Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

E File 1040ez

E File State And Federal Taxes For FreeTax SlayerFile Taxes Online Free 2011Federal Tax Forms 2012Irs File Extension OnlineHow To File A 1040xUnemployment Tax FormTax SlayerSelf Employed Tax CalculatorState Of Louisiana Amended Return Form 1040xFile Amended Tax Return2011 Tax Return Form 104010 40 EzTax Amendment Form 2011Amend Income TaxPrior Year TaxesFree TaxcutHr Block Tax FreeH&r Block Free State Tax E FileAmended Tax FormsFree FileHow Do I File A Tax Extension OnlineFilling 1040x W Form 8863Liberty TaxFree Irs Tax Filing OnlineFile Back Taxes Free Online1040 Ez Tax Form 2012File Amended ReturnFile My Taxes OnlineFile Taxes For 2012 Free2012 1040 Tax Return FormHow Do I File An Amended Federal Tax ReturnE File 2012 Federal Tax ReturnIrs Free File Fillable FormsCan I Still File 2011 Taxes Online2011 1040ezFree 2012 Tax Software DownloadUnemployed Tax Return1040 ExE File Amended Tax Return

E File 1040ez

E file 1040ez 4. E file 1040ez   Limit on Elective Deferrals Table of Contents Excess elective deferrals. E file 1040ez General Limit 15-Year RuleYears of Service Figuring the Limit on Elective DeferralsExample The second and final component of MAC is the limit on elective deferrals. E file 1040ez This is a limit on the amount of contributions that can be made to your account through a salary reduction agreement. E file 1040ez A salary reduction agreement is an agreement between you and your employer that allows for a portion of your compensation to be directly invested in a 403(b) account on your behalf. E file 1040ez You can enter into more than one salary reduction agreement during a year. E file 1040ez More than one 403(b) account. E file 1040ez If, for any year, elective deferrals are contributed to more than one 403(b) account for you (whether or not with the same employer), you must combine all the elective deferrals to determine whether the total is more than the limit for that year. E file 1040ez 403(b) plan and another retirement plan. E file 1040ez If, during the year, contributions in the form of elective deferrals are made to other retirement plans on your behalf, you must combine all of the elective deferrals to determine if they are more than your limit on elective deferrals. E file 1040ez The limit on elective deferrals applies to amounts contributed to: 401(k) plans, to the extent excluded from income, Roth contribution programs, Section 501(c)(18) plans, to the extent excluded from income, Savings incentive match plan for employees (SIMPLE plans), Simplified employee pension (SEP) plans, and All 403(b) plans. E file 1040ez Roth contribution program. E file 1040ez   Your 403(b) plan may allow you to designate all or a portion of your elective deferrals as Roth contributions. E file 1040ez Elective deferrals designated as Roth contributions must be maintained in a separate Roth account and are not excludable from your gross income. E file 1040ez   The maximum amount of contributions allowed under a Roth contribution program is your limit on elective deferrals, less your elective deferrals not designated as Roth contributions. E file 1040ez For more information on the Roth contribution program, see Publication 560, Retirement Plans for Small Business. E file 1040ez Excess elective deferrals. E file 1040ez   If the amount contributed is more than the allowable limit, you must include the excess that is not a Roth contribution in your gross income for the year contributed. E file 1040ez General Limit Under the general limit on elective deferrals, the most that can be contributed to your 403(b) account through a salary reduction agreement is $17,500 for 2013 and 2014. E file 1040ez This limit applies without regard to community property laws. E file 1040ez 15-Year Rule If you have at least 15 years of service with an educational organization (such as a public or private school), hospital, home health service agency, health and welfare service agency, church, or convention or association of churches (or associated organization), the limit on elective deferrals to your 403(b) account is increased by the least of: $3,000, $15,000, reduced by the sum of: The additional pre-tax elective deferrals made in prior years because of this rule, plus The aggregate amount of designated Roth contributions permitted for prior years because of this rule, or $5,000 times the number of your years of service for the organization, minus the total elective deferrals made by your employer on your behalf for earlier years. E file 1040ez If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $20,500 for 2013 and 2014. E file 1040ez To determine whether you have 15 years of service with your employer, see Years of Service , next. E file 1040ez Years of Service To determine if you are eligible for the increased limit on elective deferrals, you will first need to figure your years of service. E file 1040ez How you figure your years of service depends on whether you were a full-time or a part-time employee, whether you worked for the full year or only part of the year, and whether you have worked for your employer for an entire year. E file 1040ez You must figure years of service for each year during which you worked for the employer who is maintaining your 403(b) account. E file 1040ez If more than one employer maintains a 403(b) account for you in the same year, you must figure years of service separately for each employer. E file 1040ez Definition Your years of service are the total number of years you have worked as a full time employee for the employer maintaining your 403(b) account as of the end of the year. E file 1040ez Figuring Your Years of Service Take the following rules into account when figuring your years of service. E file 1040ez Status of employer. E file 1040ez   Your years of service include only periods during which your employer was a qualified employer. E file 1040ez Your plan administrator can tell you whether or not your employer was qualified during all your periods of service. E file 1040ez Service with one employer. E file 1040ez   Generally, you cannot count service for any employer other than the one who maintains your 403(b) account. E file 1040ez Church employee. E file 1040ez   If you are a church employee, treat all of your years of service with related church organizations as years of service with the same employer. E file 1040ez For more information about church employees, see chapter 5. E file 1040ez Self-employed ministers. E file 1040ez   If you are a self-employed minister, your years of service include full and part years in which you have been treated as employed by a tax-exempt organization that is a qualified employer. E file 1040ez Total years of service. E file 1040ez   When figuring prior years of service, figure each year individually and then add the individual years of service to determine your total years of service. E file 1040ez Example. E file 1040ez The annual work period for full-time teachers employed by ABC Public Schools is September through December and February through May. E file 1040ez Marsha began working with ABC schools in September 2009. E file 1040ez She has always worked full-time for each annual work period. E file 1040ez At the end of 2013, Marsha had 4. E file 1040ez 5 years of service with ABC Public Schools, as shown in Table 4-1. E file 1040ez Table 4-1. E file 1040ez Marsha's Years of Service Note. E file 1040ez This table shows how Marsha figures her years of service, as explained in the previous example. E file 1040ez Year Period Worked Portion of Work Period Years of Service 2009 Sept. E file 1040ez –Dec. E file 1040ez . E file 1040ez 5 year . E file 1040ez 5 year 2010 Feb. E file 1040ez –May . E file 1040ez 5 year 1 year Sept. E file 1040ez –Dec. E file 1040ez . E file 1040ez 5 year 2011 Feb. E file 1040ez –May . E file 1040ez 5 year 1 year Sept. E file 1040ez –Dec. E file 1040ez . E file 1040ez 5 year 2012 Feb. E file 1040ez –May . E file 1040ez 5 year 1 year Sept. E file 1040ez –Dec. E file 1040ez . E file 1040ez 5 year 2013 Feb. E file 1040ez –May . E file 1040ez 5 year 1 year Sept. E file 1040ez –Dec. E file 1040ez . E file 1040ez 5 year Total years of service 4. E file 1040ez 5 years Full-time or part-time. E file 1040ez   To figure your years of service, you must analyze each year individually and determine whether you worked full-time for the full year or something other than full-time. E file 1040ez When determining whether you worked full-time or something other than full-time, use your employer's annual work period as the standard. E file 1040ez Employer's annual work period. E file 1040ez   Your employer's annual work period is the usual amount of time an individual working full-time in a specific position is required to work. E file 1040ez Generally, this period of time is expressed in days, weeks, months, or semesters, and can span 2 calendar years. E file 1040ez Note. E file 1040ez You cannot accumulate more than 1 year of service in a 12-month period. E file 1040ez Example. E file 1040ez All full-time teachers at ABC Public Schools are required to work both the September through December semester and the February through May semester. E file 1040ez Therefore, the annual work period for full-time teachers employed by ABC Public Schools is September through December and February through May. E file 1040ez Teachers at ABC Public Schools who work both semesters in the same calendar year are considered working a full year of service in that calendar year. E file 1040ez Full-Time Employee for the Full Year Count each full year during which you were employed full-time as 1 year of service. E file 1040ez In determining whether you were employed full-time, compare the amount of work you were required to perform with the amount of work normally required of others who held the same position with the same employer and who generally received most of their pay from the position. E file 1040ez How to compare. E file 1040ez   You can use any method that reasonably and accurately reflects the amount of work required. E file 1040ez For example, if you are a teacher, you can use the number of hours of classroom instruction as a measure of the amount of work required. E file 1040ez   In determining whether positions with the same employer are the same, consider all of the facts and circumstances concerning the positions, including the work performed, the methods by which pay is determined, and the descriptions (or titles) of the positions. E file 1040ez Example. E file 1040ez An assistant professor employed in the English department of a university will be considered a full-time employee if the amount of work that he or she is required to perform is the same as the amount of work normally required of assistant professors of English at that university who get most of their pay from that position. E file 1040ez   If no one else works for your employer in the same position, compare your work with the work normally required of others who held the same position with similar employers or similar positions with your employer. E file 1040ez Full year of service. E file 1040ez   A full year of service for a particular position means the usual annual work period of anyone employed full-time in that general type of work at that place of employment. E file 1040ez Example. E file 1040ez If a doctor works for a hospital 12 months of a year except for a 1-month vacation, the doctor will be considered as employed for a full year if the other doctors at that hospital also work 11 months of the year with a 1-month vacation. E file 1040ez Similarly, if the usual annual work period at a university consists of the fall and spring semesters, an instructor at that university who teaches these semesters will be considered as working a full year. E file 1040ez Other Than Full-Time for the Full Year If, during any year, you were employed full-time for only part of your employer's annual work period, part-time for the entire annual work period, or part-time for only part of the work period, your year of service for that year is a fraction of your employer's annual work period. E file 1040ez Full-time for part of the year. E file 1040ez   If, during a year, you were employed full-time for only part of your employer's annual work period, figure the fraction for that year as follows: The numerator (top number) is the number of weeks, months, or semesters you were a full-time employee. E file 1040ez The denominator (bottom number) is the number of weeks, months, or semesters considered the normal annual work period for the position. E file 1040ez Example. E file 1040ez Jason was employed as a full-time instructor by a local college for the 4 months of the 2013 spring semester (February 2013 through May 2013). E file 1040ez The annual work period for the college is 8 months (February through May and July through October). E file 1040ez Given these facts, Jason was employed full-time for part of the annual work period and provided ½ of a year of service. E file 1040ez Jason's years of service computation for 2013 is as follows: Number of months Jason worked = 4 = 1 Number of months in annual work period 8 2 Part-time for the full year. E file 1040ez   If, during a year, you were employed part-time for the employer's entire annual work period, you figure the fraction for that year as follows: The numerator (top number) is the number of hours or days you worked. E file 1040ez The denominator (bottom number) is the number of hours or days normally required of someone holding the same position who works full-time. E file 1040ez Example. E file 1040ez Vance teaches one course at a local medical school. E file 1040ez He teaches 3 hours per week for two semesters. E file 1040ez Other faculty members at the same school teach 9 hours per week for two semesters. E file 1040ez The annual work period of the medical school is two semesters. E file 1040ez An instructor teaching 9 hours a week for two semesters is considered a full-time employee. E file 1040ez Given these facts, Vance has worked part-time for a full annual work period. E file 1040ez Vance has completed 1/3 of a year of service, figured as shown below. E file 1040ez Number of hours per week Vance worked = 3 = 1 Number of hours per week considered full-time 9 3 Part-time for part of the year. E file 1040ez   If, during any year, you were employed part-time for only part of your employer's annual work period, you figure your fraction for that year by multiplying two fractions. E file 1040ez   Figure the first fraction as though you had worked full-time for part of the annual work period. E file 1040ez The fraction is as follows: The numerator (top number) is the number of weeks, months, or semesters you were a full-time employee. E file 1040ez The denominator (bottom number) is the number of weeks, months, or semesters considered the normal annual work period for the position. E file 1040ez   Figure the second fraction as though you had worked part-time for the entire annual work period. E file 1040ez The fraction is as follows: The numerator (top number) is the number of hours or days you worked. E file 1040ez The denominator (bottom number) is the number of hours or days normally required of someone holding the same position who works full-time. E file 1040ez   Once you have figured these two fractions, multiply them together to determine the fraction representing your partial year of service for the year. E file 1040ez Example. E file 1040ez Maria, an attorney, teaches a course for one semester at a law school. E file 1040ez She teaches 3 hours per week. E file 1040ez The annual work period for teachers at the school is two semesters. E file 1040ez All full-time instructors at the school are required to teach 12 hours per week. E file 1040ez Based on these facts, Maria is employed part-time for part of the annual work period. E file 1040ez Her year of service for this year is determined by multiplying two fractions. E file 1040ez Her computation is as follows: Maria's first fraction Number of semesters Maria worked = 1 Number of semesters in annual work period 2 Maria's second fraction Number of hours Maria worked per week = 3 = 1 Number of hours per week considered full-time 12 4 Maria would multiply these fractions to obtain the fractional year of service: 1 x 1 = 1         2 4 8         Figuring the Limit on Elective Deferrals You can use Part II of Worksheet 1 in chapter 9 to figure the limit on elective deferrals. E file 1040ez Example Floyd has figured his limit on annual additions. E file 1040ez The only other component needed before he can determine his MAC for 2014 is his limit on elective deferrals. E file 1040ez Figuring Floyd's limit on elective deferrals. E file 1040ez   Floyd has been employed with his current employer for less than 15 years. E file 1040ez He is not eligible for the special 15-year increase. E file 1040ez Therefore, his limit on elective deferrals for 2014 is $17,500 as shown in Table 4-2. E file 1040ez Floyd's employer will not make any nonelective contributions to his 403(b) account and Floyd will not make any after-tax contributions. E file 1040ez Additionally, Floyd's employer does not offer a Roth contribution program. E file 1040ez Figuring Floyd's MAC Floyd has determined that his limit on annual additions for 2014 is $52,000 and his limit on elective deferrals is $17,500. E file 1040ez Because elective deferrals are the only contributions made to Floyd's account, the maximum amount that can be contributed to a 403(b) account on Floyd's behalf in 2014 is $17,500, the lesser of both limits. E file 1040ez Table 4-2. E file 1040ez Worksheet 1. E file 1040ez Maximum Amount Contributable (MAC) Note. E file 1040ez Use this worksheet to figure your MAC. E file 1040ez Part I. E file 1040ez Limit on Annual Additions     1. E file 1040ez Enter your includible compensation for your most recent year of service 1. E file 1040ez $70,475 2. E file 1040ez Maximum: For 2013 enter $51,000 For 2014 enter $52,000 2. E file 1040ez 52,000 3. E file 1040ez Enter the lesser of line 1 or line 2. E file 1040ez This is your limit on annual additions 3. E file 1040ez 52,000   Caution: If you had only nonelective contributions, skip Part II and enter the amount from line 3 on line 18. E file 1040ez     Part II. E file 1040ez Limit on Elective Deferrals     4. E file 1040ez Maximum contribution: For 2013, enter $17,500 For 2014, enter $17,500 4. E file 1040ez 17,500   Note. E file 1040ez If you have at least 15 years of service with a qualifying organization, complete lines 5 through 17. E file 1040ez If not, enter zero (-0-) on line 16 and go to line 17. E file 1040ez     5. E file 1040ez Amount per year of service 5. E file 1040ez 5,000 6. E file 1040ez Enter your years of service 6. E file 1040ez   7. E file 1040ez Multiply line 5 by line 6 7. E file 1040ez   8. E file 1040ez Enter the total of all elective deferrals made for you by the qualifying organization for prior years 8. E file 1040ez   9. E file 1040ez Subtract line 8 from line 7. E file 1040ez If zero or less, enter zero (-0-) 9. E file 1040ez   10. E file 1040ez Maximum increase in limit for long service 10. E file 1040ez 15,000 11. E file 1040ez Enter the total of additional pre-tax elective deferrals made in prior years under the 15-year rule 11. E file 1040ez   12. E file 1040ez Enter the aggregate amount of all designated Roth contributions permitted for prior years under the 15-year rule 12. E file 1040ez   13. E file 1040ez Add lines 11 and 12 13. E file 1040ez   14. E file 1040ez Subtract line 13 from line 10 14. E file 1040ez   15. E file 1040ez Maximum additional contributions 15. E file 1040ez 3,000 16. E file 1040ez Enter the least of lines 9, 14, or 15. E file 1040ez This is your increase in the limit for long service 16. E file 1040ez -0- 17. E file 1040ez Add lines 4 and 16. E file 1040ez This is your limit on elective deferrals 17. E file 1040ez 17,500   Part III. E file 1040ez Maximum Amount Contributable     18. E file 1040ez If you had only nonelective contributions, enter the amount from line 3. E file 1040ez This is your MAC. E file 1040ez    If you had only elective deferrals, enter the lesser of lines 3 or 17. E file 1040ez This is your MAC. E file 1040ez    If you had both elective deferrals and nonelective contributions, enter the amount from line 3. E file 1040ez This is your MAC. E file 1040ez (Use the amount on line 17 to determine if you have excess elective deferrals as explained in chapter 7. E file 1040ez ) 18. E file 1040ez $17,500 Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Filing and Paying Your Business Taxes

Paying

Electronic Payment Options 
A secure way to pay your Federal taxes.

Filing

Electronic Filing Options for Business and Self-Employed Taxpayers
There are electronic filing options available for many of the taxes and forms that small businesses are required to file, such as excise and employment taxes, Forms 1120, 7004, 1041 and various information returns.

Employer Identification Number
An Employer Identification Number (EIN), also known as a federal tax identification number, is used to identify tax reports to the IRS.

Business Taxes
The form of business you operate determines what taxes you must pay and how you pay them.

Estimated Taxes
Federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. There are two ways to pay as you go: withholding and estimated taxes.

Employment Taxes for Small Businesses
If you have employees, you are responsible for several federal, state, and local taxes. As an employer, you must withhold Federal income tax withholding, social security and Medicare taxes, and Federal Unemployment Tax Act (FUTA) taxes.

Self-Employment Taxes
The self-employment tax is a social security and Medicare tax for individuals who work for themselves.

Reporting Information Returns
Your business may be required to file information returns to report certain types of payments made during the year.

e-File Form 940, 941 or 944 for Small Businesses
Learn your options for e-filing form 940, 941 or 944 for Small Businesses.

Filing Past Due Tax Returns
Before you decide not to file your tax return on time or not pay all of your taxes when they are due, consider this.

Reporting Payments to Independent Contractors
If you pay independent contractors, you may have to file Form 1099-MISC, Miscellaneous Income, to report payments for services performed for your trade or business.

Rate the Small Business and Self-Employed Web Site

Page Last Reviewed or Updated: 21-Mar-2014

The E File 1040ez

E file 1040ez Publication 936 - Main Content Table of Contents Part I. E file 1040ez Home Mortgage InterestSecured Debt Qualified Home Special Situations Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement How To Report Special Rule for Tenant-Stockholders in Cooperative Housing Corporations Part II. E file 1040ez Limits on Home Mortgage Interest DeductionHome Acquisition Debt Home Equity Debt Grandfathered Debt Table 1 Instructions How To Get Tax HelpLow Income Taxpayer Clinics Part I. E file 1040ez Home Mortgage Interest This part explains what you can deduct as home mortgage interest. E file 1040ez It includes discussions on points, mortgage insurance premiums, and how to report deductible interest on your tax return. E file 1040ez Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). E file 1040ez The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. E file 1040ez You can deduct home mortgage interest if all the following conditions are met. E file 1040ez You file Form 1040 and itemize deductions on Schedule A (Form 1040). E file 1040ez The mortgage is a secured debt on a qualified home in which you have an ownership interest. E file 1040ez Secured Debt and Qualified Home are explained later. E file 1040ez  Both you and the lender must intend that the loan be repaid. E file 1040ez Fully deductible interest. E file 1040ez   In most cases, you can deduct all of your home mortgage interest. E file 1040ez How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. E file 1040ez   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. E file 1040ez (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. E file 1040ez ) 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. E file 1040ez   The three categories are as follows. E file 1040ez Mortgages you took out on or before October 13, 1987 (called grandfathered debt). E file 1040ez Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2013 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately). E file 1040ez Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2013 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2). E file 1040ez The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. E file 1040ez   See Part II for more detailed definitions of grandfathered, home acquisition, and home equity debt. E file 1040ez    You can use Figure A to check whether your home mortgage interest is fully deductible. E file 1040ez This image is too large to be displayed in the current screen. E file 1040ez Please click the link to view the image. E file 1040ez Figure A. E file 1040ez Is My Home Mortgage Interest Fully Deductible? Secured Debt You can deduct your home mortgage interest only if your mortgage is a secured debt. E file 1040ez 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. E file 1040ez In other words, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. E file 1040ez If you cannot pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt. E file 1040ez In this publication, mortgage will refer to secured debt. E file 1040ez Debt not secured by home. E file 1040ez   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). E file 1040ez   A debt is not secured by your home if it once was, but is no longer secured by your home. E file 1040ez Wraparound mortgage. E file 1040ez   This is not a secured debt unless it is recorded or otherwise perfected under state law. E file 1040ez Example. E file 1040ez Beth owns a home subject to a mortgage of $40,000. E file 1040ez She sells the home for $100,000 to John, who takes it subject to the $40,000 mortgage. E file 1040ez Beth continues to make the payments on the $40,000 note. E file 1040ez John pays $10,000 down and gives Beth a $90,000 note secured by a wraparound mortgage on the home. E file 1040ez Beth does not record or otherwise perfect the $90,000 mortgage under the state law that applies. E file 1040ez Therefore, the mortgage is not a secured debt and John cannot deduct any of the interest he pays on it as home mortgage interest. E file 1040ez Choice to treat the debt as not secured by your home. E file 1040ez   You can choose to treat any debt secured by your qualified home as not secured by the home. E file 1040ez This treatment begins with the tax year for which you make the choice and continues for all later tax years. E file 1040ez You can revoke your choice only with the consent of the Internal Revenue Service (IRS). E file 1040ez   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. E file 1040ez This may allow you, if the limits in Part II apply, more of a deduction for interest on other debts that are deductible only as home mortgage interest. E file 1040ez Cooperative apartment owner. E file 1040ez   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. E file 1040ez Qualified Home For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. E file 1040ez This means your main home or your second home. E file 1040ez A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. E file 1040ez 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. E file 1040ez Otherwise, it is considered personal interest and is not deductible. E file 1040ez Main home. E file 1040ez   You can have only one main home at any one time. E file 1040ez This is the home where you ordinarily live most of the time. E file 1040ez Second home. E file 1040ez   A second home is a home that you choose to treat as your second home. E file 1040ez Second home not rented out. E file 1040ez   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. E file 1040ez You do not have to use the home during the year. E file 1040ez Second home rented out. E file 1040ez   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. E file 1040ez 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. E file 1040ez If you do not use the home long enough, it is considered rental property and not a second home. E file 1040ez For information on residential rental property, see Publication 527. E file 1040ez More than one second home. E file 1040ez   If you have more than one second home, you can treat only one as the qualified second home during any year. E file 1040ez However, you can change the home you treat as a second home during the year in the following situations. E file 1040ez 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. E file 1040ez 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. E file 1040ez 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. E file 1040ez Divided use of your home. E file 1040ez   The only part of your home that is considered a qualified home is the part you use for residential living. E file 1040ez 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. E file 1040ez 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. E file 1040ez 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. E file 1040ez (See Home Acquisition Debt in Part II. E file 1040ez ) Dividing the fair market value may affect your home equity debt limit, also explained in Part II . E file 1040ez Renting out part of home. E file 1040ez   If you rent out part of a qualified home to another person (tenant), you can treat the rented part as being used by you for residential living only if all of the following conditions apply. E file 1040ez The rented part of your home is used by the tenant primarily for residential living. E file 1040ez The rented part of your home is not a self-contained residential unit having separate sleeping, cooking, and toilet facilities. E file 1040ez 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. E file 1040ez If two persons (and dependents of either) share the same sleeping quarters, they are treated as one tenant. E file 1040ez Office in home. E file 1040ez   If you have an office in your home that you use in your business, see Publication 587, Business Use of Your Home. E file 1040ez It explains how to figure your deduction for the business use of your home, which includes the business part of your home mortgage interest. E file 1040ez Home under construction. E file 1040ez   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. E file 1040ez   The 24-month period can start any time on or after the day construction begins. E file 1040ez Home destroyed. E file 1040ez   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. E file 1040ez This means you can continue to deduct the interest you pay on your home mortgage, subject to the limits described in this publication. E file 1040ez   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. E file 1040ez   This rule applies to your main home and to a second home that you treat as a qualified home. E file 1040ez Time-sharing arrangements. E file 1040ez   You can treat a home you own under a time-sharing plan as a qualified home if it meets all the requirements. E file 1040ez 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. E file 1040ez Rental of time-share. E file 1040ez   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. E file 1040ez See Second home rented out , earlier, for the use requirement. E file 1040ez 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. E file 1040ez Married taxpayers. E file 1040ez   If you are married and file a joint return, your qualified home(s) can be owned either jointly or by only one spouse. E file 1040ez Separate returns. E file 1040ez   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. E file 1040ez However, if you both consent in writing, then one spouse can take both the main home and a second home into account. E file 1040ez Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. E file 1040ez It also describes certain special situations that may affect your deduction. E file 1040ez Late payment charge on mortgage payment. E file 1040ez   You can deduct as home mortgage interest a late payment charge if it was not for a specific service performed in connection with your mortgage loan. E file 1040ez Mortgage prepayment penalty. E file 1040ez   If you pay off your home mortgage early, you may have to pay a penalty. E file 1040ez 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. E file 1040ez Sale of home. E file 1040ez   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. E file 1040ez Example. E file 1040ez John and Peggy Harris sold their home on May 7. E file 1040ez Through April 30, they made home mortgage interest payments of $1,220. E file 1040ez 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. E file 1040ez Their mortgage interest deduction is $1,270 ($1,220 + $50). E file 1040ez Prepaid interest. E file 1040ez   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. E file 1040ez You can deduct in each year only the interest that qualifies as home mortgage interest for that year. E file 1040ez However, there is an exception that applies to points, discussed later. E file 1040ez Mortgage interest credit. E file 1040ez    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. E file 1040ez Figure the credit on Form 8396, Mortgage Interest Credit. E file 1040ez If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. E file 1040ez   See Form 8396 and Publication 530 for more information on the mortgage interest credit. E file 1040ez Ministers' and military housing allowance. E file 1040ez   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. E file 1040ez Hardest Hit Fund and Emergency Homeowners' Loan Programs. E file 1040ez   You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. E file 1040ez You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. E file 1040ez 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. E file 1040ez If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098–MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received from payer(s) / borrower(s)), box 4 (mortgage insurance premiums), and box 5 (other information including real property taxes paid). E file 1040ez However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. E file 1040ez Mortgage assistance payments under section 235 of the National Housing Act. E file 1040ez   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. E file 1040ez You cannot deduct the interest that is paid for you. E file 1040ez No other effect on taxes. E file 1040ez   Do not include these mortgage assistance payments in your income. E file 1040ez Also, do not use these payments to reduce other deductions, such as real estate taxes. E file 1040ez Divorced or separated individuals. E file 1040ez   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. E file 1040ez See the discussion of Payments for jointly-owned home under Alimony in Publication 504, Divorced or Separated Individuals. E file 1040ez Redeemable ground rents. E file 1040ez   In some states (such as Maryland), you can buy your home subject to a ground rent. E file 1040ez A ground rent is an obligation you assume to pay a fixed amount per year on the property. E file 1040ez Under this arrangement, you are leasing (rather than buying) the land on which your home is located. E file 1040ez   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. E file 1040ez   A ground rent is a redeemable ground rent if all of the following are true. E file 1040ez Your lease, including renewal periods, is for more than 15 years. E file 1040ez You can freely assign the lease. E file 1040ez 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. E file 1040ez The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. E file 1040ez   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. E file 1040ez Nonredeemable ground rents. E file 1040ez   Payments on a nonredeemable ground rent are not mortgage interest. E file 1040ez You can deduct them as rent if they are a business expense or if they are for rental property. E file 1040ez Reverse mortgages. E file 1040ez   A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. E file 1040ez With a reverse mortgage, you retain title to your home. E file 1040ez Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. E file 1040ez Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. E file 1040ez Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full. E file 1040ez Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Part II. E file 1040ez Rental payments. E file 1040ez   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. E file 1040ez This is true even if the settlement papers call them interest. E file 1040ez You cannot deduct these payments as home mortgage interest. E file 1040ez Mortgage proceeds invested in tax-exempt securities. E file 1040ez   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. E file 1040ez “Grandfathered debt” and “home equity debt” are defined in Part II of this publication. E file 1040ez Refunds of interest. E file 1040ez   If you receive a refund of interest in the same tax year you paid it, you must reduce your interest expense by the amount refunded to you. E file 1040ez 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. E file 1040ez However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. E file 1040ez This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. E file 1040ez If you need to include the refund in income, report it on Form 1040, line 21. E file 1040ez   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. E file 1040ez For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. E file 1040ez   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in Publication 525, Taxable and Nontaxable Income. E file 1040ez Cooperative apartment owner. E file 1040ez   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. E file 1040ez The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. E file 1040ez   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. E file 1040ez Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. E file 1040ez Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. E file 1040ez This image is too large to be displayed in the current screen. E file 1040ez Please click the link to view the image. E file 1040ez Figure B. E file 1040ez 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. E file 1040ez See Points paid by the seller , later. E file 1040ez General Rule You generally cannot deduct the full amount of points in the year paid. E file 1040ez Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. E file 1040ez See Deduction Allowed Ratably , next. E file 1040ez For exceptions to the general rule, see Deduction Allowed in Year Paid , later. E file 1040ez Deduction Allowed Ratably If you do not meet the tests listed under Deduction Allowed in Year Paid , later, the loan is not a home improvement loan, or you choose not to deduct your points in full in the year paid, you can deduct the points ratably (equally) over the life of the loan if you meet all the following tests. E file 1040ez You use the cash method of accounting. E file 1040ez This means you report income in the year you receive it and deduct expenses in the year you pay them. E file 1040ez Most individuals use this method. E file 1040ez Your loan is secured by a home. E file 1040ez (The home does not need to be your main home. E file 1040ez ) Your loan period is not more than 30 years. E file 1040ez 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. E file 1040ez Either your loan amount is $250,000 or less, or the number of points is not more than: 4, if your loan period is 15 years or less, or 6, if your loan period is more than 15 years. E file 1040ez Example. E file 1040ez You use the cash method of accounting. E file 1040ez In 2013, you took out a $100,000 loan payable over 20 years. E file 1040ez The terms of the loan are the same as for other 20-year loans offered in your area. E file 1040ez You paid $4,800 in points. E file 1040ez You made 3 monthly payments on the loan in 2013. E file 1040ez You can deduct $60 [($4,800 ÷ 240 months) x 3 payments] in 2013. E file 1040ez In 2014, if you make all twelve payments, you will be able to deduct $240 ($20 x 12). E file 1040ez Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. E file 1040ez (You can use Figure B as a quick guide to see whether your points are fully deductible in the year paid. E file 1040ez ) Your loan is secured by your main home. E file 1040ez (Your main home is the one you ordinarily live in most of the time. E file 1040ez ) Paying points is an established business practice in the area where the loan was made. E file 1040ez The points paid were not more than the points generally charged in that area. E file 1040ez You use the cash method of accounting. E file 1040ez This means you report income in the year you receive it and deduct expenses in the year you pay them. E file 1040ez Most individuals use this method. E file 1040ez 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. E file 1040ez The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. E file 1040ez The funds you provided are not required to have been applied to the points. E file 1040ez They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. E file 1040ez You cannot have borrowed these funds from your lender or mortgage broker. E file 1040ez You use your loan to buy or build your main home. E file 1040ez The points were computed as a percentage of the principal amount of the mortgage. E file 1040ez The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. E file 1040ez The points may be shown as paid from either your funds or the seller's. E file 1040ez Note. E file 1040ez 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. E file 1040ez Home improvement loan. E file 1040ez   You can also fully deduct in the year paid points paid on a loan to improve your main home, if tests (1) through (6) are met. E file 1040ez Second home. E file 1040ez You cannot fully deduct in the year paid points you pay on loans secured by your second home. E file 1040ez You can deduct these points only over the life of the loan. E file 1040ez Refinancing. E file 1040ez   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. E file 1040ez This is true even if the new mortgage is secured by your main home. E file 1040ez   However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first 6 tests listed under Deduction Allowed in Year Paid , you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. E file 1040ez You can deduct the rest of the points over the life of the loan. E file 1040ez Example 1. E file 1040ez In 1998, Bill Fields got a mortgage to buy a home. E file 1040ez In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. E file 1040ez The mortgage is secured by his home. E file 1040ez To get the new loan, he had to pay three points ($3,000). E file 1040ez 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. E file 1040ez Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. E file 1040ez The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. E file 1040ez Bill's first payment on the new loan was due July 1. E file 1040ez He made six payments on the loan in 2013 and is a cash basis taxpayer. E file 1040ez Bill used the funds from the new mortgage to repay his existing mortgage. E file 1040ez 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. E file 1040ez He cannot deduct all of the points in 2013. E file 1040ez He can deduct two points ($2,000) ratably over the life of the loan. E file 1040ez He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. E file 1040ez The other point ($1,000) was a fee for services and is not deductible. E file 1040ez Example 2. E file 1040ez 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. E file 1040ez Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. E file 1040ez His deduction is $500 ($2,000 × 25%). E file 1040ez Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. E file 1040ez This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. E file 1040ez The total amount Bill deducts in 2013 is $550 ($500 + $50). E file 1040ez Special Situations This section describes certain special situations that may affect your deduction of points. E file 1040ez Original issue discount. E file 1040ez   If you do not qualify to either deduct the points in the year paid or deduct them ratably over the life of the loan, or if you choose not to use either of these methods, the points reduce the issue price of the loan. E file 1040ez This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. E file 1040ez Amounts charged for services. E file 1040ez    Amounts charged by the lender for specific services connected to the loan are not interest. E file 1040ez Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. E file 1040ez  You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. E file 1040ez Points paid by the seller. E file 1040ez   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. E file 1040ez Treatment by seller. E file 1040ez   The seller cannot deduct these fees as interest. E file 1040ez But they are a selling expense that reduces the amount realized by the seller. E file 1040ez See Publication 523 for information on selling your home. E file 1040ez Treatment by buyer. E file 1040ez   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. E file 1040ez If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. E file 1040ez If any of those tests are not met, the buyer deducts the points over the life of the loan. E file 1040ez   If you need information about the basis of your home, see Publication 523 or Publication 530. E file 1040ez Funds provided are less than points. E file 1040ez   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the funds you provided were less than the points charged to you (test (6)), you can deduct the points in the year paid, up to the amount of funds you provided. E file 1040ez In addition, you can deduct any points paid by the seller. E file 1040ez Example 1. E file 1040ez When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). E file 1040ez You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. E file 1040ez Of the $1,000 charged for points, you can deduct $750 in the year paid. E file 1040ez You spread the remaining $250 over the life of the mortgage. E file 1040ez Example 2. E file 1040ez 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. E file 1040ez In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). E file 1040ez You spread the remaining $250 over the life of the mortgage. E file 1040ez You must reduce the basis of your home by the $1,000 paid by the seller. E file 1040ez Excess points. E file 1040ez   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the points paid were more than generally paid in your area (test (3)), you deduct in the year paid only the points that are generally charged. E file 1040ez You must spread any additional points over the life of the mortgage. E file 1040ez Mortgage ending early. E file 1040ez   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. E file 1040ez However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. E file 1040ez Instead, deduct the remaining balance over the term of the new loan. E file 1040ez   A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. E file 1040ez Example. E file 1040ez Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. E file 1040ez He deducts $200 points per year. E file 1040ez Through 2012, Dan has deducted $2,200 of the points. E file 1040ez Dan prepaid his mortgage in full in 2013. E file 1040ez He can deduct the remaining $800 of points in 2013. E file 1040ez Limits on deduction. E file 1040ez   You cannot fully deduct points paid on a mortgage that exceeds the limits discussed in Part II . E file 1040ez See the Table 1 Instructions for line 10. E file 1040ez Form 1098. E file 1040ez    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. E file 1040ez See Form 1098, Mortgage Interest Statement , later. E file 1040ez Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. E file 1040ez The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006. E file 1040ez Qualified mortgage insurance. E file 1040ez   Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). E file 1040ez   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. E file 1040ez If provided by the Rural Housing Service, it is commonly known as a guarantee fee. E file 1040ez The funding fee and guarantee fee can either be included in the amount of the loan or paid in full at the time of closing. E file 1040ez These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. E file 1040ez Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. E file 1040ez Special rules for prepaid mortgage insurance. E file 1040ez   Generally, if you paid premiums for qualified mortgage insurance that are properly allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. E file 1040ez You must allocate the premiums over the shorter of the stated term of the mortgage or 84 months, beginning with the month the insurance was obtained. E file 1040ez No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. E file 1040ez This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. E file 1040ez Example. E file 1040ez Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. E file 1040ez Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. E file 1040ez Since the $9,240 in private mortgage insurance is allocable to periods after 2012, Ryan must allocate the $9,240 over the shorter of the life of the mortgage or 84 months. E file 1040ez Ryan's adjusted gross income (AGI) for 2012 is $76,000. E file 1040ez Ryan can deduct $880 ($9,240 ÷ 84 x 8 months) for qualified mortgage insurance premiums in 2012. E file 1040ez For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 x 12 months) if his AGI is $100,000 or less. E file 1040ez 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). E file 1040ez Limit on deduction. E file 1040ez   If your adjusted gross income on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are otherwise deductible is reduced and may be eliminated. E file 1040ez See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. E file 1040ez If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. E file 1040ez Form 1098. E file 1040ez   The mortgage interest statement you receive should show not only the total interest paid during the year, but also your mortgage insurance premiums paid during the year, which may qualify to be treated as deductible mortgage interest. E file 1040ez See Form 1098, Mortgage Interest Statement, next. E file 1040ez Form 1098, Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement from the mortgage holder. E file 1040ez 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. E file 1040ez A governmental unit is a person for purposes of furnishing the statement. E file 1040ez The statement for each year should be sent to you by January 31 of the following year. E file 1040ez A copy of this form will also be sent to the IRS. E file 1040ez 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. E file 1040ez However, it should not show any interest that was paid for you by a government agency. E file 1040ez As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. E file 1040ez However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. E file 1040ez See the earlier discussion of Points to determine whether you can deduct points not shown on Form 1098. E file 1040ez Prepaid interest on Form 1098. E file 1040ez   If you prepaid interest in 2013 that accrued in full by January 15, 2014, this prepaid interest may be included in box 1 of Form 1098. E file 1040ez However, you cannot deduct the prepaid amount for January 2014 in 2013. E file 1040ez (See Prepaid interest , earlier. E file 1040ez ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. E file 1040ez You will include the interest for January 2014 with other interest you pay for 2014. E file 1040ez Refunded interest. E file 1040ez   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. E file 1040ez See Refunds of interest , earlier. E file 1040ez Mortgage insurance premiums. E file 1040ez   The amount of mortgage insurance premiums you paid during 2013 may be shown in Box 4 of Form 1098. E file 1040ez See Mortgage Insurance Premiums , earlier. E file 1040ez How To Report Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. E file 1040ez 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. E file 1040ez Attach a statement explaining the difference and print “See attached” next to line 10. E file 1040ez Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. E file 1040ez 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. E file 1040ez The seller must give you this number and you must give the seller your TIN. E file 1040ez A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. E file 1040ez Failure to meet any of these requirements may result in a $50 penalty for each failure. E file 1040ez 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. E file 1040ez 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. E file 1040ez Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. E file 1040ez More than one borrower. E file 1040ez   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. E file 1040ez Show how much of the interest each of you paid, and give the name and address of the person who received the form. E file 1040ez Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. E file 1040ez Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. E file 1040ez   Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. E file 1040ez Let each of the other borrowers know what his or her share is. E file 1040ez Mortgage proceeds used for business or investment. E file 1040ez   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. E file 1040ez It shows where to deduct the part of your excess interest that is for those activities. E file 1040ez 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. E file 1040ez Special Rule for Tenant-Stockholders in Cooperative Housing Corporations A qualified home includes stock in a cooperative housing corporation owned by a tenant-stockholder. E file 1040ez This applies only if the tenant-stockholder is entitled to live in the house or apartment because of owning stock in the cooperative. E file 1040ez Cooperative housing corporation. E file 1040ez   This is a corporation that meets all of the following conditions. E file 1040ez Has only one class of stock outstanding, Has no stockholders other than those who own the stock that can live in a house, apartment, or house trailer owned or leased by the corporation, Has no stockholders who can receive any distribution out of capital other than on a liquidation of the corporation, and Meets at least one of the following requirements. E file 1040ez Receives at least 80% of its gross income for the year in which the mortgage interest is paid or incurred from tenant-stockholders. E file 1040ez For this purpose, gross income is all income received during the entire year, including amounts received before the corporation changed to cooperative ownership. E file 1040ez 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. E file 1040ez 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. E file 1040ez Stock used to secure debt. E file 1040ez   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). E file 1040ez 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. E file 1040ez See chapter 4 of Publication 535 for details on these rules. E file 1040ez Figuring deductible home mortgage interest. E file 1040ez   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. E file 1040ez 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. E file 1040ez   Figure your share of this interest by multiplying the total by the following fraction. E file 1040ez      Your shares of stock in the cooperative   The total shares of stock in the cooperative Limits on deduction. E file 1040ez   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. E file 1040ez The cooperative should determine your share of its grandfathered debt, its home acquisition debt, and its home equity debt. E file 1040ez (Your share of each of these types of debt is equal to the average balance of each debt multiplied by the fraction just given. E file 1040ez ) 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. E file 1040ez Form 1098. E file 1040ez    The cooperative should give you a Form 1098 showing your share of the interest. E file 1040ez Use the rules in this publication to determine your deductible mortgage interest. E file 1040ez Part II. E file 1040ez Limits on Home Mortgage Interest Deduction This part of the publication discusses the limits on deductible home mortgage interest. E file 1040ez 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 . E file 1040ez 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. E file 1040ez 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. E file 1040ez Table 1 can help you figure your qualified loan limit and your deductible home mortgage interest. E file 1040ez Home Acquisition Debt Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home (your main or second home). E file 1040ez It also must be secured by that home. E file 1040ez 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. E file 1040ez The additional debt may qualify as home equity debt (discussed later). E file 1040ez Home acquisition debt limit. E file 1040ez   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). E file 1040ez This limit is reduced (but not below zero) by the amount of your grandfathered debt (discussed later). E file 1040ez Debt over this limit may qualify as home equity debt (also discussed later). E file 1040ez Refinanced home acquisition debt. E file 1040ez   Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. E file 1040ez 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. E file 1040ez Any additional debt not used to buy, build, or substantially improve a qualified home is not home acquisition debt, but may qualify as home equity debt (discussed later). E file 1040ez Mortgage that qualifies later. E file 1040ez   A mortgage that does not qualify as home acquisition debt because it does not meet all the requirements may qualify at a later time. E file 1040ez 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. E file 1040ez However, if the debt is later secured by the home, it may qualify as home acquisition debt after that time. E file 1040ez Similarly, a debt that you use to buy property may not qualify because the property is not a qualified home. E file 1040ez However, if the property later becomes a qualified home, the debt may qualify after that time. E file 1040ez Mortgage treated as used to buy, build, or improve home. E file 1040ez   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. E file 1040ez This applies in the following situations. E file 1040ez You buy your home within 90 days before or after the date you take out the mortgage. E file 1040ez 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). E file 1040ez (See Example 1 later. E file 1040ez ) You build or improve your home and take out the mortgage before the work is completed. E file 1040ez The home acquisition debt is limited to the amount of the expenses incurred within 24 months before the date of the mortgage. E file 1040ez You build or improve your home and take out the mortgage within 90 days after the work is completed. E file 1040ez 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. E file 1040ez (See Example 2 later. E file 1040ez ) Example 1. E file 1040ez You bought your main home on June 3 for $175,000. E file 1040ez You paid for the home with cash you got from the sale of your old home. E file 1040ez On July 15, you took out a mortgage of $150,000 secured by your main home. E file 1040ez You used the $150,000 to invest in stocks. E file 1040ez 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. E file 1040ez The entire mortgage qualifies as home acquisition debt because it was not more than the home's cost. E file 1040ez Example 2. E file 1040ez On January 31, John began building a home on the lot that he owned. E file 1040ez He used $45,000 of his personal funds to build the home. E file 1040ez The home was completed on October 31. E file 1040ez On November 21, John took out a $36,000 mortgage that was secured by the home. E file 1040ez The mortgage can be treated as used to build the home because it was taken out within 90 days after the home was completed. E file 1040ez 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. E file 1040ez This is illustrated by Figure C. E file 1040ez   Please click here for the text description of the image. E file 1040ez Figure C. E file 1040ez John's example Date of the mortgage. E file 1040ez   The date you take out your mortgage is the day the loan proceeds are disbursed. E file 1040ez This is generally the closing date. E file 1040ez You can treat the day you apply in writing for your mortgage as the date you take it out. E file 1040ez However, this applies only if you receive the loan proceeds within a reasonable time (such as within 30 days) after your application is approved. E file 1040ez If a timely application you make is rejected, a reasonable additional time will be allowed to make a new application. E file 1040ez Cost of home or improvements. E file 1040ez   To determine your cost, include amounts paid to acquire any interest in a qualified home or to substantially improve the home. E file 1040ez   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. E file 1040ez Substantial improvement. E file 1040ez   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. E file 1040ez    Repairs that maintain your home in good condition, such as repainting your home, are not substantial improvements. E file 1040ez 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. E file 1040ez Acquiring an interest in a home because of a divorce. E file 1040ez   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. E file 1040ez Part of home not a qualified home. E file 1040ez    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. E file 1040ez See Divided use of your home under Qualified Home in Part I. E file 1040ez Home Equity Debt If you took out a loan for reasons other than to buy, build, or substantially improve your home, it may qualify as home equity debt. E file 1040ez 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. E file 1040ez 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. E file 1040ez Example. E file 1040ez You bought your home for cash 10 years ago. E file 1040ez 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. E file 1040ez This loan is home equity debt. E file 1040ez Home equity debt limit. E file 1040ez   There is a limit on the amount of debt that can be treated as home equity debt. E file 1040ez 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. E file 1040ez 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. E file 1040ez Example. E file 1040ez You own one home that you bought in 2000. E file 1040ez Its FMV now is $110,000, and the current balance on your original mortgage (home acquisition debt) is $95,000. E file 1040ez Bank M offers you a home mortgage loan of 125% of the FMV of the home less any outstanding mortgages or other liens. E file 1040ez To consolidate some of your other debts, you take out a $42,500 home mortgage loan [(125% × $110,000) − $95,000] with Bank M. E file 1040ez Your home equity debt is limited to $15,000. E file 1040ez 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. E file 1040ez Debt higher than limit. E file 1040ez   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. E file 1040ez But if the proceeds of the loan were used for investment, business, or other deductible purposes, the interest may be deductible. E file 1040ez If it is, see the Table 1 Instructions for line 13 for an explanation of how to allocate the excess interest. E file 1040ez Part of home not a qualified home. E file 1040ez   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. E file 1040ez See Divided use of your home under Qualified Home in Part I. E file 1040ez Fair market value (FMV). E file 1040ez    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. E file 1040ez 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. E file 1040ez Grandfathered Debt If you took out a mortgage on your home before October 14, 1987, or you refinanced such a mortgage, it may qualify as grandfathered debt. E file 1040ez To qualify, it must have been secured by your qualified home on October 13, 1987, and at all times after that date. E file 1040ez How you used the proceeds does not matter. E file 1040ez Grandfathered debt is not limited. E file 1040ez All of the interest you paid on grandfathered debt is fully deductible home mortgage interest. E file 1040ez 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. E file 1040ez Refinanced grandfathered debt. E file 1040ez   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. E file 1040ez 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). E file 1040ez The debt must be secured by the qualified home. E file 1040ez   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. E file 1040ez After that, you treat it as home acquisition debt or home equity debt, depending on how you used the proceeds. E file 1040ez Exception. E file 1040ez   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. E file 1040ez This term cannot be more than 30 years. E file 1040ez Example. E file 1040ez Chester took out a $200,000 first mortgage on his home in 1986. E file 1040ez The mortgage was a five-year balloon note and the entire balance on the note was due in 1991. E file 1040ez Chester refinanced the debt in 1991 with a new 20-year mortgage. E file 1040ez The refinanced debt is treated as grandfathered debt for its entire term (20 years). E file 1040ez Line-of-credit mortgage. E file 1040ez    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. E file 1040ez The balance on the mortgage before you borrowed the additional amounts is grandfathered debt. E file 1040ez The newly borrowed amounts are not grandfathered debt because the funds were borrowed after October 13, 1987. E file 1040ez See Average Mortgage Balance in the Table 1 Instructions that follow. E file 1040ez Table 1 Instructions Unless you are subject to the overall limit on itemized deductions, you can deduct all of the interest you paid during the year on mortgages secured by your main home or second home in either of the following two situations. E file 1040ez All the mortgages are grandfathered debt. E file 1040ez The total of the mortgage balances for the entire year is within the limits discussed earlier under Home Acquisition Debt and Home Equity Debt . E file 1040ez In either of those cases, you do not need Table 1. E file 1040ez Otherwise, you can use Table 1 to determine your qualified loan limit and deductible home mortgage interest. E file 1040ez Fill out only one Table 1 for both your main and second home regardless of how many mortgages you have. E file 1040ez Table 1. E file 1040ez Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. E file 1040ez Part I Qualified Loan Limit 1. E file 1040ez Enter the average balance of all your grandfathered debt. E file 1040ez See line 1 instructions 1. E file 1040ez   2. E file 1040ez Enter the average balance of all your home acquisition debt. E file 1040ez See line 2 instructions 2. E file 1040ez   3. E file 1040ez Enter $1,000,000 ($500,000 if married filing separately) 3. E file 1040ez   4. E file 1040ez Enter the larger of the amount on line 1 or the amount on line 3 4. E file 1040ez   5. E file 1040ez Add the amounts on lines 1 and 2. E file 1040ez Enter the total here 5. E file 1040ez   6. E file 1040ez Enter the smaller of the amount on line 4 or the amount on line 5 6. E file 1040ez   7. E file 1040ez If you have home equity debt, enter the smaller of $100,000 ($50,000 if married filing separately) or your limited amount. E file 1040ez See the line 7 instructions for the limit which may apply to you. E file 1040ez 7. E file 1040ez   8. E file 1040ez Add the amounts on lines 6 and 7. E file 1040ez Enter the total. E file 1040ez This is your qualified loan limit. E file 1040ez 8. E file 1040ez   Part II Deductible Home Mortgage Interest 9. E file 1040ez Enter the total of the average balances of all mortgages on all qualified homes. E file 1040ez  See line 9 instructions 9. E file 1040ez     If line 8 is less than line 9, go on to line 10. E file 1040ez If line 8 is equal to or more than line 9, stop here. E file 1040ez All of your interest on all the mortgages included on line 9 is deductible as home mortgage interest on Schedule A (Form 1040). E file 1040ez     10. E file 1040ez Enter the total amount of interest that you paid. E file 1040ez See line 10 instructions 10. E file 1040ez   11. E file 1040ez Divide the amount on line 8 by the amount on line 9. E file 1040ez Enter the result as a decimal amount (rounded to three places) 11. E file 1040ez × . E file 1040ez 12. E file 1040ez Multiply the amount on line 10 by the decimal amount on line 11. E file 1040ez Enter the result. E file 1040ez This is your deductible home mortgage interest. E file 1040ez Enter this amount on Schedule A (Form 1040) 12. E file 1040ez   13. E file 1040ez Subtract the amount on line 12 from the amount on line 10. E file 1040ez Enter the result. E file 1040ez This is not home mortgage interest. E file 1040ez See line 13 instructions 13. E file 1040ez   Home equity debt only. E file 1040ez   If all of your mortgages are home equity debt, do not fill in lines 1 through 5. E file 1040ez Enter zero on line 6 and complete the rest of Table 1. E file 1040ez Average Mortgage Balance You have to figure the average balance of each mortgage to determine your qualified loan limit. E file 1040ez You need these amounts to complete lines 1, 2, and 9 of Table 1. E file 1040ez You can use the highest mortgage balances during the year, but you may benefit most by using the average balances. E file 1040ez The following are methods you can use to figure your average mortgage balances. E file 1040ez However, if a mortgage has more than one category of debt, see Mixed-use mortgages , later, in this section. E file 1040ez Average of first and last balance method. E file 1040ez   You can use this method if all the following apply. E file 1040ez You did not borrow any new amounts on the mortgage during the year. E file 1040ez (This does not include borrowing the original mortgage amount. E file 1040ez ) You did not prepay more than one month's principal during the year. E file 1040ez (This includes prepayment by refinancing your home or by applying proceeds from its sale. E file 1040ez ) You had to make level payments at fixed equal intervals on at least a semi-annual basis. E file 1040ez You treat your payments as level even if they were adjusted from time to time because of changes in the interest rate. E file 1040ez    To figure your average balance, complete the following worksheet. E file 1040ez    1. E file 1040ez 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. E file 1040ez 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. E file 1040ez Add amounts on lines 1 and 2   4. E file 1040ez Divide the amount on line 3 by 2. E file 1040ez Enter the result   Interest paid divided by interest rate method. E file 1040ez   You can use this method if at all times in 2013 the mortgage was secured by your qualified home and the interest was paid at least monthly. E file 1040ez    Complete the following worksheet to figure your average balance. E file 1040ez    1. E file 1040ez Enter the interest paid in 2013. E file 1040ez Do not include points, mortgage insurance premiums, or any interest paid in 2013 that is for a year after 2013. E file 1040ez However, do include interest that is for 2013 but was paid in an earlier year   2. E file 1040ez Enter the annual interest rate on the mortgage. E file 1040ez If the interest rate varied in 2013, use the lowest rate for the year   3. E file 1040ez Divide the amount on line 1 by the amount on line 2. E file 1040ez Enter the result   Example. E file 1040ez Mr. E file 1040ez Blue had a line of credit secured by his main home all year. E file 1040ez He paid interest of $2,500 on this loan. E file 1040ez The interest rate on the loan was 9% (. E file 1040ez 09) all year. E file 1040ez His average balance using this method is $27,778, figured as follows. E file 1040ez 1. E file 1040ez Enter the interest paid in 2013. E file 1040ez Do not include points, mortgage insurance premiums, or any interest paid in 2013 that is for a year after 2013. E file 1040ez However, do include interest that is for 2013 but was paid in an earlier year $2,500 2. E file 1040ez Enter the annual interest rate on the mortgage. E file 1040ez If the interest rate varied in 2013, use the lowest rate for the year . E file 1040ez 09 3. E file 1040ez Divide the amount on line 1 by the amount on line 2. E file 1040ez Enter the result $27,778 Statements provided by your lender. E file 1040ez   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. E file 1040ez You can treat the balance as zero for any month the mortgage was not secured by your qualified home. E file 1040ez   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. E file 1040ez   If your lender can give you your average balance for the year, you can use that amount. E file 1040ez Example. E file 1040ez Ms. E file 1040ez Brown had a home equity loan secured by her main home all year. E file 1040ez She received monthly statements showing her average balance for each month. E file 1040ez She can figure her average balance for the year by adding her monthly average balances and dividing the total by 12. E file 1040ez Mixed-use mortgages. E file 1040ez   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). E file 1040ez 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). E file 1040ez   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. E file 1040ez Do not use the methods described earlier in this section to figure the average balance of either category. E file 1040ez Instead, for each category, use the following method. E file 1040ez Figure the balance of that category of debt for each month. E file 1040ez 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. E file 1040ez 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. E file 1040ez Add together the monthly balances figured in (1). E file 1040ez Divide the result in (2) by 12. E file 1040ez   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. E file 1040ez Example 1. E file 1040ez In 1986, Sharon took out a $1,400,000 mortgage to buy her main home (grandfathered debt). E file 1040ez On March 2, 2013, when the home had a fair market value of $1,700,000 and she owed $1,100,000 on the mortgage, Sharon took out a second mortgage for $200,000. E file 1040ez 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). E file 1040ez Under the loan agreement, Sharon must make principal payments of $1,000 at the end of each month. E file 1040ez During 2013, her principal payments on the second mortgage totaled $10,000. E file 1040ez 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. E file 1040ez The January and February balances were zero. E file 1040ez The March through December balances were all $180,000, because none of her principal payments are applied to the home acquisition debt. E file 1040ez (They are all applied to the home equity debt, reducing it to $10,000 [$20,000 − $10,000]. E file 1040ez ) The monthly balances of the home acquisition debt total $1,800,000 ($180,000 × 10). E file 1040ez Therefore, the average balance of the home acquisition debt for 2013 was $150,000 ($1,800,000 ÷ 12). E file 1040ez Example 2. E file 1040ez The facts are the same as in Example 1. E file 1040ez In 2014, Sharon's January through October principal payments on her second mortgage are applied to the home equity debt, reducing it to zero. E file 1040ez The balance of the home acquisition debt remains $180,000 for each of those months. E file 1040ez 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). E file 1040ez The monthly balances total $2,157,000 [($180,000 × 10) + $179,000 + $178,000]. E file 1040ez Therefore, the average balance of the home acquisition debt for 2014 is $179,750 ($2,157,000 ÷ 12). E file 1040ez L