Publication 936 - Home Mortgage Interest Deduction - Department Of Treasury

Amounts charged for services. Amounts

spread points. Instead, deduct the remaining

formspubs. Click on Highlights of Recent Tax

charged by the lender for specific services con-

balance over the term of the new loan.

Changes and then on Individuals.

nected to the loan are not interest. Examples of

A mortgage may end early due to a prepay-

Limit on deduction. If your adjusted gross

these charges are:

ment, refinancing, foreclosure, or similar event.

income on Form 1040, line 38, is more than

•

Appraisal fees,

$100,000 ($50,000 if your filing status is married

Example. Dan paid $3,000 in points in 1997

filing separately), the amount of your mortgage

•

that he had to spread out over the 15-year life of

Notary fees, and

insurance premiums that are otherwise deducti-

the mortgage. He deducts $200 points per year.

•

Preparation costs for the mortgage note or

ble is reduced and may be eliminated. See

Line

Through 2007, Dan has deducted $2,200 of the

deed of trust.

in the instructions for Schedule A (Form

points.

1040) and complete the Qualified Mortgage In-

You cannot deduct these amounts as points

Dan prepaid his mortgage in full in 2008. He

surance Premiums Deduction Worksheet to fig-

either in the year paid or over the life of the

can deduct the remaining $800 of points in 2008.

ure the amount you can deduct. If your adjusted

mortgage.

gross income is more than $109,000 ($54,500 if

Limits on deduction. You cannot fully deduct

married filing separately), you cannot deduct

points paid on a mortgage that exceeds the

Points paid by the seller. The term “points”

your mortgage insurance premiums.

limits discussed in Part II. See the Table 1 In-

includes loan placement fees that the seller

structions for line 10.

pays to the lender to arrange financing for the

Form 1098. The mortgage interest statement

buyer.

you receive should show not only the total inter-

Form 1098. The mortgage interest statement

est paid during the year, but also your mortgage

Treatment by seller. The seller cannot de-

you receive should show not only the total inter-

insurance premiums paid during the year, which

duct these fees as interest. But they are a selling

est paid during the year, but also your deductible

may qualify to be treated as deductible mort-

expense that reduces the amount realized by

points paid during the year. See

Form 1098,

gage interest. See

Form 1098, Mortgage Inter-

the seller. See Publication 523 for information

Mortgage Interest Statement,

later.

est Statement,

next.

on selling your home.

Mortgage Insurance

Treatment by buyer. The buyer reduces

Form 1098, Mortgage Interest

Premiums

the basis of the home by the amount of the

Statement

seller-paid points and treats the points as if he or

You can treat amounts you paid during 2008 for

she had paid them. If all the tests under Deduc-

If you paid $600 or more of mortgage interest

qualified mortgage insurance as home mort-

tion Allowed in Year Paid, earlier, are met, the

(including certain points and mortgage insur-

gage interest. The insurance must be in connec-

buyer can deduct the points in the year paid. If

ance premiums) during the year on any one

tion with home acquisition debt, and the

any of those tests are not met, the buyer deducts

mortgage, you generally will receive a Form

insurance contract must have been issued after

the points over the life of the loan.

1098 or a similar statement from the mortgage

2006.

If you need information about the basis of

holder. You will receive the statement if you pay

your home, see Publication 523 or Publication

interest to a person (including a financial institu-

Qualified mortgage insurance. Qualified

530.

tion or cooperative housing corporation) in the

mortgage insurance is mortgage insurance pro-

course of that person’s trade or business. A

vided by the Department of Veterans Affairs, the

Funds provided are less than points. If you

governmental unit is a person for purposes of

Federal Housing Administration, or the Rural

meet all the tests in Deduction Allowed in Year

furnishing the statement.

Housing Service, and private mortgage insur-

Paid, earlier, except that the funds you provided

The statement for each year should be sent

ance (as defined in section 2 of the Homeown-

were less than the points charged to you (test

to you by January 31 of the following year. A

ers Protection Act of 1998 as in effect on

(6)), you can deduct the points in the year paid,

copy of this form will also be sent to the IRS.

December 20, 2006).

up to the amount of funds you provided. In addi-

The statement will show the total interest you

Mortgage insurance provided by the Depart-

tion, you can deduct any points paid by the

paid during the year, any mortgage insurance

ment of Veterans Affairs is commonly known as

seller.

premiums you paid, and if you purchased a main

a funding fee. If provided by the Rural Housing

home during the year, it also will show the de-

Service, it is commonly known as a guarantee

Example 1. When you took out a $100,000

ductible points paid during the year, including

fee. The funding fee and guarantee fee can

mortgage loan to buy your home in December,

seller-paid points. However, it should not show

either be included in the amount of the loan or

you were charged one point ($1,000). You meet

any interest that was paid for you by a govern-

paid in full at the time of closing. These fees can

all the tests for deducting points in the year paid,

ment agency.

be deducted fully in 2008 if the mortgage insur-

except the only funds you provided were a $750

As a general rule, Form 1098 will include

ance contract was issued in 2008. Contact the

down payment. Of the $1,000 charged for

only points that you can fully deduct in the year

mortgage insurance issuer to determine the de-

points, you can deduct $750 in the year paid.

paid. However, certain points not included on

ductible amount if it is not reported in box 4 of

You spread the remaining $250 over the life of

Form 1098 also may be deductible, either in the

Form 1098.

the mortgage.

year paid or over the life of the loan. See the

Special rules for prepaid mortgage insur-

earlier discussion of Points to determine

Example 2. The facts are the same as in

ance. If you paid premiums for qualified mort-

whether you can deduct points not shown on

Example 1, except that the person who sold you

gage insurance that are properly allocable to

Form 1098.

your home also paid one point ($1,000) to help

periods after the close of the tax year, such

you get your mortgage. In the year paid, you can

Prepaid interest on Form 1098. If you pre-

premiums are treated as paid in the period to

deduct $1,750 ($750 of the amount you were

paid interest in 2008 that accrued in full by Janu-

which they are allocated. No deduction is al-

charged plus the $1,000 paid by the seller). You

ary 15, 2009, this prepaid interest may be

lowed for the unamortized balance if the mort-

spread the remaining $250 over the life of the

included in box 1 of Form 1098. However, you

gage is satisfied before its term (except in the

mortgage. You must reduce the basis of your

cannot deduct the prepaid amount for January

case of qualified mortgage insurance provided

home by the $1,000 paid by the seller.

2009 in 2008. (See

Prepaid interest,

earlier.)

by the Department of Veterans Affairs or Rural

You will have to figure the interest that accrued

Housing Service).

Excess points. If you meet all the tests in

for 2009 and subtract it from the amount in box

At the time this publication went to print,

Deduction Allowed in Year Paid, earlier, except

1. You will include the interest for January 2009

regulations were being considered that would

that the points paid were more than generally

with other interest you pay for 2009.

allow you to allocate qualified mortgage insur-

paid in your area (test (3)), you deduct in the

ance premiums paid in connection with a mort-

year paid only the points that are generally

Refunded interest. If you received a refund of

gage obtained after 2006 over the shorter of the

charged. You must spread any additional points

mortgage interest you overpaid in an earlier

stated term of the mortgage or 84 months, be-

over the life of the mortgage.

year, you generally will receive a Form 1098

ginning with the month the insurance was ob-

showing the refund in box 3. See

Refunds of

Mortgage ending early. If you spread your

tained.

interest,

earlier.

deduction for points over the life of the mort-

More information can be found in Publication

gage, you can deduct any remaining balance in

553, Highlights of 2008 Tax Changes which is

Mortgage insurance premiums. The amount

the year the mortgage ends. However, if you

available at Information

of mortgage insurance premiums you paid dur-

refinance the mortgage with the same lender,

on this and other changes affecting individual

ing 2008 may be shown in box 4 of Form 1098.

you cannot deduct any remaining balance of

taxpayers can also be found at

See

Mortgage Insurance Premiums,

earlier.

Publication 936 (2008)

Page 7

Publication 936 - Home Mortgage Interest Deduction - Department Of Treasury - 2008 Page 7

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