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ContentsWhat'sNew1Reminders1Introduction2PartI.
HomeMortgageInterest2SecuredDebt3QualifiedHome4SpecialSituations4Points5MortgageInsurancePremiums8Form1098,MortgageInterestStatement8HowToReport9SpecialRuleforTenant-StockholdersinCooperativeHousingCorporations9PartII.
LimitsonHomeMortgageInterestDeduction9HomeAcquisitionDebt9GrandfatheredDebt10WorksheetToFigureYourQualifiedLoanLimitandDeductibleHomeMortgageInterestFortheCurrentYear.
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12HowToGetTaxHelp15Index17What'sNewMortgageinsurancepremiums.
Theitem-izeddeductionformortgageinsurancepremi-umshasbeenextendedthrough2020.
Youcanclaimthedeductiononline8dofScheduleA(Form1040or1040-SR)foramountsthatwerepaidoraccruedin2019.
RemindersHomeequityloaninterest.
Nomatterwhentheindebtednesswasincurred,youcannolon-gerdeducttheinterestfromaloansecuredbyyourhometotheextenttheloanproceedsweren'tusedtobuy,build,orsubstantiallyim-proveyourhome.
Homemortgageinterest.
Youcandeducthomemortgageinterestonthefirst$750,000($375,000ifmarriedfilingseparately)ofindebt-edness.
However,higherlimitations($1million($500,000ifmarriedfilingseparately))applyifyouaredeductingmortgageinterestfromin-debtednessincurredbeforeDecember16,2017.
Futuredevelopments.
Forthelatestinforma-tionaboutdevelopmentsrelatedtoPub.
936,suchaslegislationenactedafteritwaspub-lished,gotoIRS.
gov/Pub936.
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Pho-tographsofmissingchildrenselectedbytheCentermayappearinthispublicationonpagesDepartmentoftheTreasuryInternalRevenueServicePublication936Cat.
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IntroductionThispublicationdiscussestherulesfordeduct-inghomemortgageinterest.
PartIcontainsgeneralinformationonhomemortgageinterest,includingpointsandmort-gageinsurancepremiums.
Italsoexplainshowtoreportdeductibleinterestonyourtaxreturn.
PartIIexplainshowyourdeductionforhomemortgageinterestmaybelimited.
ItcontainsTable1,whichisaworksheetyoucanusetofigurethelimitonyourdeduction.
Commentsandsuggestions.
Wewelcomeyourcommentsaboutthispublicationandyoursuggestionsforfutureeditions.
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NW,IR-6526,Washington,DC20224.
Althoughwecan'trespondindividuallytoeachcommentreceived,wedoappreciateyourfeedbackandwillconsideryourcommentsaswereviseourtaxforms,instructions,andpubli-cations.
Wecan'tanswertaxquestionssenttotheaboveaddress.
Taxquestions.
IfyouhaveataxquestionnotansweredbythispublicationortheHowToGetTaxHelpsectionattheendofthispublica-tion,gototheIRSInteractiveTaxAssistantpageatIRS.
gov/Help/ITAwhereyoucanfindtopicsusingthesearchfeatureorbyviewingthecategorieslisted.
Gettingtaxforms,instructions,andpub-lications.
VisitIRS.
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Orderingtaxforms,instructions,andpublications.
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UsefulItemsYoumaywanttosee:Publication523SellingYourHome523527ResidentialRentalProperty530TaxInformationforHomeowners535BusinessExpensesSeeHowToGetTaxHelpattheendofthispublicationforinformationaboutgettingthesepublications.
PartI.
HomeMortgageInterestThispartexplainswhatyoucandeductashomemortgageinterest.
Itincludesdiscussionsonpoints,mortgageinsurancepremiums,andhowtoreportdeductibleinterestonyourtaxre-turn.
Generally,homemortgageinterestisanyin-terestyoupayonaloansecuredbyyourhome(mainhomeorasecondhome).
Theloanmaybeamortgagetobuyyourhome,orasecondmortgage.
Youcandeducthomemortgageinterestifallthefollowingconditionsaremet.
YoufileForm1040or1040-SRanditem-izedeductionsonScheduleA(Form1040or1040-SR).
Themortgageisasecureddebtonaquali-fiedhomeinwhichyouhaveanownershipinterest.
SecuredDebtandQualifiedHomeareexplainedlater.
Bothyouandthelendermustintendthattheloanberepaid.
Note.
Interestonhomeequityloansandlinesofcreditaredeductibleonlyifthebor-rowedfundsareusedtobuy,build,orsubstan-tiallyimprovethetaxpayer'shomethatsecurestheloan.
Asunderpriorlaw,theloanmustbesecuredbythetaxpayer'smainhomeorsec-ondhome(qualifiedresidence),notexceedthecostofthehome,andmeetotherrequirements.
Fullydeductibleinterest.
Inmostcases,youcandeductallofyourhomemortgageinterest.
Howmuchyoucandeductdependsonthedateofthemortgage,theamountofthemortgage,andhowyouusethemortgageproceeds.
Ifallofyourmortgagesfitintooneormoreofthefollowingthreecategoriesatalltimesduringtheyear,youcandeductalloftheinterestonthosemortgages.
(Ifanyonemortgagefitsintomorethanonecategory,addthedebtthatfitsineachcategorytoyourotherdebtinthesame527530535category.
)Ifoneormoreofyourmortgagesdoesn'tfitintoanyofthesecategories,usePartIIofthispublicationtofiguretheamountofin-terestyoucandeduct.
Thethreecategoriesareasfollows.
1.
MortgagesyoutookoutonorbeforeOcto-ber13,1987(calledgrandfathereddebt).
2.
Mortgagesyou(oryourspouseifmarriedfilingajointreturn)tookoutafterOctober13,1987,andpriortoDecember16,2017(seebindingcontractexceptionbelow),tobuy,build,orsubstantiallyimproveyourhome(calledhomeacquisitiondebt),butonlyifthroughout2019thesemortgagesplusanygrandfathereddebttotaled$1millionorless($500,000orlessifmarriedfilingseparately).
Exception.
AtaxpayerwhoentersintoawrittenbindingcontractbeforeDecem-ber15,2017,tocloseonthepurchaseofaprincipalresidencebeforeJanuary1,2018,andwhopurchasessuchresidencebeforeApril1,2018,isconsideredtohaveincurredthehomeacquisitiondebtpriortoDecember16,2017.
3.
Mortgagesyou(oryourspouseifmarriedfilingajointreturn)tookoutafterDecem-ber15,2017,tobuy,build,orsubstantiallyimproveyourhome(calledhomeacquisi-tiondebt),butonlyifthroughout2019thesemortgagesplusanygrandfathereddebttotaled$750,000orless($375,000orlessifmarriedfilingseparately).
Thedollarlimitsforthesecondandthirdcate-goriesapplytothecombinedmortgagesonyourmainhomeandsecondhome.
SeePartIIformoredetaileddefinitionsofgrandfathereddebtandhomeacquisitiondebt.
YoucanuseFigureAtocheckwhetheryourhomemortgageinterestisfullydeductible.
Page2Publication936(2019)SecuredDebtYoucandeductyourhomemortgageinterestonlyifyourmortgageisasecureddebt.
Ase-cureddebtisoneinwhichyousignaninstru-ment(suchasamortgage,deedoftrust,orlandcontract)that:Makesyourownershipinaqualifiedhomesecurityforpaymentofthedebt;Provides,incaseofdefault,thatyourhomecouldsatisfythedebt;andIsrecordedorisotherwiseperfectedunderanystateorlocallawthatapplies.
Inotherwords,yourmortgageisasecureddebtifyouputyourhomeupascollateraltoprotecttheinterestsofthelender.
Ifyoucan'tpaythedebt,yourhomecanthenserveaspay-menttothelendertosatisfy(pay)thedebt.
Inthispublication,mortgagewillrefertosecureddebt.
Debtnotsecuredbyhome.
Adebtisn'tse-curedbyyourhomeifitissecuredsolelybe-causeofalienonyourgeneralassetsorifitisasecurityinterestthatattachestothepropertywithoutyourconsent(suchasamechanic'slienorjudgmentlien).
Adebtisn'tsecuredbyyourhomeifitoncewas,butisnolongersecuredbyyourhome.
Wraparoundmortgage.
Thisisn'tase-cureddebtunlessitisrecordedorotherwiseperfectedunderstatelaw.
Publication936(2019)Page3Example.
Bethownsahomesubjecttoamortgageof$40,000.
Shesellsthehomefor$100,000toJohn,whotakesitsubjecttothe$40,000mortgage.
Bethcontinuestomakethepaymentsonthe$40,000note.
Johnpays$10,000downandgivesBetha$90,000notesecuredbyawraparoundmortgageonthehome.
Bethdoesn'trecordorotherwiseperfectthe$90,000mortgageunderthestatelawthatapplies.
Therefore,themortgageisn'tasecureddebtandJohncan'tdeductanyoftheinteresthepaysonitashomemortgageinterest.
Choicetotreatthedebtasnotsecuredbyyourhome.
Youcanchoosetotreatanydebtsecuredbyyourqualifiedhomeasnotsecuredbythehome.
Thistreatmentbeginswiththetaxyearforwhichyoumakethechoiceandcontin-uesforalllatertaxyears.
YoucanrevokeyourchoiceonlywiththeconsentoftheIRS.
Youmaywanttotreatadebtasnotsecuredbyyourhomeiftheinterestonthatdebtisfullydeductible(forexample,asabusinessex-pense)whetherornotitqualifiesashomemort-gageinterest.
Thismayallowyou,ifthelimitsinPartIIapply,moreofadeductionforinterestonotherdebtsthataredeductibleonlyashomemortgageinterest.
Cooperativeapartmentowner.
Ifyouownstockinacooperativehousingcorporation,seetheSpecialRuleforTenant-StockholdersinCo-operativeHousingCorporationsneartheendofthisPartI.
QualifiedHomeForyoutotakeahomemortgageinterestde-duction,yourdebtmustbesecuredbyaquali-fiedhome.
Thismeansyourmainhomeoryoursecondhome.
Ahomeincludesahouse,con-dominium,cooperative,mobilehome,housetrailer,boat,orsimilarpropertythathassleep-ing,cooking,andtoiletfacilities.
Theinterestyoupayonamortgageonahomeotherthanyourmainorsecondhomemaybedeductibleiftheproceedsoftheloanwereusedforbusiness,investment,orotherdeductiblepurposes.
Otherwise,itisconsid-eredpersonalinterestandisn'tdeductible.
Mainhome.
Youcanhaveonlyonemainhomeatanyonetime.
Thisisthehomewhereyouordinarilylivemostofthetime.
Secondhome.
Asecondhomeisahomethatyouchoosetotreatasyoursecondhome.
Secondhomenotrentedout.
Ifyouhaveasecondhomethatyoudon'tholdoutforrentorresaletoothersatanytimeduringtheyear,youcantreatitasaqualifiedhome.
Youdon'thavetousethehomeduringtheyear.
Secondhomerentedout.
Ifyouhaveasecondhomeandrentitoutpartoftheyear,youmustalsouseitasahomeduringtheyearforittobeaqualifiedhome.
Youmustusethishomemorethan14daysormorethan10%ofthenumberofdaysduringtheyearthatthehomeisrentedatafairrental,whicheverislon-ger.
Ifyoudon'tusethehomelongenough,itisconsideredrentalpropertyandnotasecondhome.
Forinformationonresidentialrentalproperty,seePub.
527.
Morethanonesecondhome.
Ifyouhavemorethanonesecondhome,youcantreatonlyoneasthequalifiedsecondhomeduringanyyear.
However,youcanchangethehomeyoutreatasasecondhomeduringtheyearinthefollowingsituations.
Ifyougetanewhomeduringtheyear,youcanchoosetotreatthenewhomeasyoursecondhomeasofthedayyoubuyit.
Ifyourmainhomenolongerqualifiesasyourmainhome,youcanchoosetotreatitasyoursecondhomeasofthedayyoustopusingitasyourmainhome.
Ifyoursecondhomeissoldduringtheyearorbecomesyourmainhome,youcanchooseanewsecondhomeasofthedayyouselltheoldoneorbeginusingitasyourmainhome.
Divideduseofyourhome.
Theonlypartofyourhomethatisconsideredaqualifiedhomeisthepartyouuseforresidentialliving.
Ifyouusepartofyourhomeforotherthanresidentialliving,suchasahomeoffice,youmustallocatetheuseofyourhome.
Youmustthendivideboththecostandfairmarketvalueofyourhomebetweenthepartthatisaqualifiedhomeandthepartthatisn't.
Dividingthecostmayaf-fecttheamountofyourhomeacquisitiondebt,whichislimitedtothecostofyourhomeplusthecostofanyimprovements.
(SeeHomeAc-quisitionDebtinPartII,later.
)Rentingoutpartofhome.
Ifyourentoutpartofaqualifiedhometoanotherperson(ten-ant),youcantreattherentedpartasbeingusedbyyouforresidentiallivingonlyifallofthefol-lowingconditionsapply.
Therentedpartofyourhomeisusedbythetenantprimarilyforresidentialliving.
Therentedpartofyourhomeisn'taself-containedresidentialunithavingsepa-ratesleeping,cooking,andtoiletfacilities.
Youdon'trent(directlyorbysublease)thesameordifferentpartsofyourhometomorethantwotenantsatanytimeduringthetaxyear.
Iftwopersons(anddepend-entsofeither)sharethesamesleepingquarters,theyaretreatedasonetenant.
Officeinhome.
Ifyouhaveanofficeinyourhomethatyouuseinyourbusiness,seePub.
587,BusinessUseofYourHome.
Itex-plainshowtofigureyourdeductionforthebusi-nessuseofyourhome,whichincludesthebusi-nesspartofyourhomemortgageinterest.
Homeunderconstruction.
Youcantreatahomeunderconstructionasaqualifiedhomeforaperiodofupto24months,butonlyifitbe-comesyourqualifiedhomeatthetimeitisreadyforoccupancy.
The24-monthperiodcanstartanytimeonorafterthedayconstructionbegins.
Homedestroyed.
Youmaybeabletocon-tinuetreatingyourhomeasaqualifiedhomeevenafteritisdestroyedinafire,storm,tor-nado,earthquake,orothercasualty.
Thismeansyoucancontinuetodeducttheinterestyoupayonyourhomemortgage,subjecttothelimitsdescribedinthispublication.
Youcancontinuetreatingadestroyedhomeasaqualifiedhomeif,withinareasonablepe-riodoftimeafterthehomeisdestroyed,you:Rebuildthedestroyedhomeandmoveintoit,orSellthelandonwhichthehomewasloca-ted.
Thisruleappliestoyourmainhomeandtoasecondhomethatyoutreatasaqualifiedhome.
Time-sharingarrangements.
Youcantreatahomeyouownunderatime-sharingplanasaqualifiedhomeifitmeetsalltherequirements.
Atime-sharingplanisanarrangementbetweentwoormorepeoplethatlimitseachperson'sin-terestinthehomeorrighttouseittoacertainpartoftheyear.
Rentaloftime-share.
Ifyourentoutyourtime-share,itqualifiesasasecondhomeonlyifyoualsouseitasahomeduringtheyear.
SeeSecondhomerentedout,earlier,fortheusere-quirement.
Toknowwhetheryoumeetthatre-quirement,countyourdaysofuseandrentalofthehomeonlyduringthetimeyouhavearighttouseitortoreceiveanybenefitsfromtherentalofit.
Marriedtaxpayers.
Ifyou'remarriedandfileajointreturn,yourqualifiedhome(s)canbeownedeitherjointlyorbyonlyonespouse.
Separatereturns.
Ifyou'remarriedfilingseparatelyandyouandyourspouseownmorethanonehome,youcaneachtakeintoaccountonlyonehomeasaqualifiedhome.
However,ifyoubothconsentinwriting,thenonespousecantakeboththemainhomeandasecondhomeintoaccount.
SpecialSituationsThissectiondescribescertainitemsthatcanbeincludedashomemortgageinterestandothersthatcan't.
Italsodescribescertainspecialsitua-tionsthatmayaffectyourdeduction.
Latepaymentchargeonmortgagepay-ment.
Youcandeductashomemortgagein-terestalatepaymentchargeifitwasn'tforaspecificserviceperformedinconnectionwithyourmortgageloan.
Mortgageprepaymentpenalty.
Ifyoupayoffyourhomemortgageearly,youmayhavetopayapenalty.
Youcandeductthatpenaltyashomemortgageinterestprovidedthepenaltyisn'tforaspecificserviceperformedorcostin-curredinconnectionwithyourmortgageloan.
Saleofhome.
Ifyousellyourhome,youcandeductyourhomemortgageinterest(subjecttoanylimitsthatapply)paidupto,butnotinclud-ing,thedateofthesale.
Example.
JohnandPeggyHarrissoldtheirhomeonMay7.
ThroughApril30,theymadehomemortgageinterestpaymentsof$1,220.
Thesettlementsheetforthesaleofthehomeshowed$50interestforthe6-dayperiodinMayupto,butnotincluding,thedateofsale.
Theirmortgageinterestdeductionis$1,270($1,220+$50).
Page4Publication936(2019)Prepaidinterest.
Ifyoupayinterestinad-vanceforaperiodthatgoesbeyondtheendofthetaxyear,youmustspreadthisinterestoverthetaxyearstowhichitapplies.
Youcande-ductineachyearonlytheinterestthatqualifiesashomemortgageinterestforthatyear.
How-ever,thereisanexceptionthatappliestopoints,discussedlater.
Mortgageinterestcredit.
Youmaybeabletoclaimamortgageinterestcreditifyouwereis-suedamortgagecreditcertificate(MCC)byastateorlocalgovernment.
FigurethecreditonForm8396,MortgageInterestCredit.
Ifyoutakethiscredit,youmustreduceyourmortgageinterestdeductionbytheamountofthecredit.
SeeForm8396andPub.
530formoreinfor-mationonthemortgageinterestcredit.
Ministers'andmilitaryhousingallowance.
Ifyou'reaministeroramemberoftheuni-formedservicesandreceiveahousingallow-ancethatisn'ttaxable,youcanstilldeductyourhomemortgageinterest.
HardestHitFundandEmergencyHome-owners'LoanPrograms.
Youcanuseaspe-cialmethodtofigureyourdeductionformort-gageinterestandrealestatetaxesonyourmainhomeifyoumeetthefollowingtwocondi-tions.
1.
Youreceivedassistanceunder:a.
AStateHousingFinanceAgency(StateHFA)HardestHitFundpro-graminwhichprogrampaymentscouldbeusedtopaymortgageinter-est,orb.
AnEmergencyHomeowners'LoanProgramadministeredbytheDepart-mentofHousingandUrbanDevelop-ment(HUD)orastate.
2.
Youmeettherulestodeductallofthemortgageinterestonyourloanandalloftherealestatetaxesonyourmainhome.
Ifyoumeettheseconditions,thenyoucande-ductallofthepaymentsyouactuallymadedur-ingtheyeartoyourmortgageservicer,theStateHFA,orHUDonthehomemortgage(in-cludingtheamountshowninbox3ofForm1098-MA,MortgageAssistancePayments),butnotmorethanthesumoftheamountsshownonForm1098,MortgageInterestStatement,inbox1(mortgageinterestreceivedfrompayer(s)/borrower(s)),box5(mortgageinsur-ancepremiums),andbox10(realpropertytaxes).
YoumayfirstallocateamountspaidtomortgageinterestuptotheamountshownonForm1098.
Youmaythenuseanyreasonablemethodtoallocatetheremainingbalanceofthepaymentstorealpropertytaxes,mortgagein-surancepremiums,andprincipal.
Regardlessofhowyoudeterminethedeductibleamountun-derthisspecialsafeharbormethod,anyamountallocatedtostateorlocalpropertytaxesissubjecttothelimitationonthededuc-tionforstateandlocaltaxes.
However,you'renotrequiredtousethisspecialmethodtofigureyourdeductionformortgageinterestandrealestatetaxesonyourmainhome.
Mortgageassistancepaymentsundersec-tion235oftheNationalHousingAct.
Ifyouqualifyformortgageassistancepaymentsforlower-incomefamiliesundersection235oftheNationalHousingAct,partoralloftheinterestonyourmortgagemaybepaidforyou.
Youcan'tdeducttheinterestthatispaidforyou.
Noothereffectontaxes.
Don'tincludethesemortgageassistancepaymentsinyourin-come.
Also,don'tusethesepaymentstore-duceotherdeductions,suchasrealestatetaxes.
Divorcedorseparatedindividuals.
Ifadi-vorceorseparationagreementrequiresyouoryourspouseorformerspousetopayhomemortgageinterestonahomeownedbybothofyou,thepaymentofinterestmaybealimony.
SeethediscussionofPaymentsforjointly-ownedhomeunderAlimonyinPub.
504,DivorcedorSeparatedIndividuals.
Redeemablegroundrents.
Insomestates(suchasMaryland),youcanbuyyourhomesubjecttoagroundrent.
Agroundrentisanob-ligationyouassumetopayafixedamountperyearontheproperty.
Underthisarrangement,you'releasing(ratherthanbuying)thelandonwhichyourhomeislocated.
Ifyoumakeannualorperiodicrentalpay-mentsonaredeemablegroundrent,youcandeductthemasmortgageinterest.
Agroundrentisaredeemablegroundrentifallofthefollowingaretrue.
Yourlease,includingrenewalperiods,isformorethan15years.
Youcanfreelyassignthelease.
Youhaveapresentorfutureright(understateorlocallaw)toendtheleaseandbuythelessor'sentireinterestinthelandbypayingaspecificamount.
Thelessor'sinterestinthelandisprimarilyasecurityinteresttoprotecttherentalpay-mentstowhichheorsheisentitled.
Paymentsmadetoendtheleaseandtobuythelessor'sentireinterestinthelandaren'tde-ductibleasmortgageinterest.
Nonredeemablegroundrents.
Paymentsonanonredeemablegroundrentaren'tmort-gageinterest.
Youcandeductthemasrentiftheyareabusinessexpenseoriftheyareforrentalproperty.
Reversemortgages.
Areversemortgageisaloanwherethelenderpaysyou(inalumpsum,amonthlyadvance,alineofcredit,oracombi-nationofallthree)whileyoucontinuetoliveinyourhome.
Withareversemortgage,youretaintitletoyourhome.
Dependingontheplan,yourreversemortgagebecomesduewithinterestwhenyoumove,sellyourhome,reachtheendofapre-selectedloanperiod,ordie.
Becausereversemortgagesareconsideredloanadvan-cesandnotincome,theamountyoureceiveisn'ttaxable.
Anyinterest(includingoriginalis-suediscount)accruedonareversemortgageisconsideredinterestonhomeequitydebtandisn'tdeductible.
Rentalpayments.
Ifyouliveinahousebeforefinalsettlementonthepurchase,anypaymentsyoumakeforthatperiodarerentandnotinter-est.
Thisistrueevenifthesettlementpaperscalltheminterest.
Youcan'tdeductthesepay-mentsashomemortgageinterest.
Mortgageproceedsinvestedintax-exemptsecurities.
Youcan'tdeductthehomemort-gageinterestongrandfathereddebtifyouusedtheproceedsofthemortgagetobuysecuritiesorcertificatesthatproducetax-freeincome.
"Grandfathereddebt"isdefinedinPartIIofthispublication.
Refundsofinterest.
Ifyoureceivearefundofinterestinthesametaxyearyoupaidit,youmustreduceyourinterestexpensebytheamountrefundedtoyou.
Ifyoureceivearefundofinterestyoudeductedinanearlieryear,youmustgenerallyincludetherefundinincomeintheyearyoureceiveit.
However,youneedtoincludeitonlyuptotheamountofthedeductionthatreducedyourtaxintheearlieryear.
Thisistruewhethertheinterestoverchargewasrefun-dedtoyouorwasusedtoreducetheoutstand-ingprincipalonyourmortgage.
Ifyouneedtoincludetherefundinincome,reportitonSchedule1(Form1040or1040-SR),line8.
Ifyoureceivedarefundofinterestyouover-paidinanearlieryear,youwillgenerallyreceiveaForm1098,MortgageInterestStatement,showingtherefundinbox4.
ForinformationaboutForm1098,seeForm1098,MortgageIn-terestStatement,later.
Formoreinformationonhowtotreatrefundsofinterestdeductedinearlieryears,seeRecov-eriesinPub.
525,TaxableandNontaxableIn-come.
Cooperativeapartmentowner.
Ifyouownacooperativeapartment,youmustreduceyourhomemortgageinterestdeductionbyyourshareofanycashportionofapatronagedivi-dendthatthecooperativereceives.
Thepatron-agedividendisapartialrefundtothecoopera-tivehousingcorporationofmortgageinterestifpaidinaprioryear.
IfyoureceiveaForm1098fromthecooper-ativehousingcorporation,theformshouldshowonlytheamountyoucandeduct.
SBAdisasterhomeloans.
InterestpaidondisasterhomeloansfromtheSmallBusinessAdministration(SBA)isdeductibleasmortgageinterestiftherequirementsdiscussedearlierunderHomeMortgageInterestaremet.
PointsTheterm"points"isusedtodescribecertainchargespaid,ortreatedaspaid,byaborrowertoobtainahomemortgage.
Pointsmayalsobecalledloanoriginationfees,maximumloancharges,loandiscount,ordiscountpoints.
Publication936(2019)Page5Page6Publication936(2019)Aborroweristreatedaspayinganypointsthatahomesellerpaysfortheborrower'smort-gage.
SeePointspaidbytheseller,later.
GeneralRuleYougenerallycan'tdeductthefullamountofpointsintheyearpaid.
Becausetheyarepre-paidinterest,yougenerallydeductthemratablyoverthelife(term)ofthemortgage.
SeeDeduc-tionAllowedRatablynext.
Iftheloanisahomeequity,lineofcredit,orcreditcardloanandtheproceedsfromtheloanarenotusedtobuy,build,orsubstantiallyimprovethehome,thepointsarenotdeductible.
Forexceptionstothegeneralrule,seeDe-ductionAllowedinYearPaid,later.
DeductionAllowedRatablyIfyoudon'tmeetthetestslistedunderDeduc-tionAllowedinYearPaid,later,theloanisn'tahomeimprovementloan,oryouchoosenottodeductyourpointsinfullintheyearpaid,youcandeductthepointsratably(equally)overthelifeoftheloanifyoumeetallofthefollowingtests.
1.
Youusethecashmethodofaccounting.
Thismeansyoureportincomeintheyearyoureceiveitanddeductexpensesintheyearyoupaythem.
Mostindividualsusethismethod.
2.
Yourloanissecuredbyahome.
(Thehomedoesn'tneedtobeyourmainhome.
)3.
Yourloanperiodisn'tmorethan30years.
4.
Ifyourloanperiodismorethan10years,thetermsofyourloanarethesameasotherloansofferedinyourareaforthesameorlongerperiod.
5.
Eitheryourloanamountis$250,000orless,orthenumberofpointsisn'tmorethan:a.
4,ifyourloanperiodis15yearsorless;orb.
6,ifyourloanperiodismorethan15years.
Example.
Youusethecashmethodofac-counting.
In2019,youtookouta$100,000homemortgageloanpayableover20years.
Thetermsoftheloanarethesameasforother20-yearloansofferedinyourarea.
Youpaid$4,800inpoints.
Youmade3monthlypay-mentsontheloanin2019.
Youcandeduct$60[($4,800÷240months)x3payments]in2019.
In2020,ifyoumakealltwelvepayments,youwillbeabletodeduct$240($20x12).
DeductionAllowedinYearPaidYoucanfullydeductpointsintheyearpaidifyoumeetallthefollowingtests.
(YoucanuseFigureBasaquickguidetoseewhetheryourpointsarefullydeductibleintheyearpaid.
)1.
Yourloanissecuredbyyourmainhome.
(Yourmainhomeistheoneyouordinarilyliveinmostofthetime.
)2.
Payingpointsisanestablishedbusinesspracticeintheareawheretheloanwasmade.
3.
Thepointspaidweren'tmorethanthepointsgenerallychargedinthatarea.
4.
Youusethecashmethodofaccounting.
Thismeansyoureportincomeintheyearyoureceiveitanddeductexpensesintheyearyoupaythem.
Mostindividualsusethismethod.
5.
Thepointsweren'tpaidinplaceofamountsthatordinarilyarestatedsepa-ratelyonthesettlementstatement,suchasappraisalfees,inspectionfees,titlefees,attorneyfees,andpropertytaxes.
6.
Thefundsyouprovidedatorbeforeclos-ing,plusanypointsthesellerpaid,wereatleastasmuchasthepointscharged.
Thefundsyouprovidedaren'trequiredtohavebeenappliedtothepoints.
Theycanin-cludeadownpayment,anescrowde-posit,earnestmoney,andotherfundsyoupaidatorbeforeclosingforanypurpose.
Youcan'thaveborrowedthesefundsfromyourlenderormortgagebroker.
7.
Youuseyourloantobuyorbuildyourmainhome.
8.
Thepointswerefiguredasapercentageoftheprincipalamountofthemortgage.
9.
Theamountisclearlyshownonthesettle-mentstatement(suchastheSettlementStatement,FormHUD-1)aspointschargedforthemortgage.
Thepointsmaybeshownaspaidfromeitheryourfundsortheseller's.
Note.
Ifyoumeetallofthesetests,youcanchoosetoeitherfullydeductthepointsintheyearpaid,ordeductthemoverthelifeoftheloan.
Homeimprovementloan.
Youcanalsofullydeductintheyearpaidpointspaidonaloantosubstantiallyimproveyourmainhomeiftests(1)through(6)aremet.
Secondhome.
Youcan'tfullydeductintheyearpaidpointsyoupayonloanssecuredbyyoursecondhome.
Youcandeductthesepointsonlyoverthelifeoftheloan.
Refinancing.
Generally,pointsyoupaytorefi-nanceamortgagearen'tdeductibleinfullintheyearyoupaythem.
Thisistrueevenifthenewmortgageissecuredbyyourmainhome.
However,ifyouusepartoftherefinancedmortgageproceedstosubstantiallyimproveyourmainhomeandyoumeetthefirstsixtestslistedunderDeductionAllowedinYearPaid,earlier,youcanfullydeductthepartofthepointsrelatedtotheimprovementintheyearyoupaidthemwithyourownfunds.
Youcandeducttherestofthepointsoverthelifeoftheloan.
Example1.
In1999,BillFieldsgotamort-gagetobuyahome.
In2019,Billrefinancedthatmortgagewitha15-year$100,000mort-gageloan.
Themortgageissecuredbyhishome.
Togetthenewloan,hehadtopaythreepoints($3,000).
Twopoints($2,000)wereforprepaidinterest,andonepoint($1,000)waschargedforservices,inplaceofamountsthatordinarilyarestatedseparatelyonthesettle-mentstatement.
Billpaidthepointsoutofhisprivatefunds,ratherthanoutoftheproceedsofthenewloan.
Thepaymentofpointsisanes-tablishedpracticeinthearea,andthepointschargedaren'tmorethantheamountgenerallychargedthere.
Bill'sfirstpaymentonthenewloanwasdueJuly1.
Hemadesixpaymentsontheloanin2019andisacashbasistaxpayer.
Billusedthefundsfromthenewmortgagetorepayhisexistingmortgage.
AlthoughthenewmortgageloanwasforBill'scontinuedownershipofhismainhome,itwasn'tforthepurchaseorsubstantialimprovementofthathome.
Hecan'tdeductallofthepointsin2019.
Hecandeducttwopoints($2,000)ratablyoverthelifeoftheloan.
Hededucts$67[($2,000÷180months)*6payments]ofthepointsin2019.
Theotherpoint($1,000)wasafeeforservicesandisn'tdeductible.
Example2.
ThefactsarethesameasinExample1,exceptthatBillused$25,000oftheloanproceedstosubstantiallyimprovehishomeand$75,000torepayhisexistingmort-gage.
Billdeducts25%($25,000÷$100,000)ofthepoints($2,000)in2019.
Hisdeductionis$500($2,000*25%(0.
25)).
Billalsodeductstheratablepartofthere-maining$1,500($2,000$500)thatmustbespreadoverthelifeoftheloan.
Thisis$50[($1,500÷180months)*6payments]in2019.
ThetotalamountBilldeductsin2019is$550($500+$50).
SpecialSituationsThissectiondescribescertainspecialsituationsthatmayaffectyourdeductionofpoints.
Originalissuediscount.
Ifyoudon'tqualifytoeitherdeductthepointsintheyearpaidorde-ductthemratablyoverthelifeoftheloan,orifyouchoosenottouseeitherofthesemethods,thepointsreducetheissuepriceoftheloan.
Thisreductionresultsinoriginalissuediscount,whichisdiscussedinchapter4ofPub.
535.
Amountschargedforservices.
Amountschargedbythelenderforspecificservicescon-nectedtotheloanaren'tinterest.
Examplesofthesechargesare:Appraisalfees,DepartmentofVeteransAffairs(VA)fund-ingfees,Mortgageinsurancepremiums,Notaryfees,andPreparationcostsforthemortgagenoteordeedoftrust.
Youcan'tdeducttheseamountsaspointsei-therintheyearpaidoroverthelifeofthemort-gage.
Pointspaidbytheseller.
Theterm"points"includesloanplacementfeesthatthesellerpaystothelendertoarrangefinancingforthebuyer.
Treatmentbyseller.
Thesellercan'tde-ductthesefeesasinterest.
Buttheyareasell-ingexpensethatreducestheamountrealizedPublication936(2019)Page7bytheseller.
SeePub.
523forinformationonsellingyourhome.
Treatmentbybuyer.
Thebuyerreducesthebasisofthehomebytheamountoftheseller-paidpointsandtreatsthepointsasifheorshehadpaidthem.
IfallthetestsunderDe-ductionAllowedinYearPaid,earlier,aremet,thebuyercandeductthepointsintheyearpaid.
Ifanyofthosetestsaren'tmet,thebuyerdeductsthepointsoverthelifeoftheloan.
Ifyouneedinformationaboutthebasisofyourhome,seePub.
523orPub.
530.
Fundsprovidedarelessthanpoints.
IfyoumeetallthetestsinDeductionAllowedinYearPaid,earlier,exceptthatthefundsyouprovidedwerelessthanthepointschargedtoyou(test(6)),youcandeductthepointsintheyearpaid,uptotheamountoffundsyouprovided.
Inaddi-tion,youcandeductanypointspaidbytheseller.
Example1.
Whenyoutookouta$100,000mortgageloantobuyyourhomeinDecember,youwerechargedonepoint($1,000).
Youmeetallthetestsfordeductingpointsintheyearpaid,excepttheonlyfundsyouprovidedwerea$750downpayment.
Ofthe$1,000chargedforpoints,youcandeduct$750intheyearpaid.
Youspreadtheremaining$250overthelifeofthemortgage.
Example2.
ThefactsarethesameasinExample1,exceptthatthepersonwhosoldyouyourhomealsopaidonepoint($1,000)tohelpyougetyourmortgage.
Intheyearpaid,youcandeduct$1,750($750oftheamountyouwerechargedplusthe$1,000paidbytheseller).
Youspreadtheremaining$250overthelifeofthemortgage.
Youmustreducethebasisofyourhomebythe$1,000paidbytheseller.
Excesspoints.
IfyoumeetallthetestsinDe-ductionAllowedinYearPaid,earlier,exceptthatthepointspaidweremorethangenerallypaidinyourarea(test(3)),youdeductintheyearpaidonlythepointsthataregenerallycharged.
Youmustspreadanyadditionalpointsoverthelifeofthemortgage.
Mortgageendingearly.
Ifyouspreadyourdeductionforpointsoverthelifeofthemort-gage,youcandeductanyremainingbalanceintheyearthemortgageends.
However,ifyoure-financethemortgagewiththesamelender,youcan'tdeductanyremainingbalanceofspreadpoints.
Instead,deducttheremainingbalanceoverthetermofthenewloan.
Amortgagemayendearlyduetoaprepay-ment,refinancing,foreclosure,orsimilarevent.
Example.
Danpaid$3,000inpointsin2008thathehadtospreadoutoverthe15-yearlifeofthemortgage.
Hededucts$200pointsperyear.
Through2019,Danhasdeducted$2,200ofthepoints.
Danprepaidhismortgageinfullin2019.
Hecandeducttheremaining$800ofpointsin2019.
Limitsondeduction.
Youcan'tfullydeductpointspaidonamortgagethatexceedsthelim-itsdiscussedinPartII.
SeetheTable1Instruc-tions,later,forline13.
Form1098.
Themortgageintereststatementyoureceiveshouldshownotonlythetotalinter-estpaidduringtheyear,butalsoyourmortgageinsurancepremiumsanddeductiblepointspaidduringtheyear.
SeeForm1098,MortgageIn-terestStatement,later.
MortgageInsurancePremiumsYoucantreatamountsyoupaidduring2019forqualifiedmortgageinsuranceashomemort-gageinterest.
Theinsurancemustbeincon-nectionwithhomeacquisitiondebt,andthein-surancecontractmusthavebeenissuedafter2006.
Qualifiedmortgageinsurance.
Qualifiedmortgageinsuranceismortgageinsurancepro-videdbytheDepartmentofVeteransAffairs,theFederalHousingAdministration,ortheRu-ralHousingService,andprivatemortgagein-surance(asdefinedinsection2oftheHome-ownersProtectionActof1998,asineffectonDecember20,2006).
MortgageinsuranceprovidedbytheDepart-mentofVeteransAffairsiscommonlyknownasafundingfee.
IfprovidedbytheRuralHousingService,itiscommonlyknownasaguaranteefee.
Thefundingfeeandguaranteefeecanei-therbeincludedintheamountoftheloanorpaidinfullatthetimeofclosing.
Thesefeescanbedeductedfullyin2019ifthemortgageinsur-ancecontractwasissuedin2019.
Contactthemortgageinsuranceissuertodeterminethede-ductibleamountifitisnotreportedinbox5ofForm1098.
Specialrulesforprepaidmortgageinsur-ance.
Generally,ifyoupaidpremiumsforqualifiedmortgageinsurancethatareproperlyallocabletoperiodsafterthecloseofthetaxyear,suchpremiumsaretreatedaspaidintheperiodtowhichtheyareallocated.
Youmustal-locatethepremiumsovertheshorterofthesta-tedtermofthemortgageor84months,begin-ningwiththemonththeinsurancewasobtained.
Nodeductionisallowedfortheuna-mortizedbalanceifthemortgageissatisfiedbe-foreitsterm.
ThisparagraphdoesnotapplytoqualifiedmortgageinsuranceprovidedbytheDepartmentofVeteransAffairsortheRuralHousingService.
Example.
RyanpurchasedahomeinMayof2019andfinancedthehomewitha15-yearmortgage.
Ryanalsoprepaidallofthe$9,240inprivatemortgageinsurancerequiredatthetimeofclosinginMay.
Sincethe$9,240inprivatemortgageinsuranceisallocabletoperiodsafter2019,Ryanmustallocatethe$9,240overtheshorterofthelifeofthemortgageor84months.
Ryan'sadjustedgrossincome(AGI)for2019is$76,000.
Ryancandeduct$880($9,240÷84x8months)forqualifiedmortgageinsurancepre-miumsin2019.
For2020,Ryancandeduct$1,320($9,240÷84x12months)ifhisAGIis$100,000orless.
Inthisexample,themortgageinsurancepremiumsareallocatedover84months,whichisshorterthanthelifeofthemortgageof15years(180months).
Limitondeduction.
Ifyouradjustedgrossin-comeonForm1040or1040-SR,line8b,ismorethan$100,000($50,000ifyourfilingsta-tusismarriedfilingseparately),theamountofyourmortgageinsurancepremiumsthatareotherwisedeductibleisreducedandmaybeeliminated.
Seeline8dintheInstructionsforScheduleA(Form1040or1040-SR)andcom-pletetheMortgageInsurancePremiumsDe-ductionWorksheettofiguretheamountyoucandeduct.
Ifyouradjustedgrossincomeismorethan$109,000($54,500ifmarriedfilingsepa-rately),youcannotdeductyourmortgageinsur-ancepremiums.
Form1098,MortgageInterestStatementIfyoupaid$600ormoreofmortgageinterest(includingcertainpointsandmortgageinsur-ancepremiums)duringtheyearonanyonemortgage,youwillgenerallyreceiveaForm1098orasimilarstatementfromthemortgageholder.
Youwillreceivethestatementifyoupayinteresttoaperson(includingafinancialinstitu-tionorcooperativehousingcorporation)inthecourseofthatperson'stradeorbusiness.
Agovernmentalunitisapersonforpurposesoffurnishingthestatement.
ThestatementforeachyearshouldbesenttoyoubyJanuary31ofthefollowingyear.
AcopyofthisformwillalsobesenttotheIRS.
Thestatementwillshowthetotalinterestyoupaidduringtheyear,anymortgageinsur-ancepremiumsyoupaid,andifyoupurchasedaprincipalresidenceduringtheyear,itwillalsoshowthepointspaidduringtheyear,includingseller-paidpoints,thataredeductibleasinter-esttotheextentyoudonotexceedthehomeacquisitiondebtlimit.
SeePartII,LimitsonHomeMortgageInterestDeduction,later.
How-ever,thestatementshouldn'tshowanyinterestthatwaspaidforyoubyagovernmentagency.
Asageneralrule,Form1098willincludeonlypointsthatyoucanfullydeductintheyearpaid.
However,itmayreportpointsthatyoucan'tdeduct,particularlyifyouarefilingmarriedfilingseparatelyorhavemortgagesformultipleproperties.
Youmusttakecaretodeductonlythosepointslegallyallowable.
Additionally,cer-tainpointsnotincludedonForm1098mayalsobedeductible,eitherintheyearpaidoroverthelifeoftheloan.
SeetheearlierdiscussionofPointstodeterminewhetheryoucandeductpointsnotshownonForm1098.
PrepaidinterestonForm1098.
Ifyoupre-paidinterestin2019thataccruedinfullbyJan-uary15,2020,thisprepaidinterestmaybein-cludedinbox1ofForm1098.
However,youcan'tdeducttheprepaidamountforJanuary2020in2019.
(SeePrepaidinterest,earlier.
)Youwillhavetofiguretheinterestthataccruedfor2020andsubtractitfromtheamountinbox1.
YouwillincludetheinterestforJanuary2020withotherinterestyoupayfor2020.
Refundedinterest.
Ifyoureceivedarefundofmortgageinterestyouoverpaidinanearlieryear,youwillgenerallyreceiveaForm1098Page8Publication936(2019)showingtherefundinbox4.
SeeRefundsofin-terest,earlier.
Mortgageinsurancepremiums.
Theamountofmortgageinsurancepremiumsyoupaidduring2019shouldbeshowninbox5ofForm1098.
SeeMortgageInsurancePremi-ums,earlier.
HowToReportGenerally,youcandeductthehomemortgageinterestandpointsreportedtoyouonForm1098onScheduleA(Form1040or1040-SR),line8a.
However,anyinterestshowinginbox1ofForm1098fromahomeequityloan,oralineofcreditorcreditcardloansecuredbythepropertyisnotdeductibleiftheproceedswerenotusedtobuy,build,orsubstantiallyimproveaqualifiedhome.
IfyoupaidmoredeductibleinteresttothefinancialinstitutionthantheamountshownonForm1098,showtheportionofthedeductibleinterestthatwasomittedfromForm1098online8b.
Attachastatementtoyourpaperreturnexplainingthedifferenceandprint"Seeattached"nexttoline8b.
Deducthomemortgageinterestthatwasn'treportedtoyouonForm1098onScheduleA(Form1040or1040-SR),line8b.
Ifyoupaidhomemortgageinteresttothepersonfromwhomyouboughtyourhome,showthatper-son'sname,address,andtaxpayeridentifica-tionnumber(TIN)onthedottedlinesnexttoline8b.
ThesellermustgiveyouthisnumberandyoumustgivetheselleryourTIN.
AFormW-9,RequestforTaxpayerIdentificationNum-berandCertification,canbeusedforthispur-pose.
Failuretomeetanyoftheserequirementsmayresultina$50penaltyforeachfailure.
TheTINcanbeeitherasocialsecuritynumber,anindividualtaxpayeridentificationnumber(is-suedbytheIRS),oranemployeridentificationnumber.
Ifyoucantakeadeductionforpointsthatweren'treportedtoyouonForm1098,deductthosepointsonScheduleA(Form1040or1040-SR),line8c.
DeductmortgageinsurancepremiumsonScheduleA(Form1040or1040-SR),line8d.
Morethanoneborrower.
Ifyouandatleastoneotherperson(otherthanyourspouseifyoufileajointreturn)wereliableforandpaidinter-estonamortgagethatwasforyourhome,andtheotherpersonreceivedaForm1098showingtheinterestthatwaspaidduringtheyear,at-tachastatementtoyourpaperreturnexplainingthis.
Showhowmuchoftheinteresteachofyoupaid,andgivethenameandaddressoftheper-sonwhoreceivedtheform.
DeductyourshareoftheinterestonScheduleA(Form1040or1040-SR),line8b,andprint"Seeattached"nexttotheline.
Also,deductyourshareofanyquali-fiedmortgageinsurancepremiumsonSched-uleA(Form1040or1040-SR),line8d.
Similarly,ifyou'rethepayerofrecordonamortgageonwhichthereareotherborrowersentitledtoadeductionfortheinterestshownontheForm1098youreceived,deductonlyyourshareoftheinterestonScheduleA(Form1040or1040-SR),line8a.
Leteachoftheotherbor-rowersknowwhathisorhershareis.
Mortgageproceedsusedforbusinessorin-vestment.
Ifyourhomemortgageinterestde-ductionislimitedundertherulesexplainedinPartII,butallorpartofthemortgageproceedswereusedforbusiness,investment,orotherdeductibleactivities,seeTable2neartheendofthispublication.
Itshowswheretodeductthepartofyourexcessinterestthatisforthoseac-tivities.
TheTable1Instructionsforline16inPartIIexplainhowtodividetheexcessinterestamongtheactivitiesforwhichthemortgageproceedswereused.
SpecialRuleforTenant-StockholdersinCooperativeHousingCorporationsAqualifiedhomeincludesstockinacoopera-tivehousingcorporationownedbyaten-ant-stockholder.
Thisappliesonlyiftheten-ant-stockholderisentitledtoliveinthehouseorapartmentbecauseofowningstockintheco-operative.
Cooperativehousingcorporation.
Thisisacorporationthatmeetsallofthefollowingcondi-tions.
1.
Hasonlyoneclassofstockoutstanding.
2.
Hasnostockholdersotherthanthosethatownthestockwhocanliveinahouse,apartment,orhousetrailerownedorleasedbythecorporation.
3.
Hasnostockholderswhocanreceiveanydistributionoutofcapitalotherthanonaliquidationofthecorporation.
4.
Meetsatleastoneofthefollowingrequire-ments.
a.
Receivesatleast80%ofitsgrossin-comefortheyearinwhichthemort-gageinterestispaidorincurredfromtenant-stockholders.
Forthispurpose,grossincomeisallincomereceivedduringtheentireyear,includingamountsreceivedbeforethecorpora-tionchangedtocooperativeowner-ship.
b.
Atalltimesduringtheyear,atleast80%ofthetotalsquarefootageofthecorporation'spropertyisusedoravail-ableforusebythetenant-stockhold-ersforresidentialorresidential-rela-teduse.
c.
Atleast90%ofthecorporation'sex-penditurespaidorincurredduringtheyeararefortheacquisition,construc-tion,management,maintenance,orcareofcorporatepropertyfortheben-efitofthetenant-stockholders.
Stockusedtosecuredebt.
Insomecases,youcan'tuseyourcooperativehousingstocktosecureadebtbecauseofeither:Restrictionsunderlocalorstatelaw,orRestrictionsinthecooperativeagreement(otherthanrestrictionsinwhichthemainpurposeistopermitthetenant-stockholdertotreatunsecureddebtasse-cureddebt).
However,youcantreatadebtassecuredbythestocktotheextentthattheproceedsareusedtobuythestockundertheallocationofin-terestrules.
Seechapter4ofPub.
535forde-tailsontheserules.
Figuringdeductiblehomemortgageinter-est.
Generally,ifyou'reatenant-stockholder,youcandeductpaymentsyoumakeforyourshareoftheinterestpaidorincurredbytheco-operative.
Theinterestmustbeonadebttobuy,build,change,improve,ormaintaintheco-operative'shousing,oronadebttobuytheland.
Figureyourshareofthisinterestbymultiply-ingthetotalbythefollowingfraction.
YoursharesofstockinthecooperativeThetotalsharesofstockinthecooperativeLimitsondeduction.
TofigurehowthelimitsdiscussedinPartIIapplytoyou,treatyourshareofthecooperative'sdebtasdebtin-curredbyyou.
Thecooperativeshoulddeter-mineyourshareofitsgrandfathereddebt,anditshomeacquisitiondebt.
(Yourshareofeachofthesetypesofdebtisequaltotheaveragebalanceofeachdebtmultipliedbythefractionjustgiven.
)Afteryourshareoftheaveragebal-anceofeachtypeofdebtisdetermined,youin-cludeitwiththeaveragebalanceofthattypeofdebtsecuredbyyourstock.
Form1098.
ThecooperativeshouldgiveyouaForm1098showingyourshareofthein-terest.
Usetherulesinthispublicationtodeter-mineyourdeductiblemortgageinterest.
PartII.
LimitsonHomeMortgageInterestDeductionThispartofthepublicationdiscussesthelimitsondeductiblehomemortgageinterest.
Theselimitsapplytoyourhomemortgageinterestex-penseifyouhaveahomemortgagethatdoesn'tfitintoanyofthethreecategorieslistedatthebeginningofPartIunderFullydeductibleinterest,earlier.
Yourhomemortgageinterestdeductionislimitedtotheinterestonthepartofyourhomemortgagedebtthatisn'tmorethanyourquali-fiedloanlimit.
Thisisthepartofyourhomemortgagedebtthatisgrandfathereddebtorthatisn'tmorethanthelimitsforhomeacquisitiondebt.
Table1canhelpyoufigureyourqualifiedloanlimitandyourdeductiblehomemortgageinterest.
HomeAcquisitionDebtHomeacquisitiondebtisamortgageyoutookoutafterOctober13,1987,tobuy,build,orsub-stantiallyimproveaqualifiedhome(yourmainorsecondhome).
Itmustalsobesecuredbythathome.
Iftheamountofyourmortgageismorethanthecostofthehomeplusthecostofanysub-stantialimprovements,onlythedebtthatisn'tPublication936(2019)Page9morethanthecostofthehomeplussubstantialimprovementsqualifiesashomeacquisitiondebt.
Homeacquisitiondebtlimit.
Thetotalamountyou(oryourspouseifmarriedfilingajointreturn)cantreatashomeacquisitiondebtonyourmainhomeandsecondhomeislimitedbasedonwhenthedebtissecured.
FordebtsecuredafterOctober13,1987,andpriortoDecember16,2017,thelimitis$1million($500,000ifmarriedfilingsepa-rately).
FordebtsecuredafterDecember15,2017,thelimitis$750,000($375,000ifmarriedfilingseparately).
However,atax-payerwhoentersintoawrittenbindingcontractbeforeDecember15,2017,tocloseonthepurchaseofaprincipalresi-dencebeforeJanuary1,2018,andwhopurchasessuchresidencebeforeApril1,2018,isconsideredtohaveincurredthehomeacquisitiondebtpriortoDecember16,2017.
Thelimitsabovearereduced(butnotbelowzero)bytheamountofyourgrandfathereddebt(discussedlater).
Refinancedhomeacquisitiondebt.
Anyse-cureddebtyouusetorefinancehomeacquisi-tiondebtistreatedashomeacquisitiondebt.
However,thenewdebtwillqualifyashomeac-quisitiondebtonlyuptotheamountofthebal-anceoftheoldmortgageprincipaljustbeforetherefinancing.
Anyadditionaldebtnotusedtobuy,build,orsubstantiallyimproveaqualifiedhomeisn'thomeacquisitiondebt.
Mortgagethatqualifieslater.
Amortgagethatdoesn'tqualifyashomeacquisitiondebtbecauseitdoesn'tmeetalltherequirementsmayqualifyatalatertime.
Forexample,adebtthatyouusetobuyyourhomemaynotqualifyashomeacquisitiondebtbecauseitisn'tse-curedbythehome.
However,ifthedebtislatersecuredbythehome,itmayqualifyashomeacquisitiondebtafterthattime.
Similarly,adebtthatyouusetobuypropertymaynotqualifybe-causethepropertyisn'taqualifiedhome.
How-ever,ifthepropertylaterbecomesaqualifiedhome,thedebtmayqualifyafterthattime.
Mortgagetreatedasusedtobuy,build,orsubstantiallyimprovehome.
Amortgagese-curedbyaqualifiedhomemaybetreatedashomeacquisitiondebt,evenifyoudon'tactuallyusetheproceedstobuy,build,orsubstantiallyimprovethehome.
Thisappliesinthefollowingsituations.
1.
Youbuyyourhomewithin90daysbeforeorafterthedateyoutakeoutthemort-gage.
Thehomeacquisitiondebtislimitedtothehome'scost,plusthecostofanysubstantialimprovementswithinthelimitdescribedbelowin(2)or(3).
(SeeExam-ple1,later.
)2.
Youbuildorsubstantiallyimproveyourhomeandtakeoutthemortgagebeforetheworkiscompleted.
Thehomeacquisi-tiondebtislimitedtotheamountoftheex-pensesincurredwithin24monthsbeforethedateofthemortgage.
3.
Youbuildorsubstantiallyimproveyourhomeandtakeoutthemortgagewithin90daysaftertheworkiscompleted.
Thehomeacquisitiondebtislimitedtotheamountoftheexpensesincurredwithintheperiodbeginning24monthsbeforetheworkiscompletedandendingonthedateofthemortgage.
(SeeExample2,later.
)Example1.
YouboughtyourmainhomeonJune3for$175,000.
Youpaidforthehomewithcashyougotfromthesaleofyouroldhome.
OnJuly15,youtookoutamortgageof$150,000securedbyyourmainhome.
Youusedthe$150,000toinvestinstocks.
Youcantreatthemortgageastakenouttobuyyourhomebe-causeyouboughtthehomewithin90daysbe-foreyoutookoutthemortgage.
Theentiremort-gagequalifiesashomeacquisitiondebtbecauseitwasn'tmorethanthehome'scost.
Example2.
OnJanuary31,Johnbeganbuildingahomeonthelotthatheowned.
Heused$45,000ofhispersonalfundstobuildthehome.
ThehomewascompletedonOctober31.
OnNovember21,Johntookouta$36,000mortgagethatwassecuredbythehome.
Themortgagecanbetreatedasusedtobuildthehomebecauseitwastakenoutwithin90daysafterthehomewascompleted.
Theentiremort-gagequalifiesashomeacquisitiondebtbe-causeitwasn'tmorethantheexpensesincur-redwithintheperiodbeginning24monthsbeforethehomewascompleted.
Thisisillustra-tedbyFigureC.
Dateofthemortgage.
Thedateyoutakeoutyourmortgageisthedaytheloanproceedsaredisbursed.
Thisisgenerallytheclosingdate.
Youcantreatthedayyouapplyinwritingforyourmortgageasthedateyoutakeitout.
However,thisappliesonlyifyoureceivetheloanproceedswithinareasonabletime(suchaswithin30days)afteryourapplicationisap-proved.
Ifatimelyapplicationyoumakeisre-jected,areasonableadditionaltimewillbeal-lowedtomakeanewapplication.
Costofhomeorimprovements.
Todeter-mineyourcost,includeamountspaidtoacquireanyinterestinaqualifiedhomeortosubstan-tiallyimprovethehome.
Thecostofbuildingorsubstantiallyimprov-ingaqualifiedhomeincludesthecoststoac-quirerealpropertyandbuildingmaterials,feesforarchitectsanddesignplans,andrequiredbuildingpermits.
Substantialimprovement.
Animprove-mentissubstantialifit:Addstothevalueofyourhome,Prolongsyourhome'susefullife,orAdaptsyourhometonewuses.
Repairsthatmaintainyourhomeingoodcondition,suchasrepaintingyourhome,aren'tsubstantialimprovements.
However,ifyoupaintyourhomeaspartofarenovationthatsubstantiallyimprovesyourqualifiedhome,youcanincludethepaintingcostsinthecostoftheimprovements.
Acquiringaninterestinahomebecauseofadivorce.
Ifyouincurdebttoacquirethein-terestofaspouseorformerspouseinahomebecauseofadivorceorlegalseparation,youcantreatthatdebtashomeacquisitiondebt.
Partofhomenotaqualifiedhome.
Tofigureyourhomeacquisitiondebt,youmustdi-videthecostofyourhomeandimprovementsbetweenthepartofyourhomethatisaqualifiedhomeandanypartthatisn'taqualifiedhome.
SeeDivideduseofyourhomeunderQualifiedHomeinPartI,earlier.
GrandfatheredDebtIfyoutookoutamortgageonyourhomebeforeOctober14,1987,oryourefinancedsuchamortgage,itmayqualifyasgrandfathereddebt.
Toqualify,itmusthavebeensecuredbyyourqualifiedhomeonOctober13,1987,andatalltimesafterthatdate.
Howyouusedthepro-ceedsdoesn'tmatter.
Grandfathereddebtisn'tlimited.
Allofthein-terestyoupaidongrandfathereddebtisfullydeductiblehomemortgageinterest.
However,theamountofyourgrandfathereddebtreducesthelimitforhomeacquisitiondebt.
Refinancedgrandfathereddebt.
Ifyourefi-nancedgrandfathereddebtafterOctober13,1987,foranamountthatwasn'tmorethanthemortgageprincipalleftonthedebt,thenyoustilltreatitasgrandfathereddebt.
Totheextentthenewdebtismorethanthatmortgageprincipal,itistreatedashomeacquisitiondebt(solongastheproceedswereusedtobuy,build,orsubstantiallyimprovethehome),andthemort-gageisamixed-usemortgage(discussedlaterunderAverageMortgageBalanceintheTa-ble1Instructions).
Thedebtmustbesecuredbythequalifiedhome.
Youtreatgrandfathereddebtthatwasrefi-nancedafterOctober13,1987,asgrandfath-ereddebtonlyforthetermleftonthedebtthatwasrefinanced.
Afterthat,youtreatitashomeacquisitiondebttotheextentthatitwasusedtobuy,build,orsubstantiallyimprovethehome.
Exception.
Ifthedebtbeforerefinancingwaslikeaballoonnote(theprincipalonthedebtwasn'tamortizedoverthetermofthedebt),thenyoutreattherefinanceddebtasgrandfathereddebtforthetermofthefirstrefi-nancing.
Thistermcan'tbemorethan30years.
Example.
Chestertookouta$200,000firstmortgageonhishomein1986.
Themortgagewasa5-yearballoonnoteandtheentirebal-anceonthenotewasduein1991.
Chesterrefi-nancedthedebtin1991withanew30-yearPage10Publication936(2019)mortgage.
Therefinanceddebtistreatedasgrandfathereddebtforitsentireterm(30years).
Table1InstructionsYoucandeductalloftheinterestyoupaiddur-ingtheyearonmortgagessecuredbyyourmainhomeorsecondhomeineitherofthefol-lowingtwosituations.
Allthemortgagesaregrandfathereddebt.
ThetotalofthemortgagebalancesfortheentireyeariswithinthelimitsdiscussedearlierunderHomeAcquisitionDebt.
Ineitherofthosecases,youdon'tneedTable1.
Otherwise,youcanuseTable1todetermineyourqualifiedloanlimitanddeductiblehomemortgageinterest.
FilloutonlyoneTable1forbothyourmainandsecondhomeregardlessofhowmanymortgagesyouhave.
Publication936(2019)Page11WorksheetToFigureYourQualifiedLoanLimitandDeductibleHomeMortgageInterestfortheCurrentYearSeetheTable1Instructions.
Table1.
KeepforYourRecordsPartIQualifiedLoanLimit1.
Entertheaveragebalanceofallyourgrandfathereddebt.
Seetheline1instructions1.
2.
EntertheaveragebalanceofallyourhomeacquisitiondebtincurredpriortoDecember16,2017.
Seetheline2instructions2.
3.
Enter$1,000,000($500,000ifmarriedfilingseparately)3.
4.
Enterthelargeroftheamountonline1ortheamountonline34.
5.
Addtheamountsonlines1and2.
Enterthetotalhere5.
6.
Enterthesmalleroftheamountonline4ortheamountonline56.
IfyouhavenohomeacquisitiondebtincurredafterDecember15,2017,ortheamountonline6is$750,000($375,000ifmarriedfilingseparately)ormore,line6isyourqualifiedloanlimit.
Enterthisamountonline11andgotoPartII,line12.
IfyouhavehomeacquisitiondebtincurredafterDecember15,2017,gotoline7.
7.
EntertheaveragebalanceofallyourhomeacquisitiondebtincurredafterDecember15,2017.
Seetheline7instructions7.
8.
Enter$750,000($375,000ifmarriedfilingseparately)8.
9.
Enterthelargeroftheamountonline6ortheamountonline89.
10.
Addtheamountsonlines6and7.
Enterthetotalhere10.
11.
Enterthesmallerofline9orline10.
Thisisyourqualifiedloanlimit11.
PartIIDeductibleHomeMortgageInterest12.
Enterthetotaloftheaveragebalancesofallmortgagesfromlines1,2,and7onallqualifiedhomes.
Seetheline12instructions12.
Ifline11islessthanline12,goontoline13.
Ifline11isequaltoormorethanline12,stophere.
Allofyourinterestonallthemortgagesincludedonline12isdeductibleashomemortgageinterestonScheduleA(Form1040or1040-SR).
13.
Enterthetotalamountofinterestthatyoupaidontheloansfromline12.
Seetheline13instructions13.
14.
Dividetheamountonline11bytheamountonline12.
Entertheresultasadecimalamount(roundedtothreeplaces)14.
*.
15.
Multiplytheamountonline13bythedecimalamountonline14.
Entertheresult.
Thisisyourdeductiblehomemortgageinterest.
EnterthisamountonScheduleA(Form1040or1040-SR)15.
16.
Subtracttheamountonline15fromtheamountonline13.
Entertheresult.
Thisisn'thomemortgageinterest.
Seetheline16instructions16.
Page12Publication936(2019)AverageMortgageBalanceYouhavetofiguretheaveragebalanceofeachmortgagetodetermineyourqualifiedloanlimit.
Youneedtheseamountstocompletelines1,2,7,and12ofTable1.
Youcanusethehighestmortgagebalancesduringtheyear,butyoumaybenefitmostbyusingtheaveragebalan-ces.
Thefollowingaremethodsyoucanusetofigureyouraveragemortgagebalances.
How-ever,ifamortgagehasmorethanonecategoryofdebt,seeMixed-usemortgages,later,inthissection.
Averageoffirstandlastbalancemethod.
Youcanusethismethodifallthefollowingap-ply.
Youdidn'tborrowanynewamountsonthemortgageduringtheyear.
(Thisdoesn'tin-cludeborrowingtheoriginalmortgageamount.
)Youdidn'tprepaymorethan1month'sprincipalduringtheyear.
(Thisincludesprepaymentbyrefinancingyourhomeorbyapplyingproceedsfromitssale.
)Youhadtomakelevelpaymentsatfixedequalintervalsonatleastasemi-annualbasis.
Youtreatyourpaymentsasleveleveniftheywereadjustedfromtimetotimebecauseofchangesintheinterestrate.
Tofigureyouraveragebalance,com-pletethefollowingworksheet.
1.
Enterthebalanceasofthefirstdayoftheyearthatthemortgagewassecuredbyyourqualifiedhomeduringtheyear(generally,January1)2.
Enterthebalanceasofthelastdayoftheyearthatthemortgagewassecuredbyyourqualifiedhomeduringtheyear(generally,December31)3.
Addamountsonlines1and24.
Dividetheamountonline3by2.
0.
EntertheresultInterestpaiddividedbyinterestratemethod.
Youcanusethismethodifatalltimesin2019themortgagewassecuredbyyourqualifiedhomeandtheinterestwaspaidatleastmonthly.
Completethefollowingworksheettofigureyouraveragebalance.
1.
Entertheinterestpaidin2019.
Don'tincludepoints,mortgageinsurancepremiums,oranyinterestpaidin2019thatisforayearafter2019.
However,doincludeinterestthatisfor2019butwaspaidinanearlieryear2.
Entertheannualinterestrateonthemortgage.
Iftheinterestratevariedin2019,usethelowestratefortheyear3.
Dividetheamountonline1bytheamountonline2.
EntertheresultExample.
Mr.
Bluehadamortgagese-curedbyhismainhomeallyear.
Hepaidinter-estof$2,500onthisloan.
Theinterestrateontheloanwas9%(0.
09)allyear.
Hisaveragebalanceusingthismethodis$27,778,figuredasfollows.
1.
Entertheinterestpaidin2019.
Don'tincludepoints,mortgageinsurancepremiums,oranyinterestpaidin2019thatisforayearafter2019.
However,doincludeinterestthatisfor2019butwaspaidinanearlieryear2,5002.
Entertheannualinterestrateonthemortgage.
Iftheinterestratevariedin2019,usethelowestratefortheyear0.
093.
Dividetheamountonline1bytheamountonline2.
Entertheresult27,778Statementsprovidedbyyourlender.
Ifyoureceivemonthlystatementsshowingtheclosingbalanceortheaveragebalanceforthemonth,youcanuseeithertofigureyouraveragebal-ancefortheyear.
Youcantreatthebalanceaszeroforanymonththemortgagewasn'tse-curedbyyourqualifiedhome.
Foreachmortgage,figureyouraveragebal-ancebyaddingyourmonthlyclosingoraveragebalancesanddividingthattotalbythenumberofmonthsthehomesecuredbythatmortgagewasaqualifiedhomeduringtheyear.
Ifyourlendercangiveyouyouraveragebal-ancefortheyear,youcanusethatamount.
Example.
Ms.
Brownhadahomeloanse-curedbyhermainhomeallyear.
Shereceivedmonthlystatementsshowingheraveragebal-anceforeachmonth.
Shecanfigureheraver-agebalancefortheyearbyaddinghermonthlyaveragebalancesanddividingthetotalby12.
Mixed-usemortgages.
Amixed-usemort-gageisaloanthatconsistsofmorethanoneofthethreecategoriesofdebt(grandfathereddebt,homeacquisitiondebt,andhomeequitydebt).
Forexample,amortgageyoutookoutduringtheyearisamixed-usemortgageifyouuseditsproceedspartlytorefinanceamort-gagethatyoutookoutinanearlieryeartobuyyourhome(homeacquisitiondebt)andpartlytobuyacar(homeequitydebt).
Completelines1,2,and7ofTable1byin-cludingtheseparateaveragebalancesofanygrandfathereddebtandhomeacquisitiondebt(determinedbythedatethedebtwasacquired)inyourmixed-usemortgage.
Don'tusethemethodsdescribedearlierinthissectiontofig-uretheaveragebalanceofeithercategory.
In-stead,foreachcategory,usethefollowingmethod.
1.
Figurethebalanceofthatcategoryofdebtforeachmonth.
Thisistheamountoftheloanproceedsallocatedtothatcategory,reducedbyyourprincipalpaymentsonthemortgagepreviouslyappliedtothatcate-gory.
Principalpaymentsonamixed-usemortgageareappliedinfulltoeachcate-goryofdebt,untilitsbalanceiszero,inthefollowingorder.
a.
First,anyhomeequitydebtnotusedtobuy,build,orsubstantiallyimprovethehome.
b.
Next,anygrandfathereddebt.
c.
Finally,anyhomeacquisitiondebt.
2.
Addtogetherthemonthlybalancesfiguredforbandcin(1).
Completeline12ofTable1usingthefigurefromline(2)above.
Example1.
In1986,Sharontookoutafirstmortgageof$1,400,000.
Themortgagewasa5-yearballoonnoteandtheentirebalanceonthenotewasduein1991.
Sherefinancedthedebtin1991withanew30-yearmortgage(grandfathereddebt).
OnMarch2,2019,whenthehomehadafairmarketvalueof$1,700,000andsheowed$500,000onthemortgage,Sharontookoutasecondmortgagefor$200,000.
Sheused$180,000oftheproceedstomakesubstantialimprovementstoherhome(homeacquisitiondebt)andtheremaining$20,000tobuyacar(homeequitydebt).
Undertheloanagreement,Sharonmustmakeprinci-palpaymentsof$1,000attheendofeachmonth.
During2019,herprincipalpaymentsonthesecondmortgagetotaled$10,000.
TocompleteTable1,line7,Sharonmustfigureaseparateaveragebalanceforthepartofhersecondmortgagethatishomeacquisi-tiondebt.
TheJanuaryandFebruarybalanceswerezero.
TheMarchthroughDecemberbal-anceswereall$180,000becausenoneofherprincipalpaymentsareappliedtothehomeac-quisitiondebt.
(Theyareallappliedtothehomeequitydebt,reducingitto$10,000[$20,000$10,000].
)Themonthlybalancesofthehomeacquisitiondebttotal$1,800,000($180,000*10).
Therefore,theaveragebalanceofthehomeacquisitiondebtfor2019was$150,000($1,800,000÷12).
Example2.
ThefactsarethesameasinExample1.
In2020,Sharon'sJanuarythroughOctoberprincipalpaymentsonhersecondmortgageareappliedtothehomeequitydebt,reducingittozero.
Thebalanceofthehomeac-quisitiondebtremains$180,000foreachofthosemonths.
BecauseherNovemberandDe-cemberprincipalpaymentsareappliedtothehomeacquisitiondebt,theNovemberbalancePublication936(2019)Page13is$179,000($180,000$1,000)andtheDe-cemberbalanceis$178,000($180,000$2,000).
Themonthlybalancestotal$2,157,000[($180,000*10)+$179,000+$178,000].
Therefore,theaveragebalanceofthehomeac-quisitiondebtfor2020is$179,750($2,157,000÷12).
Line1FiguretheaveragebalanceforthecurrentyearofeachmortgageyouhadonallqualifiedhomesonOctober13,1987(grandfathereddebt).
Addtheresultstogetherandentertheto-talonline1.
Includetheaveragebalanceforthecurrentyearforanygrandfathereddebtpartofamixed-usemortgage.
Line2FiguretheaveragebalanceforthecurrentyearofeachmortgageyoutookoutonallqualifiedhomesafterOctober13,1987,andpriortoDe-cember16,2017,tobuy,build,orsubstantiallyimprovethehome(homeacquisitiondebt).
Addtheresultstogetherandenterthetotalonline2.
Includetheaveragebalanceforthecurrentyearforanyhomeacquisitiondebtpartofamixed-usemortgage.
Line7FiguretheaveragebalanceforthecurrentyearofeachmortgageyoutookoutonallqualifiedhomesafterDecember15,2017,tobuy,build,orsubstantiallyimprovethehome(homeac-quisitiondebt).
Addtheresultstogetheranden-terthetotalonline7.
Line12Figuretheaveragebalanceforthecurrentyearofeachoutstandinghomemortgage.
Addtheaveragebalancestogetherandenterthetotalonline12.
SeeAverageMortgageBalance,earlier.
Note.
Iftheaveragebalanceconsistsofmorethanonecategoryofdebt(grandfathereddebt,homeacquisitiondebt,andhomeequitydebt),seeMixed-usemortgages,earlier,tofig-uretheaveragemortgagebalance.
Line13Ifyoumakepaymentstoafinancialinstitution,ortoapersonwhosebusinessismakingloans,youshouldgetForm1098orasimilarstate-mentfromthelender.
Thisformwillshowtheamountofinteresttoenteronline13.
Alsoin-cludeonthislineanyotherinterestpaymentsmadeondebtssecuredbyaqualifiedhomeforwhichyoudidn'treceiveaForm1098.
Don'tin-cludepointsormortgageinsurancepremiumsonthisline.
Claimingyourdeductiblepoints.
Figureyourdeductiblepointsasfollows.
1.
Figureyourdeductiblepointsforthecur-rentyearusingtherulesexplainedunderPointsinPartI,earlier.
2.
Multiplytheamountinitem(1)bythedeci-malamountonline14.
EntertheresultonScheduleA(Form1040or1040-SR),line8aor8c,whicheverapplies.
Thisamountisfullydeductible.
3.
Subtracttheresultinitem(2)fromtheamountinitem(1).
Thisamountisn'tde-ductibleashomemortgageinterest.
How-ever,ifyouusedanyoftheloanproceedsforbusinessorinvestmentactivities,seetheinstructionsforline16next.
Claimingyourdeductiblemortgageinsur-ancepremiums.
Ifyouradjustedgrossin-comeonForm1040or1040-SR,line8b,ismorethan$109,000($54,500ifmarriedfilingseparately),youcannotdeductyourmortgageinsurancepremiums.
Otherwise,figureyourde-ductiblemortgageinsurancepremiumsforthecurrentyearusingtherulesexplainedunderMortgageInsurancePremiumsinPartI.
IftheamountonForm1040or1040-SR,line8b,is$100,000orless($50,000orlessifmarriedfil-ingseparately),enterthefullamountofyourqualifiedmortgageinsurancepremiumsonScheduleA(Form1040or1040-SR),line8d.
IftheamountonForm1040or1040-SR,line8b,ismorethan$100,000($50,000ifmarriedfilingseparately),yourdeductionislimited.
Enteryourqualifiedmortgageinsurancepremiumsonline1oftheMortgageInsurancePremiumsDe-ductionWorksheetintheInstructionsforScheduleA(Form1040or1040-SR)tofiguretheamounttoenteronScheduleA(Form1040or1040-SR),line8d.
Line16Youcan'tdeducttheamountofinterestonline16ashomemortgageinterest.
Ifyoudidn'tuseanyoftheproceedsofanymortgageinclu-dedonline12oftheworksheetforbusiness,in-vestment,orotherdeductibleactivities,thenalltheinterestonline16ispersonalinterest.
Per-sonalinterestisn'tdeductible.
Page14Publication936(2019)Ifyoudiduseallorpartofanymortgageproceedsforbusiness,investment,orotherde-ductibleactivities,thepartoftheinterestonline16thatisallocabletothoseactivitiescanbedeductedasbusiness,investment,orotherdeductibleexpense,subjecttoanylimitsthatapply.
Table2showswheretodeductthatin-terest.
SeeAllocationofInterestinchapter4ofPub.
535foranexplanationofhowtodeterminetheuseofloanproceeds.
Thefollowingtworulesdescribehowtoallo-catetheinterestonline16toabusinessorin-vestmentactivity.
Ifyouusedalloftheproceedsofthemort-gagesonline12foroneactivity,thenalltheinterestonline16isallocatedtothatactivity.
Inthiscase,deducttheinterestontheformorscheduletowhichitapplies.
Ifyouusedtheproceedsofthemortgagesonline12formorethanoneactivity,thenyoucanallocatetheinterestonline16amongtheactivitiesinanymanneryouse-lect(uptothetotalamountofinterestoth-erwiseallocabletoeachactivity,explainednext).
Youfigurethetotalamountofinterestother-wiseallocabletoeachactivitybymultiplyingtheamountonline13bythefollowingfraction.
Amountonline12allocatedtothatactivityTotalamountonline12Example.
Donhadtwomortgages(AandB)onhismainhomeduringtheentireyear.
MortgageAhadanaveragebalanceof$90,000,andmortgageBhadanaveragebal-anceof$110,000.
Dondeterminesthattheproceedsofmort-gageAareallocabletopersonalexpensesfortheentireyear.
TheproceedsofmortgageBareallocabletohisbusinessfortheentireyear.
Donpaid$14,000ofinterestonmortgageAand$16,000ofinterestonmortgageB.
Hefig-urestheamountofhomemortgageinteresthecandeductbyusingTable1.
Dondeterminesthat$15,000oftheinterestcanbedeductedashomemortgageinterest.
TheinterestDoncanallocatetohisbusi-nessisthesmallerof:1.
TheamountonTable1,line16,oftheworksheet($15,000);or2.
Thetotalamountofinterestallocabletothebusiness($16,500),figuredbymulti-plyingtheamountonline13(the$30,000totalinterestpaid)bythefollowingfrac-tion.
$110,000(theaveragebalanceofthemortgageallocatedtothebusiness)$200,000(thetotalaveragebalanceofallmortgages)Because$15,000isthesmallerofitems(1)and(2),thatistheamountofinterestDoncanallocatetohisbusiness.
HedeductsthisamountonhisScheduleC(Form1040or1040-SR).
HowToGetTaxHelpIfyouhavequestionsaboutataxissue,needhelppreparingyourtaxreturn,orwanttodown-loadfreepublications,forms,orinstructions,gotoIRS.
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Preparingandfilingyourtaxreturn.
Afterreceivingyourwageandearningstatements(FormW-2,W-2G,1099-R,1099-MISC)fromallemployersandinterestanddividendstate-mentsfrombanks(Forms1099),youcanfindfreeoptionstoprepareandfileyourreturnonIRS.
govorinyourlocalcommunityifyouqual-ify.
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FreeFile.
GotoIRS.
gov/FreeFiletoseeifyouqualifytousebrand-namesoftwaretoTable2.
WhereToDeductYourInterestExpenseIFyouhave.
.
.
THENdeductiton.
.
.
ANDformoreinformation,goto.
.
.
deductiblestudentloaninterestSchedule1(Form1040or1040-SR),line33Pub.
970,TaxBenefitsforEducation.
deductiblehomemortgageinterestandpointsreportedonForm1098ScheduleA(Form1040or1040-SR),line8athispublication(936).
deductiblehomemortgageinterestnotreportedonForm1098ScheduleA(Form1040or1040-SR),line8bthispublication(936).
deductiblepointsnotreportedonForm1098ScheduleA(Form1040or1040-SR),line8cthispublication(936).
deductiblemortgageinsurancepremiumsScheduleA(Form1040or1040-SR),line8dthispublication(936).
deductibleinvestmentinterest(otherthanincurredtoproducerentsorroyalties)ScheduleA(Form1040or1040-SR),line9Pub.
550,InvestmentIncomeandExpenses.
deductiblebusinessinterest(non-farm)ScheduleCorC-EZ(Form1040or1040-SR)Pub.
535,BusinessExpenses.
deductiblefarmbusinessinterestScheduleF(Form1040or1040-SR)Pubs.
225,Farmer'sTaxGuide,and535,BusinessExpenses.
deductibleinterestincurredtoproducerentsorroyaltiesScheduleE(Form1040or1040-SR)Pubs.
527,ResidentialRentalProperty,and535,BusinessExpenses.
personalinterestnotdeductible.
Publication936(2019)Page15prepareande-fileyourfederaltaxreturnforfree.
VITA.
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Ifyoustillneedhelp,IRSTACsprovidetaxhelpwhenataxissuecan'tbehandledonlineorbyphone.
AllTACsnowprovideservicebyappointmentsoyou'llknowinadvancethatyoucangettheserviceyouneedwithoutlongwaittimes.
Be-foreyouvisit,gotoIRS.
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Or,ontheIRS2Goapp,undertheStayConnectedtab,choosetheContactUsoptionandclickon"Lo-calOffices.
"TheTaxpayerAdvocateService(TAS)IsHereToHelpYouWhatIsTASTASisanindependentorganizationwithintheIRSthathelpstaxpayersandprotectstaxpayerrights.
Theirjobistoensurethateverytaxpayeristreatedfairlyandthatyouknowandunder-standyourrightsundertheTaxpayerBillofRights.
HowCanYouLearnAboutYourTaxpayerRightsTheTaxpayerBillofRightsdescribes10basicrightsthatalltaxpayershavewhendealingwiththeIRS.
GotoTaxpayerAdvocate.
IRS.
govtohelpyouunderstandwhattheserightsmeantoyouandhowtheyapply.
Theseareyourrights.
Knowthem.
Usethem.
WhatCanTASDoForYouTAScanhelpyouresolveproblemsthatyoucan'tresolvewiththeIRS.
Andtheirserviceisfree.
Ifyouqualifyfortheirassistance,youwillbeassignedtooneadvocatewhowillworkwithyouthroughouttheprocessandwilldoevery-thingpossibletoresolveyourissue.
TAScanhelpyouif:Yourproblemiscausingfinancialdifficultyforyou,yourfamily,oryourbusiness;Youface(oryourbusinessisfacing)animmediatethreatofadverseaction;orYou'vetriedrepeatedlytocontacttheIRSbutnoonehasresponded,ortheIRShasn'trespondedbythedatepromised.
HowCanYouReachTASTAShasofficesineverystate,theDistrictofColumbia,andPuertoRico.
Yourlocaladvo-cate'snumberisinyourlocaldirectoryandatTaxpayerAdvocate.
IRS.
gov/Contact-Us.
Youcanalsocallthemat877-777-4778.
HowElseDoesTASHelpTaxpayersTASworkstoresolvelarge-scaleproblemsthataffectmanytaxpayers.
Ifyouknowofoneofthesebroadissues,pleasereportittothematIRS.
gov/SAMS.
TASalsohasawebsite,TaxReformChanges,whichshowsyouhowthenewtaxlawmaychangeyourfuturetaxfilingsandhelpsyouplanforthesechanges.
TheinformationiscategorizedbytaxtopicintheorderoftheIRSForm1040or1040-SR.
GotoTaxChanges.
usformoreinformation.
TASforTaxProfessionalsTAScanprovideavarietyofinformationfortaxprofessionals,includingtaxlawupdatesandguidance,TASprograms,andwaystoletTASknowaboutsystemicproblemsyou'veseeninyourpractice.
LowIncomeTaxpayerClinics(LITCs)LITCsareindependentfromtheIRS.
LITCsrepresentindividualswhoseincomeisbelowacertainlevelandneedtoresolvetaxproblemswiththeIRS,suchasaudits,appeals,andtaxcollectiondisputes.
Inaddition,clinicscanpro-videinformationabouttaxpayerrightsandre-sponsibilitiesindifferentlanguagesforindividu-alswhospeakEnglishasasecondlanguage.
Servicesareofferedforfreeorasmallfee.
Tofindaclinicnearyou,visitIRS.
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4134,LowIncomeTaxpayerClinicList.
Tohelpusdevelopamoreusefulindex,pleaseletusknowifyouhaveideasforindexentries.
See"CommentsandSuggestions"inthe"Introduction"forthewaysyoucanreachus.
IndexAAcquisitiondebt2,9,10Alimony5Amortization:Points7Appraisalfees7Armedforces:Housingallowance5Assistance(SeeTaxhelp)Averagemortgagebalance13BBorrowers:Morethanone9Seller-paidpoints,treatmentbybuyer8Business:Averagemortgagebalance,totalamountofinterestotherwiseallowabletoeachactivity14Mortgageproceedsusedfor9CClergy:Ministers'andmilitaryhousingallowance5Cooperativehousing4,5,9Costofhomeorimprovements10Credits5DDateofmortgage10Debt:Choicetotreatasnotsecuredbyhome4Grandfathered2,10Homeacquisition2,9Notsecuredbyhome3Secured3Deductions2,5Homeoffice4Points7,14Deedpreparationcosts7Divorcedtaxpayers5,10EEmergencyHomeowners'LoanProgram5FFees:Appraisal7Notaries7Points(SeePoints)Figures(SeeTablesandfigures)Form1040,ScheduleA9,15Form1040,ScheduleCorC-EZ15Form1040,ScheduleE15Form1040,ScheduleF15Form10988Form83965GGrandfathereddebt2,10Groundrents5HHardestHitFundProgram5Home2Acquisitiondebt2,9Construction4Costof10Destroyed4Divideduse4,10Grandfathereddebt2,10Improvementloan,points7Main4Officein4Publication936(2019)Page17Qualified4Rentingoutpartof4Saleof4Second4Time-sharingarrangements4Housingallowance:Ministersandmilitary5IIdentitytheft16Improvements:Costof10Homeacquisitiondebt10Points7Substantial10Interest2(SeealsoMortgageinterest)Interestratemethod13Refunded5,8Wheretodeduct15Investments:Averagemortgagebalanceandtotalamountofinterestallowable14Mortgageproceedsusedfor5,9JJointreturns4LLendermortgagestatements13Limits:Cooperativehousing,mortgageinterestdeduction9Deductibilityofmortgageinsurancepremiums8Deductibilityofpoints8Homeacquisitiondebt10Homemortgageinterestdeduction9Qualifiedloanlimit12,13Line109Loans9,10(SeealsoMortgages)Homeimprovement,points7Qualifiedloanlimit12MMainhome4Marriedtaxpayers4Militaryhousingallowance5Ministers'housingallowance5Missingchildren,photographsof1Mixed-usemortgages13MortgageInsurancePremiums8Mortgageinterest2Cooperativehousing9Credit5Fullydeductibleinterest2Homemortgageinterest2,5Howtoreport9Latepaymentcharges4Limitsondeduction9Ministers'andmilitaryhousingallowance5Prepaidinterest5,8Prepaymentpenalty4Refunds5,8Saleofhome4Specialsituations4Statement8Wheretodeduct15Worksheettofigure(Table1)12MortgageInterestStatement8Mortgages:Assistancepayments(undersec.
235ofNationalHousingAct)5Averagebalance13Dateof10Endingearly8Latequalifying10Mixed-use13Preparationcostsfornoteordeedoftrust7Proceedsinvestedintax-exemptsecurities5Proceedsusedforbusiness9Proceedsusedforinvestment9Qualifiedloanlimit12,13Refinanced7,10Reverse5Statementsprovidedbylender13Tobuy,build,orimprove10Wraparound3NNonredeemablegroundrents5Notaryfees7OOfficeinhome4PPenalties:Mortgageprepayment4Points5–8Claimingdeductible14Exceptiontogeneralrule7Excess8Fundsprovidedlessthan8Generalrule7Homeimprovementloans7Sellerpaid7Prepaidinterest5,8Prepaymentpenalties4Publications(SeeTaxhelp)QQualifiedhomes4Qualifiedloanlimit:Averagemortgagebalance13Worksheettofigure(Table1)12RRedeemablegroundrents5Refinancing7Grandfathereddebt10Homeacquisitiondebt10Refunds5,8Rent:Nonredeemablegroundrents5Redeemablegroundrents5Rentalpayments5Rentingofhome:Partof4Time-sharingarrangements4Repairs10ReverseMortgages5SSaleofhome4Secondhome4,7Secureddebt3Seller-paidpoints7Separatedtaxpayers5Separatereturns4ShareofInterest9SpecialMethod5Spouses4Statementsprovidedbylender13Stock:Cooperativehousing9TTablesandfigures:Deductiblehomemortgageinterest:Fullydeductible,determinationof(FigureA)2Howtofigure(Table1)12Mortgagetobuy,build,orimprovehome(FigureC)10Points(FigureB)5Qualifiedloanlimitworksheet(Table1)12Taxcredits5Tax-exemptsecurities:Mortgageproceedsinvestedin5Taxhelp15Time-sharingarrangements4WWorksheets:Deductiblehomemortgageinterest12Qualifiedloanlimit12Wraparoundmortgages3Page18Publication936(2019)