Prepaid interest. If you pay interest in ad-
vance for a period that goes beyond the end of
the tax year, you must spread this interest over
the tax years to which it applies. You can deduct
in each year only the interest that qualifies as
home mortgage interest for that year. However,
there is an exception that applies to points, dis-
cussed later.
Mortgage interest credit. You may be able to
claim a mortgage interest credit if you were is-
sued a mortgage credit certificate (MCC) by a
state or local government. Figure the credit on
Form 8396, Mortgage Interest Credit. If you take
this credit, you must reduce your mortgage in-
terest deduction by the amount of the credit.
See Form 8396 and Pub. 530 for more infor-
mation on the mortgage interest credit.
Ministers' and military housing allowance.
If you're a minister or a member of the uni-
formed services and receive a housing allow-
ance that isn't taxable, you can still deduct your
home mortgage interest. For more information,
see Pub. 3 (military) or Pub. 517 (ministers).
Mortgage assistance payments under sec-
tion 235 of the National Housing Act. If you
qualify for mortgage assistance payments for
lower-income families under section 235 of the
National Housing Act, part or all of the interest
on your mortgage may be paid for you. You
can't deduct the interest that is paid for you.
No other effect on taxes. Don’t include
these mortgage assistance payments in your in-
come. Also, don't use these payments to reduce
other deductions, such as real estate taxes.
Homeowner Assistance Fund. The Home-
owner Assistance Fund program (HAF) was es-
tablished to provide financial assistance to eligi-
ble homeowners for purposes of paying certain
expenses related to their principal residence to
prevent mortgage delinquencies, defaults, fore-
closures, loss of utilities or home energy serv-
ices, and also displacements of homeowners
experiencing financial hardship after January
21, 2020. If you are a homeowner who received
assistance under the HAF, the payments from
the HAF program are not considered income to
you and you cannot take a deduction or credit
for expenditures paid from the HAF program.
See sections on State and Local Real Estate
Taxes and Home Mortgage Interest, in Pub.
530, to determine whether you meet the rules to
deduct all of the mortgage interest on your loan
and all of the real estate taxes on your main
home. For more details about the HAF program,
see Homeowner Assistance Fund in Pub. 530. If
you received HAF funds from an Indian Tribal
Government or an Alaska Native Corporation
and wish more details about the HAF program,
see FAQs for Payments by Indian Tribal
Governments and Alaska Native Corporations
to Individuals Under COVID-Relief Legislation.
Divorced or separated individuals. If a quali-
fied pre-2019 divorce or separation agreement
requires you to pay home mortgage interest on
a home owned by your spouse or former
spouse or by both of you, the payment of inter-
est may be alimony. See the discussion of Pay-
ments for jointly owned home under Alimony in
Pub. 504, Divorced or Separated Individuals.
Redeemable ground rents. In some states
(such as Maryland), you can buy your home
subject to a ground rent. A ground rent is an ob-
ligation you assume to pay a fixed amount per
year on the property. Under this arrangement,
you're leasing (rather than buying) the land on
which your home is located.
If you make annual or periodic rental pay-
ments on a redeemable ground rent, you can
deduct them as mortgage interest.
A ground rent is a redeemable ground rent if
all of the following are true.
•
Your lease, including renewal periods, is for
more than 15 years.
•
You can freely assign the lease.
•
You have a present or future right (under
state or local law) to end the lease and buy
the lessor's entire interest in the land by
paying a specific amount.
•
The lessor's interest in the land is primarily
a security interest to protect the rental pay-
ments to which he or she is entitled.
Payments made to end the lease and to buy
the lessor's entire interest in the land aren't de-
ductible as mortgage interest.
Nonredeemable ground rents. Payments
on a nonredeemable ground rent aren't mort-
gage interest. You can deduct them as rent if
they are a business expense or if they are for
rental property.
Reverse mortgages. A reverse mortgage is a
loan where the lender pays you (in a lump sum,
a monthly advance, a line of credit, or a combi-
nation of all three) while you continue to live in
your home. With a reverse mortgage, you retain
title to your home. Depending on the plan, your
reverse mortgage becomes due, with interest,
when you move, sell your home, reach the end
of a pre-selected loan period, or die. Because
reverse mortgages are considered loan advan-
ces and not income, the amount you receive
isn't taxable. Generally, any interest (including
original issue discount) accrued on a reverse
mortgage is considered interest on home equity
debt and isn’t deductible.
Rental payments. If you live in a house before
final settlement on the purchase, any payments
you make for that period are rent and not inter-
est. This is true even if the settlement papers
call them interest. You can't deduct these pay-
ments as home mortgage interest.
Mortgage proceeds invested in tax-exempt
securities. You can't deduct the home mort-
gage interest on grandfathered debt if you used
the proceeds of the mortgage to buy securities
or certificates that produce tax-free income.
“Grandfathered debt” is defined in Part II of this
publication.
Refunds of interest. If you receive a refund of
interest in the same tax year you paid it, you
must reduce your interest expense by the
amount refunded to you. If you receive a refund
of interest you deducted in an earlier year, you
must generally include the refund in income in
the year you receive it. However, you need to in-
clude it only up to the amount of the deduction
that reduced your tax in the earlier year. This is
true whether the interest overcharge was refun-
ded to you or was used to reduce the outstand-
ing principal on your mortgage. If you need to
include the refund in income, report it on Sched-
ule 1 (Form 1040), line 8z.
If you received a refund of interest you over-
paid in an earlier year, you will generally receive
a Form 1098, Mortgage Interest Statement,
showing the refund in box 4. For information
about Form 1098, see Form 1098, Mortgage In-
terest Statement, later.
For more information on how to treat refunds
of interest deducted in earlier years, see Recov-
eries in Pub. 525, Taxable and Nontaxable In-
come.
SBA disaster home loans. Interest paid on
disaster home loans from the Small Business
Administration (SBA) is deductible as mortgage
interest if the requirements discussed earlier
under Home Mortgage Interest are met.
Points
The term “points” is used to describe certain
charges paid, or treated as paid, by a borrower
to obtain a home mortgage. Points may also be
called loan origination fees, maximum loan
charges, loan discount, or discount points.
A borrower is treated as paying any points
that a home seller pays for the borrower's mort-
gage. See Points paid by the seller, later.
General Rule
You generally can't deduct the full amount of
points in the year paid. Because they are pre-
paid interest, you generally deduct them ratably
over the life (term) of the mortgage. See Deduc-
tion Allowed Ratably next. If the loan is a home
equity, line of credit, or credit card loan and the
proceeds from the loan are not used to buy,
build, or substantially improve the home, the
points are not deductible.
For exceptions to the general rule, see De-
duction Allowed in Year Paid, later.
Deduction Allowed Ratably
If you don't meet the tests listed under Deduc-
tion Allowed in Year Paid, later, the loan isn't a
home improvement loan, or you choose not to
deduct your points in full in the year paid, you
can deduct the points ratably (equally) over the
life of the loan if you meet all of the following
tests.
1. You use the cash method of accounting.
This means you report income in the year
you receive it and deduct expenses in the
year you pay them. Most individuals use
this method.
2. Your loan is secured by a home. (The
home doesn't need to be your main
home.)
3. Your loan period isn't more than 30 years.
4. If your loan period is more than 10 years,
the terms of your loan are the same as
other loans offered in your area for the
same or longer period.
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