Mortgage Interest

Paying the mortgage account can be very expense, but that does not give up the house with a nice income tax refund due to home mortgage interest deduction. There are certain things that can be included as home mortgage interest and others are not. There are certain special situations that may affect the deduction. Special situations can affect your tax return, so it is important to know the difference.

Late payment fees of the mortgage payment. If a late payment fee is not for a specific service performed in connection with its mortgage loan, you can deduct the charge as home mortgage interest.

Mortgage payment penalties. You may have to pay a prepayment penalty if you pay off your home mortgage early. If the punishment was not for a specific service performed or cost incurred in connection with its mortgage loan, you can deduct prepayment penalty as home mortgage interest.

Prepaid interest. You can deduct each year only the interest that qualifies as home mortgage interest for that year. (See point, discussed later, the exception). The interest you pay in advance for the period beyond the end of the tax year must be allocated during the taxable year to which it applies.

Mortgage loan interest rates. If you are issued mortgage credit certificates (MCC) by the state or local government, you may be able to apply for a mortgage loan interest. Use Form 8396, Mortgage Interest Credit loan figure. You can deduct mortgage interest to reduce the amount of loan that you take.

Divorced or separated individuals. Payment home mortgage interest, may be considered alimony if the divorce or separation agreement requires you or your spouse or former spouse to pay home mortgage interest on a home owned by both of you.

Reverse mortgages. A reverse mortgage loan where the lender is paid, while still living at home, while retaining ownership of your home. Payments can be in a lump sum, monthly advance, a line of credit, or a combination of all three. In general, a reverse mortgage is due when you move, sell your home, by the end of pre-selected loan period, or die. The amount you receive is not taxable because it is considered a reverse mortgage loan advances and not income. Any interest accrued on a reverse mortgage is not deductible until the loan is paid in full, and May will be limited.

Rent. You can not deduct any interest as initial payments that you made while he lived in the house before the final decision on the entry. This is true even if the settlement papers call them interest.

Mortgage proceeds invested in securities exempt from paying taxes. You can not deduct interest on home equity debt if you used the funds to buy securities or certificates that produce tax free income.

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