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Income Tax Preparation

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Income Tax Preparation

Income tax preparation Index A Accelerated death benefits, Accelerated Death Benefits Accounting periods Change in, standard deduction not allowed, Persons not eligible for the standard deduction. Income tax preparation Accrued leave payment Disability retirement and, Accrued leave payment. Income tax preparation Adjusted gross income (AGI), Adjustments to Income Adjustments to income, Adjustments to Income Age Standard deduction for age 65 or older, Higher standard deduction for age (65 or older). Income tax preparation Age 65, Qualified Individual American Association of Retired Persons (AARP), Volunteer Income Tax Assistance and Tax Counseling for the Elderly. Income tax preparation Annuities, Pensions and Annuities Assistance (see Tax help) B Base amount, social security benefits, Base Amount Benefits Accident or health, Other compensation. Income tax preparation Long-term care, Long-Term Care Insurance Contracts No-fault insurance, Other compensation. Income tax preparation Sickness and injury, Sickness and Injury Benefits Social security, Are Any of Your Benefits Taxable? Veterans', Veterans' benefits. Income tax preparation Bequests, Gifts and inheritances. Income tax preparation Blind persons Standard deduction for, Higher standard deduction for blindness. Income tax preparation C Child and dependent care credit, Child and Dependent Care Credit Children Standard deduction for, Standard Deduction for Dependents Chronically ill persons, Chronically ill individual. Income tax preparation Chronically ill, defined, Terminally or chronically ill defined. Income tax preparation Compensation For services, Compensation for Services Loss or disfigurement, Other compensation. Income tax preparation Contributions Foreign employment, Foreign employment contributions. Income tax preparation Pension or annuity, Cost. Income tax preparation Cost, pension or annuity, Cost. Income tax preparation Credit Child and dependent care, Child and Dependent Care Credit Earned income, Earned Income Credit (EIC) The elderly or the disabled, Credit for the Elderly or the Disabled Credit for the elderly or the disabled, Credit for the Elderly or the Disabled D Death benefit, accelerated, Accelerated Death Benefits Decedents, Dependents. Income tax preparation Standard deduction, Decedent's final return. Income tax preparation Deductions Generally, Deductions Insurance premiums, Medical Insurance Premiums Itemized, Itemized Deductions Meals and lodging, Meals and Lodging Medical and dental, Medical and Dental Expenses Standard, Standard Deduction Dependents, Dependents. Income tax preparation Standard deduction for, Standard Deduction for Dependents Disabilities, individuals with Ownership and use test, Exception to use test for individuals with a disability. Income tax preparation Disability Person with, Persons with disabilities. Income tax preparation Physician's statement, Physician's statement. Income tax preparation Total and permanent, Permanent and total disability. Income tax preparation Disability income, Disability Pensions, Other compensation. Income tax preparation , Disability income. Income tax preparation Distributions, retirement plan, Retirement Plan Distributions Drugs (see Medicines) Dual-status taxpayers Standard deduction, Persons not eligible for the standard deduction. Income tax preparation E Early distributions, tax, Tax on Early Distributions Earned income credit, Earned Income Credit (EIC) Elderly or disabled credit, Credit for the Elderly or the Disabled Elderly persons Standard deduction for age 65 or older, Higher standard deduction for age (65 or older). Income tax preparation Employment tax withholding, Reminders Employment taxes, Employment taxes. Income tax preparation Endowment proceeds, Endowment Contract Proceeds Estimated tax, Tax Withholding and Estimated Tax, Estimated Tax, Who Must Make Estimated Tax Payments Excess accumulation, tax on, Tax on Excess Accumulation Exclusion, gain on sale of home, Maximum Amount of Exclusion F Federal Employees Compensation Act (FECA) payments, Federal Employees' Compensation Act (FECA). Income tax preparation Filing requirements Decedents, Dependents. Income tax preparation General requirements, General Requirements Surviving spouse, Surviving spouse. Income tax preparation Final return for decedent Standard deduction, Decedent's final return. Income tax preparation First-time homebuyer credit Recapture, Repaying the first-time homebuyer credit because you sold your home. Income tax preparation Form, Credit for the Elderly or the Disabled, Physician's statement. Income tax preparation 1099-R, Form 1099-R. Income tax preparation , Form 1099-R. Income tax preparation 5329, Form 5329. Income tax preparation 8853, Accelerated Death Benefits Schedule R, Credit for the Elderly or the Disabled, Physician's statement. Income tax preparation W-4P, Withholding. Income tax preparation Free tax services, Free help with your tax return. Income tax preparation G Gain on sale of home (see Sale of home) General rule, pension or annuity, Pensions and Annuities Gifts, Gifts and inheritances. Income tax preparation H Help (see Tax help) Home care (see Nursing services) Home improvements, Home Improvements Home, sale of, Sale of Home Hospital services, Hospital Services Household help, Household Help I Income Adjustments, Adjustments to Income Disability, Disability Pensions, Disability income. Income tax preparation Gross, defined, Gross income. Income tax preparation Nontaxable, Taxable and Nontaxable Income Sale of home, Sale of Home Self-employment, Self-employed persons. Income tax preparation Taxable, Taxable and Nontaxable Income Individual retirement arrangement (IRA) Adjustments to income, Individual Retirement Arrangement (IRA) Contributions and Deductions Contributions, Contributions. Income tax preparation Deductible contribution, Deductible contribution. Income tax preparation Distributions, Individual Retirement Arrangements (IRAs) Inheritances, Gifts and inheritances. Income tax preparation Injury benefits, Sickness and Injury Benefits, Cost paid by you. Income tax preparation Insurance Accident and health, Other compensation. Income tax preparation , Medical Insurance Premiums Benefits, long-term care, Long-Term Care Insurance Contracts Benefits, no-fault insurance, Other compensation. Income tax preparation Life insurance proceeds, Life Insurance Proceeds Proceeds paid after death, Life Insurance Proceeds Proceeds paid before death, Accelerated Death Benefits Insurance premiums for retired public safety officers, Insurance Premiums for Retired Public Safety Officers Itemized deductions, Itemized Deductions Married filing separately One spouse has itemized, Persons not eligible for the standard deduction. Income tax preparation L Life insurance proceeds, Life Insurance Proceeds Long-term care, Long-Term Care Chronically ill individuals, Chronically ill individual. Income tax preparation Maintenance and personal care services, Maintenance and personal care services. Income tax preparation Qualified insurance contracts, Qualified long-term care insurance contracts. Income tax preparation Qualified services, Qualified long-term care services. Income tax preparation Long-term care insurance, Long-Term Care Insurance Contracts Loss or disfigurement compensation, Other compensation. Income tax preparation Lump-sum distributions, Lump-sum distributions. Income tax preparation Lump-sum election, social security, Lump-Sum Election M Maintenance and personal care services, Maintenance and personal care services. Income tax preparation Married filing separately Itemized deductions One spouse has itemized so other must as well, Persons not eligible for the standard deduction. Income tax preparation Married taxpayers Age 65 or older spouse Standard deduction, Spouse 65 or older or blind. Income tax preparation Blind spouse Standard deduction, Spouse 65 or older or blind. Income tax preparation Meals and lodging expenses, Meals and Lodging Medical expenses, Medical and Dental Expenses Medicare, Medicare Part A. Income tax preparation , Medicare Part B. Income tax preparation , Medicare Part D. Income tax preparation Benefits, Medicare. Income tax preparation Medicines, Medicines Imported, Imported medicines and drugs. Income tax preparation Military retirement pay, Military Retirement Pay Minimum distributions, Tax on Excess Accumulation Minimum wage, Substantial gainful activity. Income tax preparation Missing children, Reminders Mortgage assistance payments, Mortgage assistance payments. Income tax preparation N Nonperiodic distributions, Nonperiodic Distributions Nonqualified use, Period of nonqualified use. Income tax preparation Nonresident aliens Standard deduction, Persons not eligible for the standard deduction. Income tax preparation Nontaxable income, Payments from a state fund for victims of crime. Income tax preparation Accident or health insurance benefits, Other compensation. Income tax preparation Bequests, Gifts and inheritances. Income tax preparation Generally, Taxable and Nontaxable Income Gifts, Gifts and inheritances. Income tax preparation Inheritances, Gifts and inheritances. Income tax preparation Mortgage assistance payments, Mortgage assistance payments. Income tax preparation No-fault insurance benefits, Other compensation. Income tax preparation Nutrition program for elderly, Nutrition Program for the Elderly. Income tax preparation Public assistance payments, Welfare benefits. Income tax preparation Sickness and injury benefits, Sickness and Injury Benefits Veterans' benefits, Veterans' benefits. Income tax preparation Winter energy use, Payments to reduce cost of winter energy use. Income tax preparation Workers' compensation, Workers' Compensation Nursing home, Nursing home. Income tax preparation Nursing services, Nursing Services Chronically ill individuals, Chronically ill individual. Income tax preparation Nutrition program for elderly, Nutrition Program for the Elderly. Income tax preparation O Old-age, survivors, and disability insurance benefits (OASDI), Old-age, survivors, and disability insurance benefits (OASDI). Income tax preparation Other items, Other Items Overall limitation, Overall limitation. Income tax preparation P Payments, estimated tax, Estimated Tax Pensions, Pensions and Annuities Pensions, disability, Disability Pensions Photographs, missing children, Reminders Physician's statement, disability, Physician's statement. Income tax preparation Prepaid insurance premiums, Prepaid insurance premiums. Income tax preparation Preparer, paid, Reminders Preparing your return, Return preparation assistance. Income tax preparation Profit-sharing plan, Retirement and profit-sharing plans. Income tax preparation Public assistance payments, Welfare benefits. Income tax preparation Publications (see Tax help) Q Qualified retirement plan, Tax on Early Distributions R Railroad retirement benefits, Railroad Retirement Benefits, Social Security and Equivalent Railroad Retirement Benefits Repayments Social security benefits, Repayment of Benefits Reporting pension income, How to report. Income tax preparation Residence, sale of, Sale of Home Retirement plans, distributions, Retirement Plan Distributions Returns Decedent, Dependents. Income tax preparation Executors and administrators, Dependents. Income tax preparation Filing requirements, 2013 Filing Requirements Surviving spouse, Surviving spouse. Income tax preparation Reverse mortgages, Reverse Mortgages S Salaries (see Compensation) Sale of Home First-time homebuyer credit, Repaying the first-time homebuyer credit because you sold your home. Income tax preparation Surviving spouse, Reminders Sale of home, Sale of Home Self-employed, Self-employed persons. Income tax preparation Short tax year Change in annual accounting period, Persons not eligible for the standard deduction. Income tax preparation Sickness and injury benefits, Sickness and Injury Benefits Simplified method, Pensions and Annuities Social security benefits, Social Security and Equivalent Railroad Retirement Benefits Standard deduction, Standard Deduction Age 65 or older, Higher standard deduction for age (65 or older). Income tax preparation Blind persons, Higher standard deduction for blindness. Income tax preparation Dependents, Standard Deduction for Dependents Final return of decedent, Decedent's final return. Income tax preparation Married filing separately One spouse has itemized, Persons not eligible for the standard deduction. Income tax preparation Starting date, annuity, Cost. Income tax preparation State fund for victims of crime, Payments from a state fund for victims of crime. Income tax preparation Substantial gainful activity, Substantial gainful activity. Income tax preparation Surrender of Iife insurance, Surrender of policy for cash. Income tax preparation Surviving Spouse, Reminders Surviving spouse, Surviving spouse. Income tax preparation Surviving spouse, insurance, Surviving spouse. Income tax preparation Survivors of retirees, Survivors of retirees. Income tax preparation T Tax Early distributions, Tax on Early Distributions Estimated, Tax Withholding and Estimated Tax, Estimated Tax Excess accumulation, Tax on Excess Accumulation Tax counseling for the elderly (TCE), Volunteer Income Tax Assistance and Tax Counseling for the Elderly. Income tax preparation Tax help, How To Get Tax Help Tax option, 10-year, Lump-sum distributions. Income tax preparation Tax return preparers, Reminders Taxable income, Taxable and Nontaxable Income Taxation of benefits, Are Any of Your Benefits Taxable? Terminally ill, defined, Terminally or chronically ill defined. Income tax preparation Total and permanent disability, defined, Permanent and total disability. Income tax preparation Transportation expenses, Transportation TTY/TDD information, How To Get Tax Help U U. Income tax preparation S. Income tax preparation citizen or resident, U. Income tax preparation S. Income tax preparation citizen or resident alien. Income tax preparation Unemployment compensation, Unemployment compensation. Income tax preparation V Veterans' benefits, Veterans' benefits. Income tax preparation Viatical settlement, Accelerated Death Benefits Victims of crime, Payments from a state fund for victims of crime. Income tax preparation Volunteer income tax assistance (VITA), Volunteer Income Tax Assistance and Tax Counseling for the Elderly. Income tax preparation Volunteer work, Volunteer work. Income tax preparation W Wages (see Compensation) Winter energy use payments, Payments to reduce cost of winter energy use. Income tax preparation Withholding Employment tax, Reminders Pensions and annuities, Withholding. Income tax preparation Workers' compensation, Workers' Compensation Worksheets, social security, Which worksheet to use. Income tax preparation Prev  Up     Home   More Online Publications
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The Income Tax Preparation

Income tax preparation 23. Income tax preparation   Interest Expense Table of Contents Introduction Useful Items - You may want to see: Home Mortgage InterestAmount Deductible Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement Investment InterestInvestment Property Allocation of Interest Expense Limit on Deduction Items You Cannot DeductPersonal Interest Allocation of Interest How To ReportMore than one borrower. Income tax preparation Mortgage proceeds used for business or investment. Income tax preparation Introduction This chapter discusses what interest expenses you can deduct. Income tax preparation Interest is the amount you pay for the use of borrowed money. Income tax preparation The following are types of interest you can deduct as itemized deductions on Schedule A (Form 1040). Income tax preparation Home mortgage interest, including certain points and mortgage insurance premiums. Income tax preparation Investment interest. Income tax preparation This chapter explains these deductions. Income tax preparation It also explains where to deduct other types of interest and lists some types of interest you cannot deduct. Income tax preparation Use Table 23-1 to find out where to get more information on various types of interest, including investment interest. Income tax preparation Useful Items - You may want to see: Publication 936 Home Mortgage Interest Deduction 550 Investment Income and Expenses Home Mortgage Interest Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). Income tax preparation The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. Income tax preparation You can deduct home mortgage interest if all the following conditions are met. Income tax preparation You file Form 1040 and itemize deductions on Schedule A (Form 1040). Income tax preparation The mortgage is a secured debt on a qualified home in which you have an ownership interest. Income tax preparation (Generally, your mortgage is a secured debt if you put your home up as collateral to protect the interest of the lender. Income tax preparation The term “qualified home” means your main home or second home. Income tax preparation For details, see Publication 936. Income tax preparation )  Both you and the lender must intend that the loan be repaid. Income tax preparation Amount Deductible In most cases, you can deduct all of your home mortgage interest. Income tax preparation How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. Income tax preparation Fully deductible interest. Income tax preparation   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. Income tax preparation (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. Income tax preparation )   The three categories are as follows: Mortgages you took out on or before October 13, 1987 (called grandfathered debt). Income tax preparation 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). Income tax preparation 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). Income tax preparation The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. Income tax preparation   See Part II of Publication 936 for more detailed definitions of grandfathered, home acquisition, and home equity debt. Income tax preparation    You can use Figure 23-A to check whether your home mortgage interest is fully deductible. Income tax preparation Figure 23-A. Income tax preparation Is My Home Mortgage Interest Fully Deductible? Please click here for the text description of the image. Income tax preparation Figure 23-A. Income tax preparation Is My Interest Fully Deductible? Limits on deduction. Income tax preparation   You cannot fully deduct interest on a mortgage that does not fit into any of the three categories listed earlier. Income tax preparation If this applies to you, see Part II of Publication 936 to figure the amount of interest you can deduct. Income tax preparation Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. Income tax preparation It also describes certain special situations that may affect your deduction. Income tax preparation Late payment charge on mortgage payment. Income tax preparation   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. Income tax preparation Mortgage prepayment penalty. Income tax preparation   If you pay off your home mortgage early, you may have to pay a penalty. Income tax preparation 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. Income tax preparation Sale of home. Income tax preparation   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 sale. Income tax preparation Example. Income tax preparation John and Peggy Harris sold their home on May 7. Income tax preparation Through April 30, they made home mortgage interest payments of $1,220. Income tax preparation 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. Income tax preparation Their mortgage interest deduction is $1,270 ($1,220 + $50). Income tax preparation Prepaid interest. Income tax preparation   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. Income tax preparation You can deduct in each year only the interest that qualifies as home mortgage interest for that year. Income tax preparation However, there is an exception that applies to points, discussed later. Income tax preparation Mortgage interest credit. Income tax preparation   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. Income tax preparation Figure the credit on Form 8396, Mortgage Interest Credit. Income tax preparation If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. Income tax preparation   For more information on the credit, see chapter 37. Income tax preparation Ministers' and military housing allowance. Income tax preparation   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. Income tax preparation Hardest Hit Fund and Emergency Homeowners' Loan Programs. Income tax preparation   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. Income tax preparation 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. Income tax preparation 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. Income tax preparation 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 (real property taxes). Income tax preparation 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. Income tax preparation Mortgage assistance payments under section 235 of the National Housing Act. Income tax preparation   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. Income tax preparation You cannot deduct the interest that is paid for you. Income tax preparation No other effect on taxes. Income tax preparation   Do not include these mortgage assistance payments in your income. Income tax preparation Also, do not use these payments to reduce other deductions, such as real estate taxes. Income tax preparation Divorced or separated individuals. Income tax preparation   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. Income tax preparation See the discussion of Payments for jointly-owned home in chapter 18. Income tax preparation Redeemable ground rents. Income tax preparation   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. Income tax preparation   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. Income tax preparation For more information, see Publication 936. Income tax preparation Nonredeemable ground rents. Income tax preparation   Payments on a nonredeemable ground rent are not mortgage interest. Income tax preparation You can deduct them as rent if they are a business expense or if they are for rental property. Income tax preparation Reverse mortgages. Income tax preparation   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. Income tax preparation With a reverse mortgage, you retain title to your home. Income tax preparation 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. Income tax preparation Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Income tax preparation Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until the loan is paid in full. Income tax preparation Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Publication 936. Income tax preparation Rental payments. Income tax preparation   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. Income tax preparation This is true even if the settlement papers call them interest. Income tax preparation You cannot deduct these payments as home mortgage interest. Income tax preparation Mortgage proceeds invested in tax-exempt securities. Income tax preparation   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. Income tax preparation “Grandfathered debt” and “home equity debt” are defined earlier under Amount Deductible. Income tax preparation Refunds of interest. Income tax preparation   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. Income tax preparation 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. Income tax preparation However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. Income tax preparation This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. Income tax preparation    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. Income tax preparation For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. Income tax preparation   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in chapter 12. Income tax preparation Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Income tax preparation Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. Income tax preparation A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. Income tax preparation See Points paid by the seller , later. Income tax preparation General Rule You generally cannot deduct the full amount of points in the year paid. Income tax preparation Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. Income tax preparation See Deduction Allowed Ratably , next. Income tax preparation For exceptions to the general rule, see Deduction Allowed in Year Paid , later. Income tax preparation 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. Income tax preparation You use the cash method of accounting. Income tax preparation This means you report income in the year you receive it and deduct expenses in the year you pay them. Income tax preparation Most individuals use this method. Income tax preparation Your loan is secured by a home. Income tax preparation (The home does not need to be your main home. Income tax preparation ) Your loan period is not more than 30 years. Income tax preparation 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. Income tax preparation 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. Income tax preparation Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. Income tax preparation (You can use Figure 23-B as a quick guide to see whether your points are fully deductible in the year paid. Income tax preparation ) Your loan is secured by your main home. Income tax preparation (Your main home is the one you ordinarily live in most of the time. Income tax preparation ) Paying points is an established business practice in the area where the loan was made. Income tax preparation The points paid were not more than the points generally charged in that area. Income tax preparation You use the cash method of accounting. Income tax preparation This means you report income in the year you receive it and deduct expenses in the year you pay them. Income tax preparation (If you want more information about this method, see Accounting Methods in chapter 1. Income tax preparation ) 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. Income tax preparation The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. Income tax preparation The funds you provided are not required to have been applied to the points. Income tax preparation They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. Income tax preparation You cannot have borrowed these funds from your lender or mortgage broker. Income tax preparation You use your loan to buy or build your main home. Income tax preparation The points were computed as a percentage of the principal amount of the mortgage. Income tax preparation The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. Income tax preparation The points may be shown as paid from either your funds or the seller's. Income tax preparation Figure 23-B. Income tax preparation Are My Points Fully Deductible This Year? Please click here for the text description of the image. Income tax preparation Figure 23-B. Income tax preparation Are My Points Fully Deductible This Year? Note. Income tax preparation 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. Income tax preparation Home improvement loan. Income tax preparation   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. Income tax preparation Second home. Income tax preparation You cannot fully deduct in the year paid points you pay on loans secured by your second home. Income tax preparation You can deduct these points only over the life of the loan. Income tax preparation Refinancing. Income tax preparation   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. Income tax preparation This is true even if the new mortgage is secured by your main home. Income tax preparation   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 , earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. Income tax preparation You can deduct the rest of the points over the life of the loan. Income tax preparation Example 1. Income tax preparation In 1998, Bill Fields got a mortgage to buy a home. Income tax preparation In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. Income tax preparation The mortgage is secured by his home. Income tax preparation To get the new loan, he had to pay three points ($3,000). Income tax preparation 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. Income tax preparation Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. Income tax preparation The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. Income tax preparation Bill's first payment on the new loan was due July 1. Income tax preparation He made six payments on the loan in 2013 and is a cash basis taxpayer. Income tax preparation Bill used the funds from the new mortgage to repay his existing mortgage. Income tax preparation 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. Income tax preparation He cannot deduct all of the points in 2013. Income tax preparation He can deduct two points ($2,000) ratably over the life of the loan. Income tax preparation He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. Income tax preparation The other point ($1,000) was a fee for services and is not deductible. Income tax preparation Example 2. Income tax preparation 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. Income tax preparation Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. Income tax preparation His deduction is $500 ($2,000 × 25%). Income tax preparation Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. Income tax preparation This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. Income tax preparation The total amount Bill deducts in 2013 is $550 ($500 + $50). Income tax preparation Special Situations This section describes certain special situations that may affect your deduction of points. Income tax preparation Original issue discount. Income tax preparation   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. Income tax preparation This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. Income tax preparation Amounts charged for services. Income tax preparation   Amounts charged by the lender for specific services connected to the loan are not interest. Income tax preparation Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. Income tax preparation You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. Income tax preparation Points paid by the seller. Income tax preparation   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Income tax preparation Treatment by seller. Income tax preparation   The seller cannot deduct these fees as interest. Income tax preparation But they are a selling expense that reduces the amount realized by the seller. Income tax preparation See chapter 15 for information on selling your home. Income tax preparation Treatment by buyer. Income tax preparation    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. Income tax preparation If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. Income tax preparation If any of those tests are not met, the buyer deducts the points over the life of the loan. Income tax preparation   For information about basis, see chapter 13. Income tax preparation Funds provided are less than points. Income tax preparation   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. Income tax preparation In addition, you can deduct any points paid by the seller. Income tax preparation Example 1. Income tax preparation When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). Income tax preparation You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. Income tax preparation Of the $1,000 charged for points, you can deduct $750 in the year paid. Income tax preparation You spread the remaining $250 over the life of the mortgage. Income tax preparation Example 2. Income tax preparation 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. Income tax preparation In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). Income tax preparation You spread the remaining $250 over the life of the mortgage. Income tax preparation You must reduce the basis of your home by the $1,000 paid by the seller. Income tax preparation Excess points. Income tax preparation   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. Income tax preparation You must spread any additional points over the life of the mortgage. Income tax preparation Mortgage ending early. Income tax preparation   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. Income tax preparation However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. Income tax preparation Instead, deduct the remaining balance over the term of the new loan. Income tax preparation    A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Income tax preparation Example. Income tax preparation Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. Income tax preparation He deducts $200 points per year. Income tax preparation Through 2012, Dan has deducted $2,200 of the points. Income tax preparation Dan prepaid his mortgage in full in 2013. Income tax preparation He can deduct the remaining $800 of points in 2013. Income tax preparation Limits on deduction. Income tax preparation   You cannot fully deduct points paid on a mortgage unless the mortgage fits into one of the categories listed earlier under Fully deductible interest . Income tax preparation See Publication 936 for details. Income tax preparation Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. Income tax preparation The insurance must be in connection with home acquisition debt and the insurance contract must have been issued after 2006. Income tax preparation Qualified mortgage insurance. Income tax preparation   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). Income tax preparation   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. Income tax preparation If provided by the Rural Housing Service, it is commonly known as a guarantee fee. Income tax preparation These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. Income tax preparation Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. Income tax preparation Special rules for prepaid mortgage insurance. Income tax preparation   Generally, if you paid premiums for qualified mortgage insurance that are allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. Income tax preparation 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. Income tax preparation No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. Income tax preparation This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. Income tax preparation See the Example below. Income tax preparation Example. Income tax preparation Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. Income tax preparation Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. Income tax preparation 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. Income tax preparation Ryan's adjusted gross income (AGI) for 2012 is $76,000. Income tax preparation Ryan can deduct $880 ($9,240 ÷ 84 × 8 months) for qualified mortgage insurance premiums in 2012. Income tax preparation For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 × 12 months) if his AGI is $100,000 or less. Income tax preparation 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). Income tax preparation Limit on deduction. Income tax preparation   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. Income tax preparation 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. Income tax preparation If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. Income tax preparation 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. Income tax preparation You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. Income tax preparation A governmental unit is a person for purposes of furnishing the statement. Income tax preparation The statement for each year should be sent to you by January 31 of the following year. Income tax preparation A copy of this form will also be sent to the IRS. Income tax preparation 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. Income tax preparation However, it should not show any interest that was paid for you by a government agency. Income tax preparation As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. Income tax preparation However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. Income tax preparation See Points , earlier, to determine whether you can deduct points not shown on Form 1098. Income tax preparation Prepaid interest on Form 1098. Income tax preparation   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. Income tax preparation However, you cannot deduct the prepaid amount for January 2014 in 2013. Income tax preparation (See Prepaid interest , earlier. Income tax preparation ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. Income tax preparation You will include the interest for January 2014 with the other interest you pay for 2014. Income tax preparation See How To Report , later. Income tax preparation Refunded interest. Income tax preparation   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. Income tax preparation See Refunds of interest , earlier. Income tax preparation Mortgage insurance premiums. Income tax preparation   The amount of mortgage insurance premiums you paid during 2013 may be shown in box 4 of Form 1098. Income tax preparation See Mortgage Insurance Premiums, earlier. Income tax preparation Investment Interest This section discusses interest expenses you may be able to deduct as an investor. Income tax preparation If you borrow money to buy property you hold for investment, the interest you pay is investment interest. Income tax preparation You can deduct investment interest subject to the limit discussed later. Income tax preparation However, you cannot deduct interest you incurred to produce tax-exempt income. Income tax preparation Nor can you deduct interest expenses on straddles. Income tax preparation Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. Income tax preparation Investment Property Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. Income tax preparation It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). Income tax preparation Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). Income tax preparation Partners, shareholders, and beneficiaries. Income tax preparation   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. Income tax preparation Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. Income tax preparation Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. Income tax preparation The allocation is not affected by the use of property that secures the debt. Income tax preparation Limit on Deduction Generally, your deduction for investment interest expense is limited to the amount of your net investment income. Income tax preparation You can carry over the amount of investment interest that you could not deduct because of this limit to the next tax year. Income tax preparation The interest carried over is treated as investment interest paid or accrued in that next year. Income tax preparation You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. Income tax preparation Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. Income tax preparation Investment income. Income tax preparation    This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). Income tax preparation Investment income does not include Alaska Permanent Fund dividends. Income tax preparation It also does not include qualified dividends or net capital gain unless you choose to include them. Income tax preparation Choosing to include qualified dividends. Income tax preparation   Investment income generally does not include qualified dividends, discussed in chapter 8. Income tax preparation However, you can choose to include all or part of your qualified dividends in investment income. Income tax preparation   You make this choice by completing Form 4952, line 4g, according to its instructions. Income tax preparation   If you choose to include any amount of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. Income tax preparation Choosing to include net capital gain. Income tax preparation   Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). Income tax preparation However, you can choose to include all or part of your net capital gain in investment income. Income tax preparation    You make this choice by completing Form 4952, line 4g, according to its instructions. Income tax preparation   If you choose to include any amount of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. Income tax preparation    Before making either choice, consider the overall effect on your tax liability. Income tax preparation Compare your tax if you make one or both of these choices with your tax if you do not. Income tax preparation Investment income of child reported on parent's return. Income tax preparation    Investment income includes the part of your child's interest and dividend income that you choose to report on your return. Income tax preparation If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814, Parents' Election To Report Child's Interest and Dividends. Income tax preparation Child's qualified dividends. Income tax preparation   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. Income tax preparation However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. Income tax preparation   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). Income tax preparation Child's Alaska Permanent Fund dividends. Income tax preparation   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. Income tax preparation To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. Income tax preparation Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. Income tax preparation Subtract the result from the amount on Form 8814, line 12. Income tax preparation Child's capital gain distributions. Income tax preparation    If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D, line 13, or Form 1040, line 13) generally does not count as investment income. Income tax preparation However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. Income tax preparation   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). Income tax preparation Investment expenses. Income tax preparation   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. Income tax preparation Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. Income tax preparation Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A, line 27. Income tax preparation Losses from passive activities. Income tax preparation   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). Income tax preparation See Publication 925, Passive Activity and At-Risk Rules, for information about passive activities. Income tax preparation Form 4952 Use Form 4952, Investment Interest Expense Deduction, to figure your deduction for investment interest. Income tax preparation Exception to use of Form 4952. Income tax preparation   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. Income tax preparation Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. Income tax preparation You do not have any other deductible investment expenses. Income tax preparation You have no carryover of investment interest expense from 2012. Income tax preparation If you meet all of these tests, you can deduct all of your investment interest. Income tax preparation More Information For more information on investment interest, see Interest Expenses in chapter 3 of Publication 550. Income tax preparation Items You Cannot Deduct Some interest payments are not deductible. Income tax preparation Certain expenses similar to interest also are not deductible. Income tax preparation Nondeductible expenses include the following items. Income tax preparation Personal interest (discussed later). Income tax preparation Service charges (however, see Other Expenses (Line 23) in chapter 28). Income tax preparation Annual fees for credit cards. Income tax preparation Loan fees. Income tax preparation Credit investigation fees. Income tax preparation Interest to purchase or carry tax-exempt securities. Income tax preparation Penalties. Income tax preparation   You cannot deduct fines and penalties paid to a government for violations of law, regardless of their nature. Income tax preparation Personal Interest Personal interest is not deductible. Income tax preparation Personal interest is any interest that is not home mortgage interest, investment interest, business interest, or other deductible interest. Income tax preparation It includes the following items. Income tax preparation Interest on car loans (unless you use the car for business). Income tax preparation Interest on federal, state, or local income tax. Income tax preparation Finance charges on credit cards, retail installment contracts, and revolving charge accounts incurred for personal expenses. Income tax preparation Late payment charges by a public utility. Income tax preparation You may be able to deduct interest you pay on a qualified student loan. Income tax preparation For details, see Publication 970, Tax Benefits for Education. Income tax preparation Allocation of Interest If you use the proceeds of a loan for more than one purpose (for example, personal and business), you must allocate the interest on the loan to each use. Income tax preparation However, you do not have to allocate home mortgage interest if it is fully deductible, regardless of how the funds are used. Income tax preparation You allocate interest (other than fully deductible home mortgage interest) on a loan in the same way as the loan itself is allocated. Income tax preparation You do this by tracing disbursements of the debt proceeds to specific uses. Income tax preparation For details on how to do this, see chapter 4 of Publication 535. Income tax preparation How To Report You must file Form 1040 to deduct any home mortgage interest expense on your tax return. Income tax preparation Where you deduct your interest expense generally depends on how you use the loan proceeds. Income tax preparation See Table 23-1 for a summary of where to deduct your interest expense. Income tax preparation Home mortgage interest and points. Income tax preparation   Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. Income tax preparation 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. Income tax preparation Attach a statement explaining the difference and print “See attached” next to line 10. Income tax preparation    Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. Income tax preparation 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. Income tax preparation The seller must give you this number and you must give the seller your TIN. Income tax preparation A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Income tax preparation Failure to meet any of these requirements may result in a $50 penalty for each failure. Income tax preparation 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. Income tax preparation See Social Security Number (SSN) in chapter 1 for more information about TINs. Income tax preparation    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. Income tax preparation   Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. Income tax preparation More than one borrower. Income tax preparation   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. Income tax preparation Show how much of the interest each of you paid, and give the name and address of the person who received the form. Income tax preparation Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. Income tax preparation Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. Income tax preparation   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. Income tax preparation You should let each of the other borrowers know what his or her share is. Income tax preparation Mortgage proceeds used for business or investment. Income tax preparation    If your home mortgage interest deduction is limited, but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 23-1. Income tax preparation It shows where to deduct the part of your excess interest that is for those activities. Income tax preparation Investment interest. Income tax preparation    Deduct investment interest, subject to certain limits discussed in Publication 550, on Schedule A (Form 1040), line 14. Income tax preparation Amortization of bond premium. Income tax preparation   There are various ways to treat the premium you pay to buy taxable bonds. Income tax preparation See Bond Premium Amortization in Publication 550. Income tax preparation Income-producing rental or royalty interest. Income tax preparation   Deduct interest on a loan for income-producing rental or royalty property that is not used in your business in Part I of Schedule E (Form 1040). Income tax preparation Example. Income tax preparation You rent out part of your home and borrow money to make repairs. Income tax preparation You can deduct only the interest payment for the rented part in Part I of Schedule E (Form 1040). Income tax preparation Deduct the rest of the interest payment on Schedule A (Form 1040) if it is deductible home mortgage interest. Income tax preparation Table 23-1. Income tax preparation Where To Deduct Your Interest Expense IF you have . Income tax preparation . Income tax preparation . Income tax preparation THEN deduct it on . Income tax preparation . Income tax preparation . Income tax preparation AND for more information go to . Income tax preparation . Income tax preparation . Income tax preparation deductible student loan interest Form 1040, line 33, or Form 1040A, line 18 Publication 970. Income tax preparation deductible home mortgage interest and points reported on Form 1098 Schedule A (Form 1040), line 10 Publication 936. Income tax preparation deductible home mortgage interest not reported on Form 1098 Schedule A (Form 1040), line 11 Publication 936. Income tax preparation deductible points not reported on Form 1098 Schedule A (Form 1040), line 12 Publication 936. Income tax preparation deductible mortgage insurance premiums Schedule A (Form 1040), line 13 Publication 936. Income tax preparation deductible investment interest (other than incurred to produce rents or royalties) Schedule A (Form 1040), line 14 Publication 550. Income tax preparation deductible business interest (non-farm) Schedule C or C-EZ (Form 1040) Publication 535. Income tax preparation deductible farm business interest Schedule F (Form 1040) Publications 225 and 535. Income tax preparation deductible interest incurred to produce rents or royalties Schedule E (Form 1040) Publications 527 and 535. Income tax preparation personal interest not deductible. Income tax preparation Prev  Up  Next   Home   More Online Publications