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2012 Tax Form

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2012 Tax Form

2012 tax form Publication 901 - Additional Material Table of Contents How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). 2012 tax form How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. 2012 tax form By selecting the method that is best for you, you will have quick and easy access to tax help. 2012 tax form Free help with your tax return. 2012 tax form   Free help in preparing your return is available nationwide from IRS-certified volunteers. 2012 tax form The Volunteer Income Tax Assistance (VITA) program is designed to help low-moderate income, elderly, disabled, and limited English proficient taxpayers. 2012 tax form The Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. 2012 tax form Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. 2012 tax form Some VITA and TCE sites provide taxpayers the opportunity to prepare their return with the assistance of an IRS-certified volunteer. 2012 tax form To find the nearest VITA or TCE site, visit IRS. 2012 tax form gov or call 1-800-906-9887 or 1-800-829-1040. 2012 tax form   As part of the TCE program, AARP offers the Tax-Aide counseling program. 2012 tax form To find the nearest AARP Tax-Aide site, visit AARP's website at www. 2012 tax form aarp. 2012 tax form org/money/taxaide or call 1-888-227-7669. 2012 tax form   For more information on these programs, go to IRS. 2012 tax form gov and enter “VITA” in the search box. 2012 tax form Internet. 2012 tax form You can access the IRS website at IRS. 2012 tax form gov 24 hours a day, 7 days a week to: E-file your return. 2012 tax form Find out about commercial tax preparation and e-file services available free to eligible taxpayers. 2012 tax form Check the status of your 2012 refund. 2012 tax form Go to IRS. 2012 tax form gov and click on Where’s My Refund. 2012 tax form Information about your return will generally be available within 24 hours after the IRS receives your e-filed return, or 4 weeks after you mail your paper return. 2012 tax form If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). 2012 tax form Have your 2012 tax return handy so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. 2012 tax form Where's My Refund? has a new look this year! The tool will include a tracker that displays progress through three stages: (1) return received, (2) refund approved, and (3) refund sent. 2012 tax form Where's My Refund? will provide an actual personalized refund date as soon as the IRS processes your tax return and approves your refund. 2012 tax form So in a change from previous filing seasons, you won't get an estimated refund date right away. 2012 tax form Where's My Refund? includes information for the most recent return filed in the current year and does not include information about amended returns. 2012 tax form You can obtain a free transcript online at IRS. 2012 tax form gov by clicking on Order a Return or Account Transcript under “Tools. 2012 tax form ” For a transcript by phone, call 1-800-908-9946 and follow the prompts in the recorded message. 2012 tax form You will be prompted to provide your SSN or Individual Taxpayer Identification Number (ITIN), date of birth, street address and ZIP code. 2012 tax form Download forms, including talking tax forms, instructions, and publications. 2012 tax form Order IRS products. 2012 tax form Research your tax questions. 2012 tax form Search publications by topic or keyword. 2012 tax form Use the Internal Revenue Code, regulations, or other official guidance. 2012 tax form View Internal Revenue Bulletins (IRBs) published in the last few years. 2012 tax form Figure your withholding allowances using the IRS Withholding Calculator at www. 2012 tax form irs. 2012 tax form gov/individuals. 2012 tax form Determine if Form 6251 (Alternative Minimum Tax— Individuals), must be filed by using our Alternative Minimum Tax (AMT) Assistant available at IRS. 2012 tax form gov by typing Alternative Minimum Tax Assistant in the search box. 2012 tax form Sign up to receive local and national tax news by email. 2012 tax form Get information on starting and operating a small business. 2012 tax form Phone. 2012 tax form Many services are available by phone. 2012 tax form   Ordering forms, instructions, and publications. 2012 tax form Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, and publications, and prior-year forms and instructions (limited to 5 years). 2012 tax form You should receive your order within 10 days. 2012 tax form Asking tax questions. 2012 tax form Call the IRS with your tax questions at 1-800-829-1040. 2012 tax form Solving problems. 2012 tax form You can get face-to-face help solving tax problems most business days in IRS Taxpayer Assistance Centers (TAC). 2012 tax form An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. 2012 tax form Call your local Taxpayer Assistance Center for an appointment. 2012 tax form To find the number, go to www. 2012 tax form irs. 2012 tax form gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. 2012 tax form TTY/TDD equipment. 2012 tax form If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. 2012 tax form The TTY/TDD telephone number is for individuals who are deaf, hard of hearing, or have a speech disability. 2012 tax form These individuals can also access the IRS through relay services such as the Federal Relay Service at www. 2012 tax form gsa. 2012 tax form gov/fedrelay. 2012 tax form TeleTax topics. 2012 tax form Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics. 2012 tax form Checking the status of your 2012 refund. 2012 tax form To check the status of your 2012 refund, call 1-800-829-1954 or 1-800-829-4477 (automated Where's My Refund? information 24 hours a day, 7 days a week). 2012 tax form Information about your return will generally be available within 24 hours after the IRS receives your e-filed return, or 4 weeks after you mail your paper return. 2012 tax form If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). 2012 tax form Have your 2012 tax return handy so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. 2012 tax form Where's My Refund? will provide an actual personalized refund date as soon as the IRS processes your tax return and approves your refund. 2012 tax form Where's My Refund? includes information for the most recent return filed in the current year and does not include information about amended returns. 2012 tax form Evaluating the quality of our telephone services. 2012 tax form To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. 2012 tax form One method is for a second IRS representative to listen in on or record random telephone calls. 2012 tax form Another is to ask some callers to complete a short survey at the end of the call. 2012 tax form Walk-in. 2012 tax form Some products and services are available on a walk-in basis. 2012 tax form   Products. 2012 tax form You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. 2012 tax form Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. 2012 tax form Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. 2012 tax form Services. 2012 tax form You can walk in to your local TAC most business days for personal, face-to-face tax help. 2012 tax form An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. 2012 tax form If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local TAC where you can talk with an IRS representative face-to-face. 2012 tax form No appointment is necessary—just walk in. 2012 tax form Before visiting, check www. 2012 tax form irs. 2012 tax form gov/localcontacts for hours of operation and services provided. 2012 tax form If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment can be requested by calling your local TAC. 2012 tax form You can leave a message and a representative will call you back within 2 business days. 2012 tax form All other issues will be handled without an appointment. 2012 tax form To call your local TAC, go to  www. 2012 tax form irs. 2012 tax form gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. 2012 tax form Mail. 2012 tax form You can send your order for forms, instructions, and publications to the address below. 2012 tax form You should receive a response within 10 days after your request is received. 2012 tax form  Internal Revenue Service 1201 N. 2012 tax form Mitsubishi Motorway Bloomington, IL 61705-6613 Taxpayer Advocate Service. 2012 tax form   The Taxpayer Advocate Service (TAS) is your voice at the IRS. 2012 tax form Its job is to ensure that every taxpayer is treated fairly, and that you know and understand your rights. 2012 tax form TAS offers free help to guide you through the often-confusing process of resolving tax problems that you haven’t been able to solve on your own. 2012 tax form Remember, the worst thing you can do is nothing at all. 2012 tax form   TAS can help if you can’t resolve your problem with the IRS and: Your problem is causing financial difficulties for you, your family, or your business. 2012 tax form You face (or your business is facing) an immediate threat of adverse action. 2012 tax form You have tried repeatedly to contact the IRS but no one has responded, or the IRS has not responded to you by the date promised. 2012 tax form   If you qualify for help, they will do everything they can to get your problem resolved. 2012 tax form You will be assigned to one advocate who will be with you at every turn. 2012 tax form TAS has offices in every state, the District of Columbia, and Puerto Rico. 2012 tax form Although TAS is independent within the IRS, their advocates know how to work with the IRS to get your problems resolved. 2012 tax form And its services are always free. 2012 tax form   As a taxpayer, you have rights that the IRS must abide by in its dealings with you. 2012 tax form The TAS tax toolkit at www. 2012 tax form TaxpayerAdvocate. 2012 tax form irs. 2012 tax form gov can help you understand these rights. 2012 tax form   If you think TAS might be able to help you, call your local advocate, whose number is in your phone book and on our website at www. 2012 tax form irs. 2012 tax form gov/advocate. 2012 tax form You can also call the toll-free number at 1-877-777-4778. 2012 tax form Deaf and hard of hearing individuals who have access to TTY/TDD equipment can call 1-800-829-4059. 2012 tax form These individuals can also access the IRS through relay services such as the Federal Relay Service at www. 2012 tax form gsa. 2012 tax form gov/fedrelay. 2012 tax form   TAS also handles large-scale or systemic problems that affect many taxpayers. 2012 tax form If you know of one of these broad issues, please report it through the Systemic Advocacy Management System at www. 2012 tax form irs. 2012 tax form gov/advocate. 2012 tax form Low Income Taxpayer Clinics (LITCs). 2012 tax form   Low Income Taxpayer Clinics (LITCs) are independent from the IRS. 2012 tax form Some clinics serve individuals whose income is below a certain level and who need to resolve a tax problem. 2012 tax form These clinics provide professional representation before the IRS or in court on audits, appeals, tax collection disputes, and other issues for free or for a small fee. 2012 tax form Some clinics can provide information about taxpayer rights and responsibilities in many different languages for individuals who speak English as a second language. 2012 tax form For more information and to find a clinic near you, see the LITC page on www. 2012 tax form irs. 2012 tax form gov/advocate or IRS Publication 4134, Low Income Taxpayer Clinic List. 2012 tax form This publication is also available by calling 1-800-TAX-FORM (1-800-829-3676) or at your local IRS office. 2012 tax form Free tax services. 2012 tax form   Publication 910, IRS Guide to Free Tax Services, is your guide to IRS services and resources. 2012 tax form Learn about free tax information from the IRS, including publications, services, and education and assistance programs. 2012 tax form The publication also has an index of over 100 TeleTax topics (recorded tax information) you can listen to on the telephone. 2012 tax form The majority of the information and services listed in this publication are available to you free of charge. 2012 tax form If there is a fee associated with a resource or service, it is listed in the publication. 2012 tax form   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities. 2012 tax form DVD for tax products. 2012 tax form You can order Publication 1796, IRS Tax Products DVD, and obtain: Current-year forms, instructions, and publications. 2012 tax form Prior-year forms, instructions, and publications. 2012 tax form Tax Map: an electronic research tool and finding aid. 2012 tax form Tax law frequently asked questions. 2012 tax form Tax Topics from the IRS telephone response system. 2012 tax form Internal Revenue Code—Title 26 of the U. 2012 tax form S. 2012 tax form Code. 2012 tax form Links to other Internet-based tax research materials. 2012 tax form Fill-in, print, and save features for most tax forms. 2012 tax form Internal Revenue Bulletins. 2012 tax form Toll-free and email technical support. 2012 tax form Two releases during the year. 2012 tax form  – The first release will ship the beginning of January 2013. 2012 tax form  – The final release will ship the beginning of March 2013. 2012 tax form Purchase the DVD from National Technical Information Service (NTIS) at www. 2012 tax form irs. 2012 tax form gov/cdorders for $30 (no handling fee) or call 1-877-233-6767 toll free to buy the DVD for $30 (plus a $6 handling fee). 2012 tax form Prev  Up  Next   Home   More Online Publications
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

South Carolina Department of Consumer Affairs

Website: South Carolina Department of Consumer Affairs

Address: South Carolina Department of Consumer Affairs
PO Box 5757
Columbia, SC 29250

Phone Number: 803-734-4200

Toll-free: 1-800-922-1594 (SC)

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Office of the Commissioner of Banking

Website: Office of the Commissioner of Banking

Address: Office of the Commissioner of Banking
State Board of Financial Institutions
1205 Pendleton St., Suite 305
Columbia, SC 29201

Phone Number: 803-734-2001

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Department of Insurance

Website: Department of Insurance

Address: Department of Insurance
Consumer Services
PO Box 100105
Columbia, SC 29202-3105

Phone Number: 803-737-6180

Toll-free: 1-800-768-3467 (SC)

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Office of the Attorney General

Website: Office of the Attorney General

Address: Office of the Attorney General
Securities Division
PO Box 11549
Columbia, SC 29211-1549

Phone Number: 803-734-9916

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Office of Regulatory Staff

Website: Office of Regulatory Staff

Address: Office of Regulatory Staff
Consumer Services Division
1401 Main St., Suite 900
Columbia, SC 29201

Phone Number: 803-737-5230

Toll-free: 1-800-922-1531 (SC)

TTY: 1-800-334-2217 (SC)

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The 2012 Tax Form

2012 tax form Publication 936 - Main Content Table of Contents Part I. 2012 tax form Home Mortgage InterestSecured Debt Qualified Home Special Situations Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement How To Report Special Rule for Tenant-Stockholders in Cooperative Housing Corporations Part II. 2012 tax form Limits on Home Mortgage Interest DeductionHome Acquisition Debt Home Equity Debt Grandfathered Debt Table 1 Instructions How To Get Tax HelpLow Income Taxpayer Clinics Part I. 2012 tax form Home Mortgage Interest This part explains what you can deduct as home mortgage interest. 2012 tax form It includes discussions on points, mortgage insurance premiums, and how to report deductible interest on your tax return. 2012 tax form Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). 2012 tax form The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. 2012 tax form You can deduct home mortgage interest if all the following conditions are met. 2012 tax form You file Form 1040 and itemize deductions on Schedule A (Form 1040). 2012 tax form The mortgage is a secured debt on a qualified home in which you have an ownership interest. 2012 tax form Secured Debt and Qualified Home are explained later. 2012 tax form  Both you and the lender must intend that the loan be repaid. 2012 tax form Fully deductible interest. 2012 tax form   In most cases, you can deduct all of your home mortgage interest. 2012 tax form How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. 2012 tax form   If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. 2012 tax form (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category. 2012 tax form ) If one or more of your mortgages does not fit into any of these categories, use Part II of this publication to figure the amount of interest you can deduct. 2012 tax form   The three categories are as follows. 2012 tax form Mortgages you took out on or before October 13, 1987 (called grandfathered debt). 2012 tax form Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2013 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately). 2012 tax form Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2013 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2). 2012 tax form The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. 2012 tax form   See Part II for more detailed definitions of grandfathered, home acquisition, and home equity debt. 2012 tax form    You can use Figure A to check whether your home mortgage interest is fully deductible. 2012 tax form This image is too large to be displayed in the current screen. 2012 tax form Please click the link to view the image. 2012 tax form Figure A. 2012 tax form Is My Home Mortgage Interest Fully Deductible? Secured Debt You can deduct your home mortgage interest only if your mortgage is a secured debt. 2012 tax form A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that: Makes your ownership in a qualified home security for payment of the debt, Provides, in case of default, that your home could satisfy the debt, and Is recorded or is otherwise perfected under any state or local law that applies. 2012 tax form In other words, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. 2012 tax form If you cannot pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt. 2012 tax form In this publication, mortgage will refer to secured debt. 2012 tax form Debt not secured by home. 2012 tax form   A debt is not secured by your home if it is secured solely because of a lien on your general assets or if it is a security interest that attaches to the property without your consent (such as a mechanic's lien or judgment lien). 2012 tax form   A debt is not secured by your home if it once was, but is no longer secured by your home. 2012 tax form Wraparound mortgage. 2012 tax form   This is not a secured debt unless it is recorded or otherwise perfected under state law. 2012 tax form Example. 2012 tax form Beth owns a home subject to a mortgage of $40,000. 2012 tax form She sells the home for $100,000 to John, who takes it subject to the $40,000 mortgage. 2012 tax form Beth continues to make the payments on the $40,000 note. 2012 tax form John pays $10,000 down and gives Beth a $90,000 note secured by a wraparound mortgage on the home. 2012 tax form Beth does not record or otherwise perfect the $90,000 mortgage under the state law that applies. 2012 tax form Therefore, the mortgage is not a secured debt and John cannot deduct any of the interest he pays on it as home mortgage interest. 2012 tax form Choice to treat the debt as not secured by your home. 2012 tax form   You can choose to treat any debt secured by your qualified home as not secured by the home. 2012 tax form This treatment begins with the tax year for which you make the choice and continues for all later tax years. 2012 tax form You can revoke your choice only with the consent of the Internal Revenue Service (IRS). 2012 tax form   You may want to treat a debt as not secured by your home if the interest on that debt is fully deductible (for example, as a business expense) whether or not it qualifies as home mortgage interest. 2012 tax form This may allow you, if the limits in Part II apply, more of a deduction for interest on other debts that are deductible only as home mortgage interest. 2012 tax form Cooperative apartment owner. 2012 tax form   If you own stock in a cooperative housing corporation, see the Special Rule for Tenant-Stockholders in Cooperative Housing Corporations , near the end of this Part I. 2012 tax form Qualified Home For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. 2012 tax form This means your main home or your second home. 2012 tax form A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. 2012 tax form The interest you pay on a mortgage on a home other than your main or second home may be deductible if the proceeds of the loan were used for business, investment, or other deductible purposes. 2012 tax form Otherwise, it is considered personal interest and is not deductible. 2012 tax form Main home. 2012 tax form   You can have only one main home at any one time. 2012 tax form This is the home where you ordinarily live most of the time. 2012 tax form Second home. 2012 tax form   A second home is a home that you choose to treat as your second home. 2012 tax form Second home not rented out. 2012 tax form   If you have a second home that you do not hold out for rent or resale to others at any time during the year, you can treat it as a qualified home. 2012 tax form You do not have to use the home during the year. 2012 tax form Second home rented out. 2012 tax form   If you have a second home and rent it out part of the year, you also must use it as a home during the year for it to be a qualified home. 2012 tax form You must use this home more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental, whichever is longer. 2012 tax form If you do not use the home long enough, it is considered rental property and not a second home. 2012 tax form For information on residential rental property, see Publication 527. 2012 tax form More than one second home. 2012 tax form   If you have more than one second home, you can treat only one as the qualified second home during any year. 2012 tax form However, you can change the home you treat as a second home during the year in the following situations. 2012 tax form If you get a new home during the year, you can choose to treat the new home as your second home as of the day you buy it. 2012 tax form If your main home no longer qualifies as your main home, you can choose to treat it as your second home as of the day you stop using it as your main home. 2012 tax form If your second home is sold during the year or becomes your main home, you can choose a new second home as of the day you sell the old one or begin using it as your main home. 2012 tax form Divided use of your home. 2012 tax form   The only part of your home that is considered a qualified home is the part you use for residential living. 2012 tax form If you use part of your home for other than residential living, such as a home office, you must allocate the use of your home. 2012 tax form You must then divide both the cost and fair market value of your home between the part that is a qualified home and the part that is not. 2012 tax form Dividing the cost may affect the amount of your home acquisition debt, which is limited to the cost of your home plus the cost of any improvements. 2012 tax form (See Home Acquisition Debt in Part II. 2012 tax form ) Dividing the fair market value may affect your home equity debt limit, also explained in Part II . 2012 tax form Renting out part of home. 2012 tax form   If you rent out part of a qualified home to another person (tenant), you can treat the rented part as being used by you for residential living only if all of the following conditions apply. 2012 tax form The rented part of your home is used by the tenant primarily for residential living. 2012 tax form The rented part of your home is not a self-contained residential unit having separate sleeping, cooking, and toilet facilities. 2012 tax form You do not rent (directly or by sublease) the same or different parts of your home to more than two tenants at any time during the tax year. 2012 tax form If two persons (and dependents of either) share the same sleeping quarters, they are treated as one tenant. 2012 tax form Office in home. 2012 tax form   If you have an office in your home that you use in your business, see Publication 587, Business Use of Your Home. 2012 tax form It explains how to figure your deduction for the business use of your home, which includes the business part of your home mortgage interest. 2012 tax form Home under construction. 2012 tax form   You can treat a home under construction as a qualified home for a period of up to 24 months, but only if it becomes your qualified home at the time it is ready for occupancy. 2012 tax form   The 24-month period can start any time on or after the day construction begins. 2012 tax form Home destroyed. 2012 tax form   You may be able to continue treating your home as a qualified home even after it is destroyed in a fire, storm, tornado, earthquake, or other casualty. 2012 tax form This means you can continue to deduct the interest you pay on your home mortgage, subject to the limits described in this publication. 2012 tax form   You can continue treating a destroyed home as a qualified home if, within a reasonable period of time after the home is destroyed, you: Rebuild the destroyed home and move into it, or Sell the land on which the home was located. 2012 tax form   This rule applies to your main home and to a second home that you treat as a qualified home. 2012 tax form Time-sharing arrangements. 2012 tax form   You can treat a home you own under a time-sharing plan as a qualified home if it meets all the requirements. 2012 tax form A time-sharing plan is an arrangement between two or more people that limits each person's interest in the home or right to use it to a certain part of the year. 2012 tax form Rental of time-share. 2012 tax form   If you rent out your time-share, it qualifies as a second home only if you also use it as a home during the year. 2012 tax form See Second home rented out , earlier, for the use requirement. 2012 tax form To know whether you meet that requirement, count your days of use and rental of the home only during the time you have a right to use it or to receive any benefits from the rental of it. 2012 tax form Married taxpayers. 2012 tax form   If you are married and file a joint return, your qualified home(s) can be owned either jointly or by only one spouse. 2012 tax form Separate returns. 2012 tax form   If you are married filing separately and you and your spouse own more than one home, you can each take into account only one home as a qualified home. 2012 tax form However, if you both consent in writing, then one spouse can take both the main home and a second home into account. 2012 tax form Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. 2012 tax form It also describes certain special situations that may affect your deduction. 2012 tax form Late payment charge on mortgage payment. 2012 tax form   You can deduct as home mortgage interest a late payment charge if it was not for a specific service performed in connection with your mortgage loan. 2012 tax form Mortgage prepayment penalty. 2012 tax form   If you pay off your home mortgage early, you may have to pay a penalty. 2012 tax form You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. 2012 tax form Sale of home. 2012 tax form   If you sell your home, you can deduct your home mortgage interest (subject to any limits that apply) paid up to, but not including, the date of the sale. 2012 tax form Example. 2012 tax form John and Peggy Harris sold their home on May 7. 2012 tax form Through April 30, they made home mortgage interest payments of $1,220. 2012 tax form The settlement sheet for the sale of the home showed $50 interest for the 6-day period in May up to, but not including, the date of sale. 2012 tax form Their mortgage interest deduction is $1,270 ($1,220 + $50). 2012 tax form Prepaid interest. 2012 tax form   If you pay interest in advance 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. 2012 tax form You can deduct in each year only the interest that qualifies as home mortgage interest for that year. 2012 tax form However, there is an exception that applies to points, discussed later. 2012 tax form Mortgage interest credit. 2012 tax form    You may be able to claim a mortgage interest credit if you were issued a mortgage credit certificate (MCC) by a state or local government. 2012 tax form Figure the credit on Form 8396, Mortgage Interest Credit. 2012 tax form If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. 2012 tax form   See Form 8396 and Publication 530 for more information on the mortgage interest credit. 2012 tax form Ministers' and military housing allowance. 2012 tax form   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you can still deduct your home mortgage interest. 2012 tax form Hardest Hit Fund and Emergency Homeowners' Loan Programs. 2012 tax form   You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. 2012 tax form You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. 2012 tax form 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. 2012 tax form If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098–MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received from payer(s) / borrower(s)), box 4 (mortgage insurance premiums), and box 5 (other information including real property taxes paid). 2012 tax form However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. 2012 tax form Mortgage assistance payments under section 235 of the National Housing Act. 2012 tax form   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. 2012 tax form You cannot deduct the interest that is paid for you. 2012 tax form No other effect on taxes. 2012 tax form   Do not include these mortgage assistance payments in your income. 2012 tax form Also, do not use these payments to reduce other deductions, such as real estate taxes. 2012 tax form Divorced or separated individuals. 2012 tax form   If a 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, the payment of interest may be alimony. 2012 tax form See the discussion of Payments for jointly-owned home under Alimony in Publication 504, Divorced or Separated Individuals. 2012 tax form Redeemable ground rents. 2012 tax form   In some states (such as Maryland), you can buy your home subject to a ground rent. 2012 tax form A ground rent is an obligation you assume to pay a fixed amount per year on the property. 2012 tax form Under this arrangement, you are leasing (rather than buying) the land on which your home is located. 2012 tax form   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. 2012 tax form   A ground rent is a redeemable ground rent if all of the following are true. 2012 tax form Your lease, including renewal periods, is for more than 15 years. 2012 tax form You can freely assign the lease. 2012 tax form 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. 2012 tax form The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. 2012 tax form   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. 2012 tax form Nonredeemable ground rents. 2012 tax form   Payments on a nonredeemable ground rent are not mortgage interest. 2012 tax form You can deduct them as rent if they are a business expense or if they are for rental property. 2012 tax form Reverse mortgages. 2012 tax form   A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. 2012 tax form With a reverse mortgage, you retain title to your home. 2012 tax form 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. 2012 tax form Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. 2012 tax form Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full. 2012 tax form Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Part II. 2012 tax form Rental payments. 2012 tax form   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. 2012 tax form This is true even if the settlement papers call them interest. 2012 tax form You cannot deduct these payments as home mortgage interest. 2012 tax form Mortgage proceeds invested in tax-exempt securities. 2012 tax form   You cannot deduct the home mortgage interest on grandfathered debt or home equity debt if you used the proceeds of the mortgage to buy securities or certificates that produce tax-free income. 2012 tax form “Grandfathered debt” and “home equity debt” are defined in Part II of this publication. 2012 tax form Refunds of interest. 2012 tax form   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. 2012 tax form If you receive a refund of interest you deducted in an earlier year, you generally must include the refund in income in the year you receive it. 2012 tax form However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. 2012 tax form This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. 2012 tax form If you need to include the refund in income, report it on Form 1040, line 21. 2012 tax form   If you received a refund of interest you overpaid in an earlier year, you generally will receive a Form 1098, Mortgage Interest Statement, showing the refund in box 3. 2012 tax form For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. 2012 tax form   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in Publication 525, Taxable and Nontaxable Income. 2012 tax form Cooperative apartment owner. 2012 tax form   If you own a cooperative apartment, you must reduce your home mortgage interest deduction by your share of any cash portion of a patronage dividend that the cooperative receives. 2012 tax form The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. 2012 tax form   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. 2012 tax form Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. 2012 tax form Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. 2012 tax form This image is too large to be displayed in the current screen. 2012 tax form Please click the link to view the image. 2012 tax form Figure B. 2012 tax form Are My Points Fully Deductible This Year? A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. 2012 tax form See Points paid by the seller , later. 2012 tax form General Rule You generally cannot deduct the full amount of points in the year paid. 2012 tax form Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. 2012 tax form See Deduction Allowed Ratably , next. 2012 tax form For exceptions to the general rule, see Deduction Allowed in Year Paid , later. 2012 tax form Deduction Allowed Ratably If you do not meet the tests listed under Deduction Allowed in Year Paid , later, the loan is not 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 the following tests. 2012 tax form You use the cash method of accounting. 2012 tax form This means you report income in the year you receive it and deduct expenses in the year you pay them. 2012 tax form Most individuals use this method. 2012 tax form Your loan is secured by a home. 2012 tax form (The home does not need to be your main home. 2012 tax form ) Your loan period is not more than 30 years. 2012 tax form 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. 2012 tax form Either your loan amount is $250,000 or less, or the number of points is not more than: 4, if your loan period is 15 years or less, or 6, if your loan period is more than 15 years. 2012 tax form Example. 2012 tax form You use the cash method of accounting. 2012 tax form In 2013, you took out a $100,000 loan payable over 20 years. 2012 tax form The terms of the loan are the same as for other 20-year loans offered in your area. 2012 tax form You paid $4,800 in points. 2012 tax form You made 3 monthly payments on the loan in 2013. 2012 tax form You can deduct $60 [($4,800 ÷ 240 months) x 3 payments] in 2013. 2012 tax form In 2014, if you make all twelve payments, you will be able to deduct $240 ($20 x 12). 2012 tax form Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. 2012 tax form (You can use Figure B as a quick guide to see whether your points are fully deductible in the year paid. 2012 tax form ) Your loan is secured by your main home. 2012 tax form (Your main home is the one you ordinarily live in most of the time. 2012 tax form ) Paying points is an established business practice in the area where the loan was made. 2012 tax form The points paid were not more than the points generally charged in that area. 2012 tax form You use the cash method of accounting. 2012 tax form This means you report income in the year you receive it and deduct expenses in the year you pay them. 2012 tax form Most individuals use this method. 2012 tax form The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. 2012 tax form The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. 2012 tax form The funds you provided are not required to have been applied to the points. 2012 tax form They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. 2012 tax form You cannot have borrowed these funds from your lender or mortgage broker. 2012 tax form You use your loan to buy or build your main home. 2012 tax form The points were computed as a percentage of the principal amount of the mortgage. 2012 tax form The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. 2012 tax form The points may be shown as paid from either your funds or the seller's. 2012 tax form Note. 2012 tax form If you meet all of these tests, you can choose to either fully deduct the points in the year paid, or deduct them over the life of the loan. 2012 tax form Home improvement loan. 2012 tax form   You can also fully deduct in the year paid points paid on a loan to improve your main home, if tests (1) through (6) are met. 2012 tax form Second home. 2012 tax form You cannot fully deduct in the year paid points you pay on loans secured by your second home. 2012 tax form You can deduct these points only over the life of the loan. 2012 tax form Refinancing. 2012 tax form   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. 2012 tax form This is true even if the new mortgage is secured by your main home. 2012 tax form   However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first 6 tests listed under Deduction Allowed in Year Paid , you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. 2012 tax form You can deduct the rest of the points over the life of the loan. 2012 tax form Example 1. 2012 tax form In 1998, Bill Fields got a mortgage to buy a home. 2012 tax form In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. 2012 tax form The mortgage is secured by his home. 2012 tax form To get the new loan, he had to pay three points ($3,000). 2012 tax form Two points ($2,000) were for prepaid interest, and one point ($1,000) was charged for services, in place of amounts that ordinarily are stated separately on the settlement statement. 2012 tax form Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. 2012 tax form The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. 2012 tax form Bill's first payment on the new loan was due July 1. 2012 tax form He made six payments on the loan in 2013 and is a cash basis taxpayer. 2012 tax form Bill used the funds from the new mortgage to repay his existing mortgage. 2012 tax form Although the new mortgage loan was for Bill's continued ownership of his main home, it was not for the purchase or improvement of that home. 2012 tax form He cannot deduct all of the points in 2013. 2012 tax form He can deduct two points ($2,000) ratably over the life of the loan. 2012 tax form He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. 2012 tax form The other point ($1,000) was a fee for services and is not deductible. 2012 tax form Example 2. 2012 tax form The facts are the same as in Example 1, except that Bill used $25,000 of the loan proceeds to improve his home and $75,000 to repay his existing mortgage. 2012 tax form Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. 2012 tax form His deduction is $500 ($2,000 × 25%). 2012 tax form Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. 2012 tax form This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. 2012 tax form The total amount Bill deducts in 2013 is $550 ($500 + $50). 2012 tax form Special Situations This section describes certain special situations that may affect your deduction of points. 2012 tax form Original issue discount. 2012 tax form   If you do not qualify to either deduct the points in the year paid or deduct them ratably over the life of the loan, or if you choose not to use either of these methods, the points reduce the issue price of the loan. 2012 tax form This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. 2012 tax form Amounts charged for services. 2012 tax form    Amounts charged by the lender for specific services connected to the loan are not interest. 2012 tax form Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. 2012 tax form  You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. 2012 tax form Points paid by the seller. 2012 tax form   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. 2012 tax form Treatment by seller. 2012 tax form   The seller cannot deduct these fees as interest. 2012 tax form But they are a selling expense that reduces the amount realized by the seller. 2012 tax form See Publication 523 for information on selling your home. 2012 tax form Treatment by buyer. 2012 tax form   The buyer reduces the basis of the home by the amount of the seller-paid points and treats the points as if he or she had paid them. 2012 tax form If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. 2012 tax form If any of those tests are not met, the buyer deducts the points over the life of the loan. 2012 tax form   If you need information about the basis of your home, see Publication 523 or Publication 530. 2012 tax form Funds provided are less than points. 2012 tax form   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the funds you provided were less than the points charged to you (test (6)), you can deduct the points in the year paid, up to the amount of funds you provided. 2012 tax form In addition, you can deduct any points paid by the seller. 2012 tax form Example 1. 2012 tax form When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). 2012 tax form You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. 2012 tax form Of the $1,000 charged for points, you can deduct $750 in the year paid. 2012 tax form You spread the remaining $250 over the life of the mortgage. 2012 tax form Example 2. 2012 tax form The facts are the same as in Example 1, except that the person who sold you your home also paid one point ($1,000) to help you get your mortgage. 2012 tax form In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). 2012 tax form You spread the remaining $250 over the life of the mortgage. 2012 tax form You must reduce the basis of your home by the $1,000 paid by the seller. 2012 tax form Excess points. 2012 tax form   If you meet all the tests in Deduction Allowed in Year Paid , earlier, except that the points paid were more than generally paid in your area (test (3)), you deduct in the year paid only the points that are generally charged. 2012 tax form You must spread any additional points over the life of the mortgage. 2012 tax form Mortgage ending early. 2012 tax form   If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. 2012 tax form However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. 2012 tax form Instead, deduct the remaining balance over the term of the new loan. 2012 tax form   A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. 2012 tax form Example. 2012 tax form Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. 2012 tax form He deducts $200 points per year. 2012 tax form Through 2012, Dan has deducted $2,200 of the points. 2012 tax form Dan prepaid his mortgage in full in 2013. 2012 tax form He can deduct the remaining $800 of points in 2013. 2012 tax form Limits on deduction. 2012 tax form   You cannot fully deduct points paid on a mortgage that exceeds the limits discussed in Part II . 2012 tax form See the Table 1 Instructions for line 10. 2012 tax form Form 1098. 2012 tax form    The mortgage interest statement you receive should show not only the total interest paid during the year, but also your deductible points paid during the year. 2012 tax form See Form 1098, Mortgage Interest Statement , later. 2012 tax form Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. 2012 tax form The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006. 2012 tax form Qualified mortgage insurance. 2012 tax form   Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). 2012 tax form   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. 2012 tax form If provided by the Rural Housing Service, it is commonly known as a guarantee fee. 2012 tax form The funding fee and guarantee fee can either be included in the amount of the loan or paid in full at the time of closing. 2012 tax form These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. 2012 tax form Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. 2012 tax form Special rules for prepaid mortgage insurance. 2012 tax form   Generally, if you paid premiums for qualified mortgage insurance that are properly allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. 2012 tax form You must allocate the premiums over the shorter of the stated term of the mortgage or 84 months, beginning with the month the insurance was obtained. 2012 tax form No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. 2012 tax form This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. 2012 tax form Example. 2012 tax form Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. 2012 tax form Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. 2012 tax form Since the $9,240 in private mortgage insurance is allocable to periods after 2012, Ryan must allocate the $9,240 over the shorter of the life of the mortgage or 84 months. 2012 tax form Ryan's adjusted gross income (AGI) for 2012 is $76,000. 2012 tax form Ryan can deduct $880 ($9,240 ÷ 84 x 8 months) for qualified mortgage insurance premiums in 2012. 2012 tax form For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 x 12 months) if his AGI is $100,000 or less. 2012 tax form In this example, the mortgage insurance premiums are allocated over 84 months, which is shorter than the life of the mortgage of 15 years (180 months). 2012 tax form Limit on deduction. 2012 tax form   If your adjusted gross income on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are otherwise deductible is reduced and may be eliminated. 2012 tax form See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. 2012 tax form If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. 2012 tax form Form 1098. 2012 tax form   The mortgage interest statement you receive should show not only the total interest paid during the year, but also your mortgage insurance premiums paid during the year, which may qualify to be treated as deductible mortgage interest. 2012 tax form See Form 1098, Mortgage Interest Statement, next. 2012 tax form Form 1098, Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement from the mortgage holder. 2012 tax form You will receive the statement if you pay interest to a person (including a financial institution or cooperative housing corporation) in the course of that person's trade or business. 2012 tax form A governmental unit is a person for purposes of furnishing the statement. 2012 tax form The statement for each year should be sent to you by January 31 of the following year. 2012 tax form A copy of this form will also be sent to the IRS. 2012 tax form The statement will show the total interest you paid during the year, any mortgage insurance premiums you paid, and if you purchased a main home during the year, it also will show the deductible points paid during the year, including seller-paid points. 2012 tax form However, it should not show any interest that was paid for you by a government agency. 2012 tax form As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. 2012 tax form However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. 2012 tax form See the earlier discussion of Points to determine whether you can deduct points not shown on Form 1098. 2012 tax form Prepaid interest on Form 1098. 2012 tax form   If you prepaid interest in 2013 that accrued in full by January 15, 2014, this prepaid interest may be included in box 1 of Form 1098. 2012 tax form However, you cannot deduct the prepaid amount for January 2014 in 2013. 2012 tax form (See Prepaid interest , earlier. 2012 tax form ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. 2012 tax form You will include the interest for January 2014 with other interest you pay for 2014. 2012 tax form Refunded interest. 2012 tax form   If you received a refund of mortgage interest you overpaid in an earlier year, you generally will receive a Form 1098 showing the refund in box 3. 2012 tax form See Refunds of interest , earlier. 2012 tax form Mortgage insurance premiums. 2012 tax form   The amount of mortgage insurance premiums you paid during 2013 may be shown in Box 4 of Form 1098. 2012 tax form See Mortgage Insurance Premiums , earlier. 2012 tax form How To Report Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. 2012 tax form If you paid more deductible interest to the financial institution than the amount shown on Form 1098, show the larger deductible amount on line 10. 2012 tax form Attach a statement explaining the difference and print “See attached” next to line 10. 2012 tax form Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. 2012 tax form If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and taxpayer identification number (TIN) on the dotted lines next to line 11. 2012 tax form The seller must give you this number and you must give the seller your TIN. 2012 tax form A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. 2012 tax form Failure to meet any of these requirements may result in a $50 penalty for each failure. 2012 tax form The TIN can be either a social security number, an individual taxpayer identification number (issued by the Internal Revenue Service), or an employer identification number. 2012 tax form If you can take a deduction for points that were not reported to you on Form 1098, deduct those points on Schedule A (Form 1040), line 12. 2012 tax form Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. 2012 tax form More than one borrower. 2012 tax form   If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. 2012 tax form Show how much of the interest each of you paid, and give the name and address of the person who received the form. 2012 tax form Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. 2012 tax form Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. 2012 tax form   Similarly, if you are the payer of record on a mortgage on which there are other borrowers entitled to a deduction for the interest shown on the Form 1098 you received, deduct only your share of the interest on Schedule A (Form 1040), line 10. 2012 tax form Let each of the other borrowers know what his or her share is. 2012 tax form Mortgage proceeds used for business or investment. 2012 tax form   If your home mortgage interest deduction is limited under the rules explained in Part II , but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 2 near the end of this publication. 2012 tax form It shows where to deduct the part of your excess interest that is for those activities. 2012 tax form The Table 1 Instructions for line 13 in Part II explain how to divide the excess interest among the activities for which the mortgage proceeds were used. 2012 tax form Special Rule for Tenant-Stockholders in Cooperative Housing Corporations A qualified home includes stock in a cooperative housing corporation owned by a tenant-stockholder. 2012 tax form This applies only if the tenant-stockholder is entitled to live in the house or apartment because of owning stock in the cooperative. 2012 tax form Cooperative housing corporation. 2012 tax form   This is a corporation that meets all of the following conditions. 2012 tax form Has only one class of stock outstanding, Has no stockholders other than those who own the stock that can live in a house, apartment, or house trailer owned or leased by the corporation, Has no stockholders who can receive any distribution out of capital other than on a liquidation of the corporation, and Meets at least one of the following requirements. 2012 tax form Receives at least 80% of its gross income for the year in which the mortgage interest is paid or incurred from tenant-stockholders. 2012 tax form For this purpose, gross income is all income received during the entire year, including amounts received before the corporation changed to cooperative ownership. 2012 tax form At all times during the year, at least 80% of the total square footage of the corporation's property is used or available for use by the tenant-stockholders for residential or residential-related use. 2012 tax form At least 90% of the corporation's expenditures paid or incurred during the year are for the acquisition, construction, management, maintenance, or care of corporate property for the benefit of the tenant-stockholders. 2012 tax form Stock used to secure debt. 2012 tax form   In some cases, you cannot use your cooperative housing stock to secure a debt because of either: Restrictions under local or state law, or Restrictions in the cooperative agreement (other than restrictions in which the main purpose is to permit the tenant- stockholder to treat unsecured debt as secured debt). 2012 tax form However, you can treat a debt as secured by the stock to the extent that the proceeds are used to buy the stock under the allocation of interest rules. 2012 tax form See chapter 4 of Publication 535 for details on these rules. 2012 tax form Figuring deductible home mortgage interest. 2012 tax form   Generally, if you are a tenant-stockholder, you can deduct payments you make for your share of the interest paid or incurred by the cooperative. 2012 tax form The interest must be on a debt to buy, build, change, improve, or maintain the cooperative's housing, or on a debt to buy the land. 2012 tax form   Figure your share of this interest by multiplying the total by the following fraction. 2012 tax form      Your shares of stock in the cooperative   The total shares of stock in the cooperative Limits on deduction. 2012 tax form   To figure how the limits discussed in Part II apply to you, treat your share of the cooperative's debt as debt incurred by you. 2012 tax form The cooperative should determine your share of its grandfathered debt, its home acquisition debt, and its home equity debt. 2012 tax form (Your share of each of these types of debt is equal to the average balance of each debt multiplied by the fraction just given. 2012 tax form ) After your share of the average balance of each type of debt is determined, you include it with the average balance of that type of debt secured by your stock. 2012 tax form Form 1098. 2012 tax form    The cooperative should give you a Form 1098 showing your share of the interest. 2012 tax form Use the rules in this publication to determine your deductible mortgage interest. 2012 tax form Part II. 2012 tax form Limits on Home Mortgage Interest Deduction This part of the publication discusses the limits on deductible home mortgage interest. 2012 tax form These limits apply to your home mortgage interest expense if you have a home mortgage that does not fit into any of the three categories listed at the beginning of Part I under Fully deductible interest . 2012 tax form Your home mortgage interest deduction is limited to the interest on the part of your home mortgage debt that is not more than your qualified loan limit. 2012 tax form This is the part of your home mortgage debt that is grandfathered debt or that is not more than the limits for home acquisition debt and home equity debt. 2012 tax form Table 1 can help you figure your qualified loan limit and your deductible home mortgage interest. 2012 tax form Home Acquisition Debt Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home (your main or second home). 2012 tax form It also must be secured by that home. 2012 tax form If the amount of your mortgage is more than the cost of the home plus the cost of any substantial improvements, only the debt that is not more than the cost of the home plus improvements qualifies as home acquisition debt. 2012 tax form The additional debt may qualify as home equity debt (discussed later). 2012 tax form Home acquisition debt limit. 2012 tax form   The total amount you can treat as home acquisition debt at any time on your main home and second home cannot be more than $1 million ($500,000 if married filing separately). 2012 tax form This limit is reduced (but not below zero) by the amount of your grandfathered debt (discussed later). 2012 tax form Debt over this limit may qualify as home equity debt (also discussed later). 2012 tax form Refinanced home acquisition debt. 2012 tax form   Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. 2012 tax form However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. 2012 tax form Any additional debt not used to buy, build, or substantially improve a qualified home is not home acquisition debt, but may qualify as home equity debt (discussed later). 2012 tax form Mortgage that qualifies later. 2012 tax form   A mortgage that does not qualify as home acquisition debt because it does not meet all the requirements may qualify at a later time. 2012 tax form For example, a debt that you use to buy your home may not qualify as home acquisition debt because it is not secured by the home. 2012 tax form However, if the debt is later secured by the home, it may qualify as home acquisition debt after that time. 2012 tax form Similarly, a debt that you use to buy property may not qualify because the property is not a qualified home. 2012 tax form However, if the property later becomes a qualified home, the debt may qualify after that time. 2012 tax form Mortgage treated as used to buy, build, or improve home. 2012 tax form   A mortgage secured by a qualified home may be treated as home acquisition debt, even if you do not actually use the proceeds to buy, build, or substantially improve the home. 2012 tax form This applies in the following situations. 2012 tax form You buy your home within 90 days before or after the date you take out the mortgage. 2012 tax form The home acquisition debt is limited to the home's cost, plus the cost of any substantial improvements within the limit described below in (2) or (3). 2012 tax form (See Example 1 later. 2012 tax form ) You build or improve your home and take out the mortgage before the work is completed. 2012 tax form The home acquisition debt is limited to the amount of the expenses incurred within 24 months before the date of the mortgage. 2012 tax form You build or improve your home and take out the mortgage within 90 days after the work is completed. 2012 tax form The home acquisition debt is limited to the amount of the expenses incurred within the period beginning 24 months before the work is completed and ending on the date of the mortgage. 2012 tax form (See Example 2 later. 2012 tax form ) Example 1. 2012 tax form You bought your main home on June 3 for $175,000. 2012 tax form You paid for the home with cash you got from the sale of your old home. 2012 tax form On July 15, you took out a mortgage of $150,000 secured by your main home. 2012 tax form You used the $150,000 to invest in stocks. 2012 tax form You can treat the mortgage as taken out to buy your home because you bought the home within 90 days before you took out the mortgage. 2012 tax form The entire mortgage qualifies as home acquisition debt because it was not more than the home's cost. 2012 tax form Example 2. 2012 tax form On January 31, John began building a home on the lot that he owned. 2012 tax form He used $45,000 of his personal funds to build the home. 2012 tax form The home was completed on October 31. 2012 tax form On November 21, John took out a $36,000 mortgage that was secured by the home. 2012 tax form The mortgage can be treated as used to build the home because it was taken out within 90 days after the home was completed. 2012 tax form The entire mortgage qualifies as home acquisition debt because it was not more than the expenses incurred within the period beginning 24 months before the home was completed. 2012 tax form This is illustrated by Figure C. 2012 tax form   Please click here for the text description of the image. 2012 tax form Figure C. 2012 tax form John's example Date of the mortgage. 2012 tax form   The date you take out your mortgage is the day the loan proceeds are disbursed. 2012 tax form This is generally the closing date. 2012 tax form You can treat the day you apply in writing for your mortgage as the date you take it out. 2012 tax form However, this applies only if you receive the loan proceeds within a reasonable time (such as within 30 days) after your application is approved. 2012 tax form If a timely application you make is rejected, a reasonable additional time will be allowed to make a new application. 2012 tax form Cost of home or improvements. 2012 tax form   To determine your cost, include amounts paid to acquire any interest in a qualified home or to substantially improve the home. 2012 tax form   The cost of building or substantially improving a qualified home includes the costs to acquire real property and building materials, fees for architects and design plans, and required building permits. 2012 tax form Substantial improvement. 2012 tax form   An improvement is substantial if it: Adds to the value of your home, Prolongs your home's useful life, or Adapts your home to new uses. 2012 tax form    Repairs that maintain your home in good condition, such as repainting your home, are not substantial improvements. 2012 tax form However, if you paint your home as part of a renovation that substantially improves your qualified home, you can include the painting costs in the cost of the improvements. 2012 tax form Acquiring an interest in a home because of a divorce. 2012 tax form   If you incur debt to acquire the interest of a spouse or former spouse in a home, because of a divorce or legal separation, you can treat that debt as home acquisition debt. 2012 tax form Part of home not a qualified home. 2012 tax form    To figure your home acquisition debt, you must divide the cost of your home and improvements between the part of your home that is a qualified home and any part that is not a qualified home. 2012 tax form See Divided use of your home under Qualified Home in Part I. 2012 tax form Home Equity Debt If you took out a loan for reasons other than to buy, build, or substantially improve your home, it may qualify as home equity debt. 2012 tax form In addition, debt you incurred to buy, build, or substantially improve your home, to the extent it is more than the home acquisition debt limit (discussed earlier), may qualify as home equity debt. 2012 tax form Home equity debt is a mortgage you took out after October 13, 1987, that: Does not qualify as home acquisition debt or as grandfathered debt, and Is secured by your qualified home. 2012 tax form Example. 2012 tax form You bought your home for cash 10 years ago. 2012 tax form You did not have a mortgage on your home until last year, when you took out a $50,000 loan, secured by your home, to pay for your daughter's college tuition and your father's medical bills. 2012 tax form This loan is home equity debt. 2012 tax form Home equity debt limit. 2012 tax form   There is a limit on the amount of debt that can be treated as home equity debt. 2012 tax form The total home equity debt on your main home and second home is limited to the smaller of: $100,000 ($50,000 if married filing separately), or The total of each home's fair market value (FMV) reduced (but not below zero) by the amount of its home acquisition debt and grandfathered debt. 2012 tax form Determine the FMV and the outstanding home acquisition and grandfathered debt for each home on the date that the last debt was secured by the home. 2012 tax form Example. 2012 tax form You own one home that you bought in 2000. 2012 tax form Its FMV now is $110,000, and the current balance on your original mortgage (home acquisition debt) is $95,000. 2012 tax form Bank M offers you a home mortgage loan of 125% of the FMV of the home less any outstanding mortgages or other liens. 2012 tax form To consolidate some of your other debts, you take out a $42,500 home mortgage loan [(125% × $110,000) − $95,000] with Bank M. 2012 tax form Your home equity debt is limited to $15,000. 2012 tax form This is the smaller of: $100,000, the maximum limit, or $15,000, the amount that the FMV of $110,000 exceeds the amount of home acquisition debt of $95,000. 2012 tax form Debt higher than limit. 2012 tax form   Interest on amounts over the home equity debt limit (such as the interest on $27,500 [$42,500 − $15,000] in the preceding example) generally is treated as personal interest and is not deductible. 2012 tax form But if the proceeds of the loan were used for investment, business, or other deductible purposes, the interest may be deductible. 2012 tax form If it is, see the Table 1 Instructions for line 13 for an explanation of how to allocate the excess interest. 2012 tax form Part of home not a qualified home. 2012 tax form   To figure the limit on your home equity debt, you must divide the FMV of your home between the part that is a qualified home and any part that is not a qualified home. 2012 tax form See Divided use of your home under Qualified Home in Part I. 2012 tax form Fair market value (FMV). 2012 tax form    This is the price at which the home would change hands between you and a buyer, neither having to sell or buy, and both having reasonable knowledge of all relevant facts. 2012 tax form Sales of similar homes in your area, on about the same date your last debt was secured by the home, may be helpful in figuring the FMV. 2012 tax form Grandfathered Debt If you took out a mortgage on your home before October 14, 1987, or you refinanced such a mortgage, it may qualify as grandfathered debt. 2012 tax form To qualify, it must have been secured by your qualified home on October 13, 1987, and at all times after that date. 2012 tax form How you used the proceeds does not matter. 2012 tax form Grandfathered debt is not limited. 2012 tax form All of the interest you paid on grandfathered debt is fully deductible home mortgage interest. 2012 tax form However, the amount of your grandfathered debt reduces the $1 million limit for home acquisition debt and the limit based on your home's fair market value for home equity debt. 2012 tax form Refinanced grandfathered debt. 2012 tax form   If you refinanced grandfathered debt after October 13, 1987, for an amount that was not more than the mortgage principal left on the debt, then you still treat it as grandfathered debt. 2012 tax form To the extent the new debt is more than that mortgage principal, it is treated as home acquisition or home equity debt, and the mortgage is a mixed-use mortgage (discussed later under Average Mortgage Balance in the Table 1 instructions). 2012 tax form The debt must be secured by the qualified home. 2012 tax form   You treat grandfathered debt that was refinanced after October 13, 1987, as grandfathered debt only for the term left on the debt that was refinanced. 2012 tax form After that, you treat it as home acquisition debt or home equity debt, depending on how you used the proceeds. 2012 tax form Exception. 2012 tax form   If the debt before refinancing was like a balloon note (the principal on the debt was not amortized over the term of the debt), then you treat the refinanced debt as grandfathered debt for the term of the first refinancing. 2012 tax form This term cannot be more than 30 years. 2012 tax form Example. 2012 tax form Chester took out a $200,000 first mortgage on his home in 1986. 2012 tax form The mortgage was a five-year balloon note and the entire balance on the note was due in 1991. 2012 tax form Chester refinanced the debt in 1991 with a new 20-year mortgage. 2012 tax form The refinanced debt is treated as grandfathered debt for its entire term (20 years). 2012 tax form Line-of-credit mortgage. 2012 tax form    If you had a line-of-credit mortgage on October 13, 1987, and borrowed additional amounts against it after that date, then the additional amounts are either home acquisition debt or home equity debt depending on how you used the proceeds. 2012 tax form The balance on the mortgage before you borrowed the additional amounts is grandfathered debt. 2012 tax form The newly borrowed amounts are not grandfathered debt because the funds were borrowed after October 13, 1987. 2012 tax form See Average Mortgage Balance in the Table 1 Instructions that follow. 2012 tax form Table 1 Instructions Unless you are subject to the overall limit on itemized deductions, you can deduct all of the interest you paid during the year on mortgages secured by your main home or second home in either of the following two situations. 2012 tax form All the mortgages are grandfathered debt. 2012 tax form The total of the mortgage balances for the entire year is within the limits discussed earlier under Home Acquisition Debt and Home Equity Debt . 2012 tax form In either of those cases, you do not need Table 1. 2012 tax form Otherwise, you can use Table 1 to determine your qualified loan limit and deductible home mortgage interest. 2012 tax form Fill out only one Table 1 for both your main and second home regardless of how many mortgages you have. 2012 tax form Table 1. 2012 tax form Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. 2012 tax form Part I Qualified Loan Limit 1. 2012 tax form Enter the average balance of all your grandfathered debt. 2012 tax form See line 1 instructions 1. 2012 tax form   2. 2012 tax form Enter the average balance of all your home acquisition debt. 2012 tax form See line 2 instructions 2. 2012 tax form   3. 2012 tax form Enter $1,000,000 ($500,000 if married filing separately) 3. 2012 tax form   4. 2012 tax form Enter the larger of the amount on line 1 or the amount on line 3 4. 2012 tax form   5. 2012 tax form Add the amounts on lines 1 and 2. 2012 tax form Enter the total here 5. 2012 tax form   6. 2012 tax form Enter the smaller of the amount on line 4 or the amount on line 5 6. 2012 tax form   7. 2012 tax form If you have home equity debt, enter the smaller of $100,000 ($50,000 if married filing separately) or your limited amount. 2012 tax form See the line 7 instructions for the limit which may apply to you. 2012 tax form 7. 2012 tax form   8. 2012 tax form Add the amounts on lines 6 and 7. 2012 tax form Enter the total. 2012 tax form This is your qualified loan limit. 2012 tax form 8. 2012 tax form   Part II Deductible Home Mortgage Interest 9. 2012 tax form Enter the total of the average balances of all mortgages on all qualified homes. 2012 tax form  See line 9 instructions 9. 2012 tax form     If line 8 is less than line 9, go on to line 10. 2012 tax form If line 8 is equal to or more than line 9, stop here. 2012 tax form All of your interest on all the mortgages included on line 9 is deductible as home mortgage interest on Schedule A (Form 1040). 2012 tax form     10. 2012 tax form Enter the total amount of interest that you paid. 2012 tax form See line 10 instructions 10. 2012 tax form   11. 2012 tax form Divide the amount on line 8 by the amount on line 9. 2012 tax form Enter the result as a decimal amount (rounded to three places) 11. 2012 tax form × . 2012 tax form 12. 2012 tax form Multiply the amount on line 10 by the decimal amount on line 11. 2012 tax form Enter the result. 2012 tax form This is your deductible home mortgage interest. 2012 tax form Enter this amount on Schedule A (Form 1040) 12. 2012 tax form   13. 2012 tax form Subtract the amount on line 12 from the amount on line 10. 2012 tax form Enter the result. 2012 tax form This is not home mortgage interest. 2012 tax form See line 13 instructions 13. 2012 tax form   Home equity debt only. 2012 tax form   If all of your mortgages are home equity debt, do not fill in lines 1 through 5. 2012 tax form Enter zero on line 6 and complete the rest of Table 1. 2012 tax form Average Mortgage Balance You have to figure the average balance of each mortgage to determine your qualified loan limit. 2012 tax form You need these amounts to complete lines 1, 2, and 9 of Table 1. 2012 tax form You can use the highest mortgage balances during the year, but you may benefit most by using the average balances. 2012 tax form The following are methods you can use to figure your average mortgage balances. 2012 tax form However, if a mortgage has more than one category of debt, see Mixed-use mortgages , later, in this section. 2012 tax form Average of first and last balance method. 2012 tax form   You can use this method if all the following apply. 2012 tax form You did not borrow any new amounts on the mortgage during the year. 2012 tax form (This does not include borrowing the original mortgage amount. 2012 tax form ) You did not prepay more than one month's principal during the year. 2012 tax form (This includes prepayment by refinancing your home or by applying proceeds from its sale. 2012 tax form ) You had to make level payments at fixed equal intervals on at least a semi-annual basis. 2012 tax form You treat your payments as level even if they were adjusted from time to time because of changes in the interest rate. 2012 tax form    To figure your average balance, complete the following worksheet. 2012 tax form    1. 2012 tax form Enter the balance as of the first day of the year that the mortgage was secured by your qualified home during the year (generally January 1)   2. 2012 tax form Enter the balance as of the last day of the year that the mortgage was secured by your qualified home during the year (generally December 31)   3. 2012 tax form Add amounts on lines 1 and 2   4. 2012 tax form Divide the amount on line 3 by 2. 2012 tax form Enter the result   Interest paid divided by interest rate method. 2012 tax form   You can use this method if at all times in 2013 the mortgage was secured by your qualified home and the interest was paid at least monthly. 2012 tax form    Complete the following worksheet to figure your average balance. 2012 tax form    1. 2012 tax form Enter the interest paid in 2013. 2012 tax form Do not include points, mortgage insurance premiums, or any interest paid in 2013 that is for a year after 2013. 2012 tax form However, do include interest that is for 2013 but was paid in an earlier year   2. 2012 tax form Enter the annual interest rate on the mortgage. 2012 tax form If the interest rate varied in 2013, use the lowest rate for the year   3. 2012 tax form Divide the amount on line 1 by the amount on line 2. 2012 tax form Enter the result   Example. 2012 tax form Mr. 2012 tax form Blue had a line of credit secured by his main home all year. 2012 tax form He paid interest of $2,500 on this loan. 2012 tax form The interest rate on the loan was 9% (. 2012 tax form 09) all year. 2012 tax form His average balance using this method is $27,778, figured as follows. 2012 tax form 1. 2012 tax form Enter the interest paid in 2013. 2012 tax form Do not include points, mortgage insurance premiums, or any interest paid in 2013 that is for a year after 2013. 2012 tax form However, do include interest that is for 2013 but was paid in an earlier year $2,500 2. 2012 tax form Enter the annual interest rate on the mortgage. 2012 tax form If the interest rate varied in 2013, use the lowest rate for the year . 2012 tax form 09 3. 2012 tax form Divide the amount on line 1 by the amount on line 2. 2012 tax form Enter the result $27,778 Statements provided by your lender. 2012 tax form   If you receive monthly statements showing the closing balance or the average balance for the month, you can use either to figure your average balance for the year. 2012 tax form You can treat the balance as zero for any month the mortgage was not secured by your qualified home. 2012 tax form   For each mortgage, figure your average balance by adding your monthly closing or average balances and dividing that total by the number of months the home secured by that mortgage was a qualified home during the year. 2012 tax form   If your lender can give you your average balance for the year, you can use that amount. 2012 tax form Example. 2012 tax form Ms. 2012 tax form Brown had a home equity loan secured by her main home all year. 2012 tax form She received monthly statements showing her average balance for each month. 2012 tax form She can figure her average balance for the year by adding her monthly average balances and dividing the total by 12. 2012 tax form Mixed-use mortgages. 2012 tax form   A mixed-use mortgage is a loan that consists of more than one of the three categories of debt (grandfathered debt, home acquisition debt, and home equity debt). 2012 tax form For example, a mortgage you took out during the year is a mixed-use mortgage if you used its proceeds partly to refinance a mortgage that you took out in an earlier year to buy your home (home acquisition debt) and partly to buy a car (home equity debt). 2012 tax form   Complete lines 1 and 2 of Table 1 by including the separate average balances of any grandfathered debt and home acquisition debt in your mixed-use mortgage. 2012 tax form Do not use the methods described earlier in this section to figure the average balance of either category. 2012 tax form Instead, for each category, use the following method. 2012 tax form Figure the balance of that category of debt for each month. 2012 tax form This is the amount of the loan proceeds allocated to that category, reduced by your principal payments on the mortgage previously applied to that category. 2012 tax form Principal payments on a mixed-use mortgage are applied in full to each category of debt, until its balance is zero, in the following order: First, any home equity debt, Next, any grandfathered debt, and Finally, any home acquisition debt. 2012 tax form Add together the monthly balances figured in (1). 2012 tax form Divide the result in (2) by 12. 2012 tax form   Complete line 9 of Table 1 by including the average balance of the entire mixed-use mortgage, figured under one of the methods described earlier in this section. 2012 tax form Example 1. 2012 tax form In 1986, Sharon took out a $1,400,000 mortgage to buy her main home (grandfathered debt). 2012 tax form On March 2, 2013, when the home had a fair market value of $1,700,000 and she owed $1,100,000 on the mortgage, Sharon took out a second mortgage for $200,000. 2012 tax form She used $180,000 of the proceeds to make substantial improvements to her home (home acquisition debt) and the remaining $20,000 to buy a car (home equity debt). 2012 tax form Under the loan agreement, Sharon must make principal payments of $1,000 at the end of each month. 2012 tax form During 2013, her principal payments on the second mortgage totaled $10,000. 2012 tax form To complete Table 1, line 2, Sharon must figure a separate average balance for the part of her second mortgage that is home acquisition debt. 2012 tax form The January and February balances were zero. 2012 tax form The March through December balances were all $180,000, because none of her principal payments are applied to the home acquisition debt. 2012 tax form (They are all applied to the home equity debt, reducing it to $10,000 [$20,000 − $10,000]. 2012 tax form ) The monthly balances of the home acquisition debt total $1,800,000 ($180,000 × 10). 2012 tax form Therefore, the average balance of the home acquisition debt for 2013 was $150,000 ($1,800,000 ÷ 12). 2012 tax form Example 2. 2012 tax form The facts are the same as in Example 1. 2012 tax form In 2014, Sharon's January through October principal payments on her second mortgage are applied to the home equity debt, reducing it to zero. 2012 tax form The balance of the home acquisition debt remains $180,000 for each of those months. 2012 tax form Because her November and December principal payments are applied to the home acquisition debt, the November balance is $179,000 ($180,000 − $1,000) and the December balance is $178,000 ($180,000 − $2,000). 2012 tax form The monthly balances total $2,157,000 [($180,000 × 10) + $179,000 + $178,000]. 2012 tax form Therefore, the average balance of the home acquisition debt for 2014 is $179,750 ($2,157,000 ÷ 12). 2012 tax form L