage interest is paid or incurred from tenant-stockholders. For this purpose, gross income is all income received during the entire year, including amounts received before the corporation changed to cooperative ownership.
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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.
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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.
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Restrictions under local or state law, or
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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).
| Your shares of stock in the cooperative | ||
| The total shares of stock in the cooperative |
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).
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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 later.)
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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.
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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 later.)
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.
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Adds to the value of your home,
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Prolongs your home's useful life, or
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Adapts your home to new uses.
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:
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Does not qualify as home acquisition debt or as grandfathered debt, and
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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 $50,000 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.
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$100,000 ($50,000 if married filing separately), or
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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 2002. 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:
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$100,000, the maximum limit, or
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$15,000, the amount that the FMV of $110,000 exceeds the amount of home acquisition debt of $95,000.
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.
Example.
Chester took out a $200,000 first mortgage on his home in 1986. The mortgage was a five-year balloon note and the entire balance on the note was due in 1991. Chester refinanced the debt in 1991 with a new 30-year mortgage. The refinanced debt is treated as grandfathered debt for its entire term (30 years).
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.
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All the mortgages are grandfathered debt.
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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 can use Table 1 to determine your qualified loan limit and deductible home mortgage interest.
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. | If you have home equity debt, enter the smaller of $100,000 ($50,000 if married filing separately) or your limited amount. See the line 7 instructions for the limit which may apply to you. | 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. | |
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| 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. |
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.
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You did not borrow any new amounts on the mortgage during the year. (This does not include borrowing the original mortgage amount.)
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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.)
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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.
| 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 |
| 1. | Enter the interest paid in 2016. Do not include points, mortgage insurance premiums, or any interest paid in 2016 that is for a year after 2016. However, do include interest that is for 2016 but was paid in an earlier year | |
| 2. | Enter the annual interest rate on the mortgage. If the interest rate varied in 2016, 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% (0.09) all year. His average balance using this method is $27,778, figured as follows.
| 1. | Enter the interest paid in 2016. Do not include points, mortgage insurance premiums, or any interest paid in 2016 that is for a year after 2016. However, do include interest that is for 2016 but was paid in an earlier year | $2,500 |
| 2. | Enter the annual interest rate on the mortgage. If the interest rate varied in 2016, use the lowest rate for the year | 0.09 |
| 3. | Divide the amount on line 1 by the amount on line 2. Enter the result | $27,778 |
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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:
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First, any home equity debt,
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Next, any grandfathered debt, and
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Finally, any home acquisition debt.
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Add together the monthly balances figured in (1).
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Divide the result in (2) by 12.
Example 1.
On October 1, 1987, Sharon took out a $1,400,000 mortgage to buy her main home (grandfathered debt). On March 2, 2015, 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 2015, her principal payments on the second mortgage totaled $10,000.
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. 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 2015 was $150,000 ($1,800,000 ÷ 12).
Example 2.
The facts are the same as in Example 1. In 2016, 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 2016 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.
If you have home equity debt, complete line 7.
The amount on line 7 cannot be more than the smaller of:
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$100,000 ($50,000 if married filing separately), or
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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 or mortgage insurance premiums on this line.
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Figure your deductible points for the current year using the rules explained under Points in Part I.
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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.
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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 have ... | THEN deduct it on ... | AND for more information go to ... |
| deductible student loan interest | Form 1040, line 33, or Form 1040A, line 18 | Pub. 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 mortgage insurance premiums | Schedule A (Form 1040), line 13 | this publication (936). |
| deductible investment interest (other than incurred to produce rents or royalties) | Schedule A (Form 1040), line 14 | Pub. 550, Investment Income and Expenses. |
| deductible business interest (non-farm) | Schedule C or C-EZ (Form 1040) | Pub. 535. |
| deductible farm business interest | Schedule F (Form 1040) | Pubs. 225, Farmer's Tax Guide, and 535. |
| deductible interest incurred to produce rents or royalties | Schedule E (Form 1040) | Pubs. 527 and 535. |
| personal interest | 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 can 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 4 of Pub. 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.
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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.
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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.
| Amount on line 9 allocated to that activity |
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| Total amount on line 9 |
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:
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The amount on Table 1, line 13 of the worksheet ($15,000), or
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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.
| $110,000 (the average balance of the mortgage allocated to the business) |
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| $200,000 (the total average balance of all mortgages) |
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).
If you have questions about a tax issue, need help preparing your tax return, or want to download free publications, forms, or instructions, go to IRS.gov and find resources that can help you right away.
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Free File. Go to IRS.gov/freefile. See if you qualify to use brand-name software to prepare and e-file your federal tax return for free.
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VITA. Go to IRS.gov/vita, download the free IRS2Go app, or call 1-800-906-9887 to find the nearest VITA location for free tax preparation.
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TCE. Go to IRS.gov/tce, download the free IRS2Go app, or call 1-888-227-7669 to find the nearest TCE location for free tax preparation.
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Go to IRS.gov/help or IRS.gov/letushelp pages for a variety of tools that will help you get answers to some of the most common tax questions.
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Go to IRS.gov/ita for the Interactive Tax Assistant, a tool that will ask you questions on a number of tax law topics and provide answers. You can print the entire interview and the final response for your records.
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Go to IRS.gov/pub17 to get Pub. 17, Your Federal Income Tax for Individuals, which features details on tax-saving opportunities, 2016 tax changes, and thousands of interactive links to help you find answers to your questions. View it online in HTML or as a PDF or, better yet, download it to your mobile device to enjoy eBook features.
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You may also be able to access tax law information in your electronic filing software.
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Order your transcript by calling 1-800-908-9946.
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Mail Form 4506-T or Form 4506T-EZ (both available on IRS.gov).
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The Earned Income Tax Credit Assistant (IRS.gov/eic) determines if you are eligible for the EIC.
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The Online EIN Application (IRS.gov/ein) helps you get an employer identification number.
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The IRS Withholding Calculator (IRS.gov/w4app) estimates the amount you should have withheld from your paycheck for federal income tax purposes.
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The First Time Homebuyer Credit Account Look-up (IRS.gov/homebuyer) tool provides information on your repayments and account balance.
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The Sales Tax Deduction Calculator (IRS.gov/salestax) figures the amount you can claim if you itemize deductions on Schedule A (Form 1040), choose not to claim state and local income taxes, and you didn’t save your receipts showing the sales tax you paid.
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The IRS doesn’t initiate contact with taxpayers by email or telephone to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.
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Go to IRS.gov/idprotection for information and videos.
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If your SSN has been lost or stolen or you suspect you are a victim of tax-related identity theft, visit IRS.gov/id to learn what steps you should take.
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Go to IRS.gov/refunds.
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Due to changes in the law, the IRS can’t issue refunds before February 15, 2017, for returns that claim the EIC or the ACTC. This applies to the entire refund, not just the portion associated with these credits.
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Download the official IRS2Go app to your mobile device to check your refund status.
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Call the automated refund hotline at 1-800-829-1954.
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IRS Direct Pay: Pay your individual tax bill or estimated tax payment directly from your checking or savings account at no cost to you.
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Debit or credit card: Choose an approved payment processor to pay online, by phone, and by mobile device.
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Electronic Funds Withdrawal: Offered only when filing your federal taxes using tax preparation software or through a tax professional.
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Electronic Federal Tax Payment System: Best option for businesses. Enrollment is required.
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Check or money order: Mail your payment to the address listed on the notice or instructions.
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Cash: If cash is your only option, you may be able to pay your taxes at a participating retail store.
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Apply for an online payment agreement (IRS.gov/opa) to meet your tax obligation in monthly installments if you can’t pay your taxes in full today. Once you complete the online process, you will receive immediate notification of whether your agreement has been approved.
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Use the Offer in Compromise Pre-Qualifier (IRS.gov/oic) to see if you can settle your tax debt for less than the full amount you owe.
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights.
We can help you resolve problems that you can’t resolve with the IRS. And our service is free. If you qualify for our assistance, you will be assigned to one advocate who will work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:
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Your problem is causing financial difficulty for you, your family, or your business,
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You face (or your business is facing) an immediate threat of adverse action, or
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You’ve tried repeatedly to contact the IRS but no one has responded, or the IRS hasn’t responded by the date promised.
We have offices in every state, the District of Columbia, and Puerto Rico. Your local advocate’s number is in your local directory and at taxpayeradvocate.irs.gov. You can also call us at 1-877-777-4778.
The Taxpayer Bill of Rights describes 10 basic rights that all taxpayers have when dealing with the IRS. Our Tax Toolkit at taxpayeradvocate.irs.gov can help you understand what these rights mean to you and how they apply. These are your rights. Know them. Use them.
TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, please report it to us at IRS.gov/sams.
Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. To find a clinic near you, visit IRS.gov/litc or see IRS Publication 4134, Low Income Taxpayer Clinic List.
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