Publication 936 - Home Mortgage Interest Deduction

debtor-creditor relationship between you

Debt not secured by home. A debt is not

Introduction

secured by your home if it is secured solely

and the lender.

because of a lien on your general assets or if it is

•

The mortgage must be a secured debt on

This publication discusses the rules for deduct-

a security interest that attaches to the property

a qualified home. “Secured debt” and

ing home mortgage interest.

without your consent (such as a mechanic’s lien

“qualified home” are explained later.

Part I contains general information on home

or judgment lien).

mortgage interest, including points. It also ex-

A debt is not secured by your home if it once

plains how to report deductible interest on your

Fully deductible interest. In most cases, you

was, but is no longer secured by your home.

tax return.

will be able to deduct all of your home mortgage

Wraparound mortgage. This is not a se-

Part II explains how your deduction for home

interest. Whether it is all deductible depends on

cured debt unless it is recorded or otherwise

mortgage interest may be limited. It contains

the date you took out the mortgage, the amount

perfected under state law.

Table 1, which is a worksheet you may use to

of the mortgage, and your use of its proceeds.

figure the limit on your deduction.

If all of your mortgages fit into one or more of

Example. Beth owns a home subject to a

the following three categories at all times during

mortgage of $40,000. She sells the home for

Comments and suggestions. We welcome

the year, you can deduct all of the interest on

$100,000 to John, who takes it subject to the

your comments about this publication and your

those mortgages. (If any one mortgage fits into

$40,000 mortgage. Beth continues to make the

suggestions for future editions.

more than one category, add the debt that fits in

payments on the $40,000 note. John pays

You can e-mail us at *taxforms@irs.gov.

each category to your other debt in the same

$10,000 down and gives Beth a $90,000 note

Please put “Publications Comment” on the sub-

category.) If one or more of your mortgages

secured by a wraparound mortgage on the

ject line.

does not fit into any of these categories, use Part

home. Beth does not record or otherwise perfect

You can write to us at the following address:

II of this publication to figure the amount of

the $90,000 mortgage under the state law that

interest you can deduct.

applies. Therefore, that mortgage is not a se-

Internal Revenue Service

cured debt, and the interest John pays on it is

The three categories are as follows.

Individual Forms and Publications Branch

not deductible as home mortgage interest.

SE:W:CAR:MP:T:I

1) Mortgages you took out on or before Octo-

1111 Constitution Ave. NW

Choice to treat the debt as not secured by

ber 13, 1987 (called grandfathered debt).

Washington, DC 20224

your home. You can choose to treat any debt

2) Mortgages you took out after October 13,

secured by your qualified home as not secured

1987, to buy, build, or improve your home

by the home. This treatment begins with the tax

We respond to many letters by telephone.

(called home acquisition debt), but only if

year for which you make the choice and contin-

Therefore, it would be helpful if you would in-

throughout 2003 these mortgages plus any

ues for all later tax years. You may revoke your

clude your daytime phone number, including the

grandfathered debt totaled $1 million or

choice only with the consent of the Internal Rev-

area code, in your correspondence.

less ($500,000 or less if married filing sep-

enue Service (IRS).

arately).

You may want to treat a debt as not secured

Useful Items

by your home if the interest on that debt is fully

You may want to see:

3) Mortgages you took out after October 13,

deductible (for example, as a business expense)

1987, other than to buy, build, or improve

whether or not it qualifies as home mortgage

Publication

your home (called home equity debt), but

interest. This may allow you, if the limits in Part II

only if throughout 2003 these mortgages

523

Selling Your Home

apply to you, more of a deduction for interest on

totaled $100,000 or less ($50,000 or less if

other debts that are deductible only as home

527

Residential Rental Property

married filing separately) and totaled no

mortgage interest.

more than the fair market value of your

530

Tax Information for First-Time

home reduced by (1) and (2).

Homeowners

Cooperative apartment owner. If you own

stock in a cooperative housing corporation, see

The dollar limits for the second and third catego-

535

Business Expenses

the Special Rule for Tenant-Stockholders in Co-

ries apply to the combined mortgages on your

See How To Get Tax Help, near the end of

operative Housing Corporations, near the end of

main home and second home.

this publication, for information about getting

this Part I.

See Part II for more detailed definitions of

these publications.

grandfathered, home acquisition, and home eq-

Qualified Home

uity debt.

You can use Figure A to check whether your

For you to take a home mortgage interest de-

home mortgage interest is fully deductible.

Part I. Home

duction, your debt must be secured by a quali-

fied home. This means your main home or your

Secured Debt

Mortgage Interest

second home. A home includes a house, condo-

minium, cooperative, mobile home, house

You can deduct your home mortgage interest

This part explains what you can deduct as home

trailer, boat, or similar property that has sleep-

only if your mortgage is a secured debt. A se-

mortgage interest. It includes discussions on

ing, cooking, and toilet facilities.

cured debt is one in which you sign an instru-

points and on how to report deductible interest

The interest you pay on a mortgage on a

ment (such as a mortgage, deed of trust, or land

on your tax return.

home other than your main or second home may

contract) that:

Generally, home mortgage interest is any

be deductible if the proceeds of the loan were

interest you pay on a loan secured by your home

used for business, investment, or other deducti-

1) Makes your ownership in a qualified home

(main home or a second home). The loan may

ble purposes. Otherwise, it is considered per-

security for payment of the debt,

be a mortgage to buy your home, a second

sonal interest and is not deductible.

mortgage, a line of credit, or a home equity loan.

2) Provides, in case of default, that your

Main home. You can have only one main

home could satisfy the debt, and

You can deduct home mortgage interest only

home at any one time. This is the home where

if you meet all the following conditions.

3) Is recorded or is otherwise perfected under

you ordinarily live most of the time.

•

any state or local law that applies.

You must file Form 1040 and itemize de-

ductions on Schedule A (Form 1040).

Second home. A second home is a home that

In other words, your mortgage is a secured

you choose to treat as your second home.

•

debt if you put your home up as collateral to

You must be legally liable for the loan.

protect the interests of the lender. If you cannot

You cannot deduct payments you make

Second home not rented out. If you have

for someone else if you are not legally

pay the debt, your home can then serve as

a second home that you do not hold out for rent

liable to make them. Both you and the

payment to the lender to satisfy (pay) the debt.

or resale to others at any time during the year,

lender must intend that the loan be repaid.

In this publication, mortgage will refer to se-

you can treat it as a qualified home. You do not

In addition, there must be a true

cured debt.

have to use the home during the year.

Page 2

Publication 936 - Home Mortgage Interest Deduction - 2003 Page 2

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