Publication 936 - Home Mortgage Interest Deduction - Department Of Treasury

To qualify, it must have been secured by your

Fill out only one Table 1 for both your

1. Enter the interest paid in 2008. Do

main and second home regardless of

qualified home on October 13, 1987, and at all

TIP

not include points, mortgage

times after that date. How you used the pro-

how many mortgages you have.

insurance premiums, or any interest

ceeds does not matter.

paid in 2008 that is for a year after

2008. However, do include interest

Grandfathered debt is not limited. All of the

Home equity debt only. If all of your mort-

that is for 2008 but was paid in an

interest you paid on grandfathered debt is fully

gages are home equity debt, do not fill in lines 1

earlier year . . . . . . . . . . . . . . . . .

deductible home mortgage interest. However,

through 5. Enter zero on line 6 and complete the

the amount of your grandfathered debt reduces

2. Enter the annual interest rate on the

rest of Table 1.

the $1 million limit for home acquisition debt and

mortgage. If the interest rate varied

the limit based on your home’s fair market value

in 2008, use the lowest rate for the

for home equity debt.

year . . . . . . . . . . . . . . . . . . . . . .

Average Mortgage Balance

3. Divide the amount on line 1 by the

Refinanced grandfathered debt. If you refi-

You have to figure the average balance of each

amount on line 2. Enter the result . .

nanced grandfathered debt after October 13,

mortgage to determine your qualified loan limit.

You need these amounts to complete lines 1, 2,

1987, for an amount that was not more than the

Example. Mr. Blue had a line of credit se-

and 9 of Table 1. You can use the highest

mortgage principal left on the debt, then you still

cured by his main home all year. He paid interest

mortgage balances during the year, but you may

treat it as grandfathered debt. To the extent the

of $2,500 on this loan. The interest rate on the

benefit most by using the average balances.

new debt is more than that mortgage principal, it

loan was 9% (.09) all year. His average balance

The following are methods you can use to figure

is treated as home acquisition or home equity

using this method is $27,778, figured as follows.

your average mortgage balances. However, if a

debt, and the mortgage is a mixed-use mort-

mortgage has more than one category of debt,

1. Enter the interest paid in 2008. Do

gage (discussed later under Average Mortgage

see

Mixed-use mortgages,

later, in this section.

not include points, mortgage

Balance in the Table 1 Instructions). The debt

insurance premiums, or any

must be secured by the qualified home.

Average of first and last balance method.

interest paid in 2008 that is for a

You treat grandfathered debt that was refi-

You can use this method if all the following

year after 2008. However, do

nanced after October 13, 1987, as

apply.

include interest that is for 2008 but

grandfathered debt only for the term left on the

•

was paid in an earlier year . . . . .

$2,500

You did not borrow any new amounts on

debt that was refinanced. After that, you treat it

2. Enter the annual interest rate on

the mortgage during the year. (This does

as home acquisition debt or home equity debt,

the mortgage. If the interest rate

not include borrowing the original mort-

depending on how you used the proceeds.

varied in 2008, use the lowest rate

gage amount.)

for the year . . . . . . . . . . . . . . .

.09

Exception. If the debt before refinancing

•

You did not prepay more than one month’s

3. Divide the amount on line 1 by the

was like a balloon note (the principal on the debt

principal during the year. (This includes

amount on line 2. Enter the result

$27,778

was not amortized over the term of the debt),

prepayment by refinancing your home or

then you treat the refinanced debt as

by applying proceeds from its sale.)

Statements provided by your lender. If you

grandfathered debt for the term of the first refi-

receive monthly statements showing the closing

•

nancing. This term cannot be more than 30

You had to make level payments at fixed

balance or the average balance for the month,

years.

equal intervals on at least a semi-annual

you can use either to figure your average bal-

basis. You treat your payments as level

ance for the year. You can treat the balance as

Example. Chester took out a $200,000 first

even if they were adjusted from time to

zero for any month the mortgage was not se-

mortgage on his home in 1986. The mortgage

time because of changes in the interest

cured by your qualified home.

was a five-year balloon note and the entire bal-

rate.

For each mortgage, figure your average bal-

ance on the note was due in 1991. Chester

ance by adding your monthly closing or average

refinanced the debt in 1991 with a new 20-year

To figure your average balance, com-

balances and dividing that total by the number of

mortgage. The refinanced debt is treated as

plete the following worksheet.

months the home secured by that mortgage was

grandfathered debt for its entire term (20 years).

a qualified home during the year.

If your lender can give you your average

Line-of-credit mortgage.

If you had a

balance for the year, you can use that amount.

line-of-credit mortgage on October 13, 1987,

and borrowed additional amounts against it after

1. Enter the balance as of the first day

Example. Ms. Brown had a home equity

that date, then the additional amounts are either

of the year that the mortgage was

loan secured by her main home all year. She

home acquisition debt or home equity debt de-

secured by your qualified home

received monthly statements showing her aver-

pending on how you used the proceeds. The

during the year (generally January

age balance for each month. She can figure her

balance on the mortgage before you borrowed

1) . . . . . . . . . . . . . . . . . . . . . .

average balance for the year by adding her

the additional amounts is grandfathered debt.

monthly average balances and dividing the total

2. Enter the balance as of the last day

The newly borrowed amounts are not

of the year that the mortgage was

by 12.

grandfathered debt because the funds were bor-

secured by your qualified home

rowed after October 13, 1987. See

Mixed-use

Mixed-use mortgages. A mixed-use mort-

during the year (generally

gage is a loan that consists of more than one of

mortgages

under Average Mortgage Balance in

December 31) . . . . . . . . . . . . . .

the Table 1 Instructions that follow.

the three categories of debt (grandfathered

3. Add amounts on lines 1 and 2 . . .

debt, home acquisition debt, and home equity

Table 1 Instructions

debt). For example, a mortgage you took out

4. Divide the amount on line 3 by 2.

Enter the result . . . . . . . . . . . . .

during the year is a mixed-use mortgage if you

used its proceeds partly to refinance a mortgage

Unless you are subject to the overall limit on

Interest paid divided by interest rate method.

that you took out in an earlier year to buy your

itemized deductions, you can deduct all of the

You can use this method if at all times in 2008

home (home acquisition debt) and partly to buy

interest you paid during the year on mortgages

the mortgage was secured by your qualified

a car (home equity debt).

secured by your main home or second home in

home and the interest was paid at least monthly.

Complete lines 1 and 2 of Table 1 by includ-

either of the following two situations.

ing the separate average balances of any

Complete the following worksheet to

•

All the mortgages are grandfathered debt.

grandfathered debt and home acquisition debt in

figure your average balance.

•

your mixed-use mortgage. Do not use the meth-

The total of the mortgage balances for the

ods described earlier in this section to figure the

entire year is within the limits discussed

average balance of either category. Instead, for

earlier under Home Acquisition Debt and

each category, use the following method.

Home Equity Debt.

In either of those cases, you do not need Table

1. Figure the balance of that category of debt

1. Otherwise, you can use Table 1 to determine

for each month. This is the amount of the

your qualified loan limit and deductible home

loan proceeds allocated to that category,

mortgage interest.

reduced by your principal payments on the

Page 10

Publication 936 (2008)

Publication 936 - Home Mortgage Interest Deduction - Department Of Treasury - 2008 Page 10

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