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Frequently Asked Tax Questions And Answers
Keyword: Home Mortgage Interest
3.6 Itemized Deductions/Standard Deductions: 6. Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses)
I just bought a home. What can I deduct from the settlement statement?
If you bought your home, you probably paid settlement or closing costs
in addition to the contract price. These costs are divided between you and
the seller according to the sales contract, local custom, or understanding
of the parties. If you built your home, you probably paid these costs when
you bought the land or settled on your mortgage.
The only settlement or closing costs you can deduct are home mortgage interest,
points that represent interest and certain real estate taxes. You may, deduct
them in the year you buy your home if you itemize your deductions. Real estate
taxes are usually divided so that you and the seller each pay taxes for the
part of the property tax year that each owned the home.
You add certain other settlement or closing costs to the basis of your
home. You include in your basis the settlement fees and closing costs that
are for buying your home. A fee is for buying the home if you would have had
to pay it even if you paid cash for the home
There are some settlement or closing costs that you cannot deduct or add
to the basis of your home. These include fees and costs that are for getting
a mortgage loan. For more information refer to Publication 530, Tax
Information for First Time-Homeowners, and Publication 936, Home
Mortgage Interest Deduction.
References:
I have a mortgage for my primary residence and a second mortgage
for land that I intend to build a home on. Can the interest be deducted for
the second mortgage?
Unless you have begun construction of a home on the bare land that you
can occupy within 24 months, the land would be considered an investment and
the interest you paid on the second mortgage would not qualify as deductible
mortgage interest. However, it would constitute investment interest if you
itemize your deductions. For more information, refer to Publication 550, Investment
Income and Expenses, and Publication 936, Home Mortgage Interest
Deduction.
References:
I paid my mother's mortgage and real estate taxes last year. The
house is in her name. Can I deduct the mortgage interest and property tax
on my tax return?
Generally, you can deduct only taxes that are imposed on you. You cannot
deduct the property taxes unless you are the legal owner of the property,
nor the mortgage interest unless you are legally liable for the loan. Your
mother cannot deduct the mortgage interest either because she did not make
the payments. For more information, refer to Publication 936, Home
Mortgage Interest Deduction; Publication 17, Your Federal Income
Tax for Individuals; and Tax Topic 505, Interest Expenses;
and Tax Topic 503, Deductible Taxes.
References:
My daughter and I own a house together. Her name is on the mortgage,
but both our names are on the deed. Can we each claim half of the yearly interest
and property tax on our income tax returns?
In order for both of you to claim one-half of the interest deduction, both
of you must be legally liable for the loan. Since only your daughter is legally
liable for the loan, only she can deduct the interest she paid. Since both
of you are legal owners of the property, both of you may deduct one-half of
the real estate taxes paid during the year. For more information, refer to Publication 936, Home Mortgage Interest Deduction; Publication 17, Your
Federal Income Tax for Individuals; Publication 530, Tax Information
for First Time Homeowners; Tax Topic 505, Interest Expense;
and Tax Topic 503, Deductible Taxes.
References:
Is interest on a home equity line of credit deductible as a second
mortgage?
You may deduct Home Equity Debt Interest, as an itemized deduction, if
you are legally liable to pay the interest, pay the interest in the tax year,
secure the debt with your home, and do not exceed your Home Equity Debt Limit.
For more information, refer to Publication 936, Home Mortgage Interest;
and Tax Topic 505, Interest Expense.
References:
I refinanced my home last year and paid points. Are they all deductible
this year?
Generally points paid to refinance your home are not deductible in their
entirety in the year paid. They are "amortized" or deducted over the life
of the loan. For more information, refer to Publication 936 , Home
Mortgage Interest Deduction, and Tax Topic 504, Home Mortgage
Points.
References:
Is the interest paid on the loan for a lot (with no home on it)
deductible as mortgage interest?
Generally, the interest paid on the loan incurred for purchasing a lot
is not deductible as mortgage interest.
If you are planning to build a house, you can start deducting mortgage
interest once construction begins. The following is from Publication 936, Home
Mortgage Interest Deduction:
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. For more information, refer to Publication 936, Home
Mortgage Interest Deduction; and Tax Topic 505, Interest Expense.
References:
We purchased land to build a home on. Is the interest on the mortgage
secured by the land deductible?
Interest on the mortgage secured by bare land is not, generally, deductible
as mortgage interest. In order for interest to be deductible as home mortgage
interest, the loan must be secured by a qualified residence. A qualified residence
is your principal residence or one other residence selected by you that you
use as a residence.
Once you start construction of your home, you may treat the home under
construction as a qualified residence for a period of up to 24 months, but
only if the home becomes a qualified residence at the time it is ready for
occupancy. For more information, refer to Publication 936, Home Mortgage
Interest Deduction; and Tax Topic 505, Interest Expense.
References:
Is interest paid on a construction loan for a new home considered
deductible mortgage interest?
You can treat a home under construction as a home qualifying for the home
interest deduction for a period of up to 24 months, but only if it becomes
your qualified home at the time it is ready for occupancy. For more information,
refer to Publication 936, Home Mortgage Interest Deduction; and Tax Topic 505, Interest Expense.
References:
I got a loan to buy some land. Later I got another loan for the
construction of the house. After the house was built I got a third loan which
paid off the first two loans. Is the interest on any of these loans deductible?
All three loans may have some deductible interest. Generally, the interest
paid on a financed lot is not deductible as mortgage interest. There might
be a deduction for investment interest until construction of the home begins.
Once construction begins, you can, deduct mortgage interest on the construction
loan for up to 24 months. Once the home has been completed and occupied by
you, and the two existing loans have been refinanced, you may deduct the interest
from the new mortgage. For more information, refer to Publication 936, Home
Mortgage Interest Deduction; Tax Topic 505, Interest Expense;
and Publication 550, Investment Income and Expenses.
References:
I pay interest on money borrowed to purchase land. I built a home
on that land, but have no mortgage. Is the interest I pay for the land deductible?
Where is it deductible on the return?
Until you started construction, the interest on the loan to purchase the
lot was not deductible as mortgage interest. Once you started construction
on the property, it became deductible as home mortgage interest provided that
the loan was secured by the house, and all other conditions for deductibility
of home mortgage interest were met. For more information, refer to Publication 936, Home Mortgage Interest Deduction and Tax Topic 505, Interest
Expense.
References:
I took out a home equity loan to pay off personal debts. Is this
interest deductible? Where do I enter this amount on my tax return?
A loan taken out for reasons other than to buy, build, or substantially
improve your home, such as to pay off personal debts may qualify as home equity
debt. The interest would be deducted on line 10, Form 1040, Schedule A (PDF), Itemized Deductions. You may not deduct
interest on any amount of home equity debt that exceeds your Home Equity Debt
Limit. For more information, refer to Publication 936, Home Mortgage
Interest Deduction; and Tax Topic 505, Interest Expense.
References:
If I borrow money from my 401(k) to purchase a home, is the interest
I pay back to my 401(k) deductible as mortgage interest on my 1040?
The interest you pay on money you borrow from 401(K) plan to buy a home
is not deductible as mortgage interest, because the loan is not secured by
the home. The mortgage must be a secured debt on a qualified home. Your mortgage
is a secured debt if you put your home up as collateral to protect the interests
of the lender. The term "qualified home" means your main home or second home.
For details, refer to Publication 936 , Home Mortgage
Interest Deduction and Tax Topic 505, Interest Expense.
References:
Is the mortgage interest and property tax on a second residence
deductible?
The mortgage interest on a second home which you use as a residence for
some portion of the taxable year, is generally deductible if the interest
satisfies the same requirements for deductibility as interest on a primary
residence. Real estate taxes paid on your primary and second residence are,
generally, deductible. Deductible real estate taxes include any state, local,
or foreign taxes on real property levied for the general public welfare. Deductible
real estate taxes do not include taxes charged for local benefits and improvements
that increase the value of the property. For more information, refer to Publication 17, Your Federal Income Tax for Individuals; Tax Topic 503, Deductible
Taxes; and Publication 530, Tax Information for First-Time Home
Buyers.
References:
I bought a 5th wheel trailer for vacationing. Can I deduct the interest
on the loan for this 5th wheel? Where would it be listed?
You can deduct the interest paid on the loan you took out to purchase the
trailer as acquisition indebtedness interest only if the loan is secured by
the trailer and the trailer meets the requirements of a qualified home. A
qualified home includes a house, condominium, cooperative, mobile home, boat
or similar property that has sleeping, cooking and toilet facilities. You
can only have one principal residence and one qualified second home. Regardless
of whether the trailer qualifies as a home, interest on home equity indebtedness
secured by another qualified home and used to acquire the trailer may also
be deductible. The interest is deducted as mortgage interest on line 11 of Form 1040, Schedule A (PDF), Itemized Deductions.
References:
What are the rules for mortgage interest on a manufactured home?
Can I deduct the interest on the mortgage for the manufactured home if it
is on a rented lot? Can I deduct the interest for the manufactured home and
for the lot if I buy a lot for the home?
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, boat, or similar
property that has sleeping, cooking, and toilet facilities.
The mortgage interest on a manufactured home may be deducted if the home
is on a rented lot. If you buy a lot and place a manufactured home on it,
the interest paid for the lot is also qualifying home mortgage interest, provided
the mortgage is secured by the house.
References:
I refinanced my home and paid closing costs. Are the loan origination
fee, appraisal fee, document prep fee, closing fee, and title insurance or
any of the other expenses deductible? Are any of the fees I paid to the bank
for the loan deductible?
Deductible fees are limited to home mortgage interest and certain real
estate taxes. Points that represent interest on a refinancing are amortized
over the life of the loan.
Fees that are not associated with the acquisition of a loan may only have
effect on the basis of the home. An example would be a transfer tax that would
be charged regardless of whether a loan was involved.
Fees related to the acquisition of a loan are not deductible and are not
basis adjustments. A credit report fee is a good example.
For more information, refer to Publication 936, Home Mortgage
Interest Deduction ; Tax Topic 504, Home Mortgage Points;
and Publication 551, Basis of Assets .
References:
I refinanced my home mortgage and had to pay $2,000.00 worth of
points to get the mortgage. Can I claim these points as a deduction on my
tax return?
Points that represent interest paid for a refinanced mortgage have to be
amortized over the life of the loan. Points charged for specific services,
such as preparation costs for a mortgage note, appraisal fees, or notary fees
are not interest and cannot be deducted. It is possible to deduct a larger
percentage of the points in the first year if a portion of the mortgage proceeds
is used to improve the home and sufficient cash is added to the transaction
to be equal to or greater than the amount of the points. Certain other restrictions
apply. For more information, refer to Publication 936, Home Mortgage
Interest Deduction; and Tax Topic 504, Home Mortgage Points.
References:
If I must deduct points over the life of my mortgage, and I have
a 30 year mortgage, does this mean that I divide the points paid by 30 and
enter that amount on Schedule A?
You need to divide the points by the number of payments over the term of
the loan and deduct points for a year according to the number of payments
made in the year. If the loan ends prematurely, due to payoff or refinance,
for example, then the remaining points are deducted in that year. Points not
included in Form 1098 (PDF) (usually not included
on a refinance) should be entered on line 12 of Form 1040, Schedule A (PDF), Itemized Deductions. For more information,
refer to Publication 936, Home Mortgage Interest Deduction; and Tax Topic 504, Home Mortgage Points.
References:
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