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Amend My Federal Tax Return

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Amend My Federal Tax Return

Amend my federal tax return 3. Amend my federal tax return   Rent Expense Table of Contents Introduction Topics - This chapter discusses: RentConditional sales contract. Amend my federal tax return Leveraged leases. Amend my federal tax return Leveraged leases of limited-use property. Amend my federal tax return Taxes on Leased Property Cost of Getting a Lease Improvements by Lessee Capitalizing Rent Expenses Introduction This chapter discusses the tax treatment of rent or lease payments you make for property you use in your business but do not own. Amend my federal tax return It also discusses how to treat other kinds of payments you make that are related to your use of this property. Amend my federal tax return These include payments you make for taxes on the property. Amend my federal tax return Topics - This chapter discusses: The definition of rent Taxes on leased property The cost of getting a lease Improvements by the lessee Capitalizing rent expenses Rent Rent is any amount you pay for the use of property you do not own. Amend my federal tax return In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. Amend my federal tax return If you have or will receive equity in or title to the property, the rent is not deductible. Amend my federal tax return Unreasonable rent. Amend my federal tax return   You cannot take a rental deduction for unreasonable rent. Amend my federal tax return Ordinarily, the issue of reasonableness arises only if you and the lessor are related. Amend my federal tax return Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. Amend my federal tax return Rent is not unreasonable just because it is figured as a percentage of gross sales. Amend my federal tax return For examples of related persons, see Related persons in chapter 2, Publication 544. Amend my federal tax return Rent on your home. Amend my federal tax return   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. Amend my federal tax return You must meet the requirements for business use of your home. Amend my federal tax return For more information, see Business use of your home in chapter 1. Amend my federal tax return Rent paid in advance. Amend my federal tax return   Generally, rent paid in your trade or business is deductible in the year paid or accrued. Amend my federal tax return If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. Amend my federal tax return You can deduct the rest of your payment only over the period to which it applies. Amend my federal tax return Example 1. Amend my federal tax return You are a calendar year taxpayer and you leased a building for 5 years beginning July 1. Amend my federal tax return Your rent is $12,000 per year. Amend my federal tax return You paid the first year's rent ($12,000) on June 30. Amend my federal tax return You can deduct only $6,000 (6/12 × $12,000) for the rent that applies to the first year. Amend my federal tax return Example 2. Amend my federal tax return You are a calendar year taxpayer. Amend my federal tax return Last January you leased property for 3 years for $6,000 a year. Amend my federal tax return You paid the full $18,000 (3 × $6,000) during the first year of the lease. Amend my federal tax return Each year you can deduct only $6,000, the part of the lease that applies to that year. Amend my federal tax return Canceling a lease. Amend my federal tax return   You generally can deduct as rent an amount you pay to cancel a business lease. Amend my federal tax return Lease or purchase. Amend my federal tax return   There may be instances in which you must determine whether your payments are for rent or for the purchase of the property. Amend my federal tax return You must first determine whether your agreement is a lease or a conditional sales contract. Amend my federal tax return Payments made under a conditional sales contract are not deductible as rent expense. Amend my federal tax return Conditional sales contract. Amend my federal tax return   Whether an agreement is a conditional sales contract depends on the intent of the parties. Amend my federal tax return Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. Amend my federal tax return No single test, or special combination of tests, always applies. Amend my federal tax return However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. Amend my federal tax return The agreement applies part of each payment toward an equity interest you will receive. Amend my federal tax return You get title to the property after you make a stated amount of required payments. Amend my federal tax return The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property. Amend my federal tax return You pay much more than the current fair rental value of the property. Amend my federal tax return You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. Amend my federal tax return Determine this value when you make the agreement. Amend my federal tax return You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. Amend my federal tax return The agreement designates part of the payments as interest, or that part is easy to recognize as interest. Amend my federal tax return Leveraged leases. Amend my federal tax return   Leveraged lease transactions may not be considered leases. Amend my federal tax return Leveraged leases generally involve three parties: a lessor, a lessee, and a lender to the lessor. Amend my federal tax return Usually the lease term covers a large part of the useful life of the leased property, and the lessee's payments to the lessor are enough to cover the lessor's payments to the lender. Amend my federal tax return   If you plan to take part in what appears to be a leveraged lease, you may want to get an advance ruling. Amend my federal tax return Revenue Procedure 2001-28 on page 1156 of Internal Revenue Bulletin 2001-19 contains the guidelines the IRS will use to determine if a leveraged lease is a lease for federal income tax purposes. Amend my federal tax return Revenue Procedure 2001-29 on page 1160 of the same Internal Revenue Bulletin provides the information required to be furnished in a request for an advance ruling on a leveraged lease transaction. Amend my federal tax return Internal Revenue Bulletin 2001-19 is available at www. Amend my federal tax return irs. Amend my federal tax return gov/pub/irs-irbs/irb01-19. Amend my federal tax return pdf. Amend my federal tax return   In general, Revenue Procedure 2001-28 provides that, for advance ruling purposes only, the IRS will consider the lessor in a leveraged lease transaction to be the owner of the property and the transaction to be a valid lease if all the factors in the revenue procedure are met, including the following. Amend my federal tax return The lessor must maintain a minimum unconditional “at risk” equity investment in the property (at least 20% of the cost of the property) during the entire lease term. Amend my federal tax return The lessee may not have a contractual right to buy the property from the lessor at less than fair market value when the right is exercised. Amend my federal tax return The lessee may not invest in the property, except as provided by Revenue Procedure 2001-28. Amend my federal tax return The lessee may not lend any money to the lessor to buy the property or guarantee the loan used by the lessor to buy the property. Amend my federal tax return The lessor must show that it expects to receive a profit apart from the tax deductions, allowances, credits, and other tax attributes. Amend my federal tax return   The IRS may charge you a user fee for issuing a tax ruling. Amend my federal tax return For more information, see Revenue Procedure 2014-1 available at  www. Amend my federal tax return irs. Amend my federal tax return gov/irb/2014-1_IRB/ar05. Amend my federal tax return html. Amend my federal tax return Leveraged leases of limited-use property. Amend my federal tax return   The IRS will not issue advance rulings on leveraged leases of so-called limited-use property. Amend my federal tax return Limited-use property is property not expected to be either useful to or usable by a lessor at the end of the lease term except for continued leasing or transfer to a lessee. Amend my federal tax return See Revenue Procedure 2001-28 for examples of limited-use property and property that is not limited-use property. Amend my federal tax return Leases over $250,000. Amend my federal tax return   Special rules are provided for certain leases of tangible property. Amend my federal tax return The rules apply if the lease calls for total payments of more than $250,000 and any of the following apply. Amend my federal tax return Rents increase during the lease. Amend my federal tax return Rents decrease during the lease. Amend my federal tax return Rents are deferred (rent is payable after the end of the calendar year following the calendar year in which the use occurs and the rent is allocated). Amend my federal tax return Rents are prepaid (rent is payable before the end of the calendar year preceding the calendar year in which the use occurs and the rent is allocated). Amend my federal tax return These rules do not apply if your lease specifies equal amounts of rent for each month in the lease term and all rent payments are due in the calendar year to which the rent relates (or in the preceding or following calendar year). Amend my federal tax return   Generally, if the special rules apply, you must use an accrual method of accounting (and time value of money principles) for your rental expenses, regardless of your overall method of accounting. Amend my federal tax return In addition, in certain cases in which the IRS has determined that a lease was designed to achieve tax avoidance, you must take rent and stated or imputed interest into account under a constant rental accrual method in which the rent is treated as accruing ratably over the entire lease term. Amend my federal tax return For details, see section 467 of the Internal Revenue Code. Amend my federal tax return Taxes on Leased Property If you lease business property, you can deduct as additional rent any taxes you have to pay to or for the lessor. Amend my federal tax return When you can deduct these taxes as additional rent depends on your accounting method. Amend my federal tax return Cash method. Amend my federal tax return   If you use the cash method of accounting, you can deduct the taxes as additional rent only for the tax year in which you pay them. Amend my federal tax return Accrual method. Amend my federal tax return   If you use an accrual method of accounting, you can deduct taxes as additional rent for the tax year in which you can determine all the following. Amend my federal tax return That you have a liability for taxes on the leased property. Amend my federal tax return How much the liability is. Amend my federal tax return That economic performance occurred. Amend my federal tax return   The liability and amount of taxes are determined by state or local law and the lease agreement. Amend my federal tax return Economic performance occurs as you use the property. Amend my federal tax return Example 1. Amend my federal tax return Oak Corporation is a calendar year taxpayer that uses an accrual method of accounting. Amend my federal tax return Oak leases land for use in its business. Amend my federal tax return Under state law, owners of real property become liable (incur a lien on the property) for real estate taxes for the year on January 1 of that year. Amend my federal tax return However, they do not have to pay these taxes until July 1 of the next year (18 months later) when tax bills are issued. Amend my federal tax return Under the terms of the lease, Oak becomes liable for the real estate taxes in the later year when the tax bills are issued. Amend my federal tax return If the lease ends before the tax bill for a year is issued, Oak is not liable for the taxes for that year. Amend my federal tax return Oak cannot deduct the real estate taxes as rent until the tax bill is issued. Amend my federal tax return This is when Oak's liability under the lease becomes fixed. Amend my federal tax return Example 2. Amend my federal tax return The facts are the same as in Example 1 except that, according to the terms of the lease, Oak becomes liable for the real estate taxes when the owner of the property becomes liable for them. Amend my federal tax return As a result, Oak will deduct the real estate taxes as rent on its tax return for the earlier year. Amend my federal tax return This is the year in which Oak's liability under the lease becomes fixed. Amend my federal tax return Cost of Getting a Lease You may either enter into a new lease with the lessor of the property or get an existing lease from another lessee. Amend my federal tax return Very often when you get an existing lease from another lessee, you must pay the previous lessee money to get the lease, besides having to pay the rent on the lease. Amend my federal tax return If you get an existing lease on property or equipment for your business, you generally must amortize any amount you pay to get that lease over the remaining term of the lease. Amend my federal tax return For example, if you pay $10,000 to get a lease and there are 10 years remaining on the lease with no option to renew, you can deduct $1,000 each year. Amend my federal tax return The cost of getting an existing lease of tangible property is not subject to the amortization rules for section 197 intangibles discussed in chapter 8. Amend my federal tax return Option to renew. Amend my federal tax return   The term of the lease for amortization includes all renewal options plus any other period for which you and the lessor reasonably expect the lease to be renewed. Amend my federal tax return However, this applies only if less than 75% of the cost of getting the lease is for the term remaining on the purchase date (not including any period for which you may choose to renew, extend, or continue the lease). Amend my federal tax return Allocate the lease cost to the original term and any option term based on the facts and circumstances. Amend my federal tax return In some cases, it may be appropriate to make the allocation using a present value computation. Amend my federal tax return For more information, see Regulations section 1. Amend my federal tax return 178-1(b)(5). Amend my federal tax return Example 1. Amend my federal tax return You paid $10,000 to get a lease with 20 years remaining on it and two options to renew for 5 years each. Amend my federal tax return Of this cost, you paid $7,000 for the original lease and $3,000 for the renewal options. Amend my federal tax return Because $7,000 is less than 75% of the total $10,000 cost of the lease (or $7,500), you must amortize the $10,000 over 30 years. Amend my federal tax return That is the remaining life of your present lease plus the periods for renewal. Amend my federal tax return Example 2. Amend my federal tax return The facts are the same as in Example 1, except that you paid $8,000 for the original lease and $2,000 for the renewal options. Amend my federal tax return You can amortize the entire $10,000 over the 20-year remaining life of the original lease. Amend my federal tax return The $8,000 cost of getting the original lease was not less than 75% of the total cost of the lease (or $7,500). Amend my federal tax return Cost of a modification agreement. Amend my federal tax return   You may have to pay an additional “rent” amount over part of the lease period to change certain provisions in your lease. Amend my federal tax return You must capitalize these payments and amortize them over the remaining period of the lease. Amend my federal tax return You cannot deduct the payments as additional rent, even if they are described as rent in the agreement. Amend my federal tax return Example. Amend my federal tax return You are a calendar year taxpayer and sign a 20-year lease to rent part of a building starting on January 1. Amend my federal tax return However, before you occupy it, you decide that you really need less space. Amend my federal tax return The lessor agrees to reduce your rent from $7,000 to $6,000 per year and to release the excess space from the original lease. Amend my federal tax return In exchange, you agree to pay an additional rent amount of $3,000, payable in 60 monthly installments of $50 each. Amend my federal tax return   You must capitalize the $3,000 and amortize it over the 20-year term of the lease. Amend my federal tax return Your amortization deduction each year will be $150 ($3,000 ÷ 20). Amend my federal tax return You cannot deduct the $600 (12 × $50) that you will pay during each of the first 5 years as rent. Amend my federal tax return Commissions, bonuses, and fees. Amend my federal tax return   Commissions, bonuses, fees, and other amounts you pay to get a lease on property you use in your business are capital costs. Amend my federal tax return You must amortize these costs over the term of the lease. Amend my federal tax return Loss on merchandise and fixtures. Amend my federal tax return   If you sell at a loss merchandise and fixtures that you bought solely to get a lease, the loss is a cost of getting the lease. Amend my federal tax return You must capitalize the loss and amortize it over the remaining term of the lease. Amend my federal tax return Improvements by Lessee If you add buildings or make other permanent improvements to leased property, depreciate the cost of the improvements using the modified accelerated cost recovery system (MACRS). Amend my federal tax return Depreciate the property over its appropriate recovery period. Amend my federal tax return You cannot amortize the cost over the remaining term of the lease. Amend my federal tax return If you do not keep the improvements when you end the lease, figure your gain or loss based on your adjusted basis in the improvements at that time. Amend my federal tax return For more information, see the discussion of MACRS in Publication 946, How To Depreciate Property. Amend my federal tax return Assignment of a lease. Amend my federal tax return   If a long-term lessee who makes permanent improvements to land later assigns all lease rights to you for money and you pay the rent required by the lease, the amount you pay for the assignment is a capital investment. Amend my federal tax return If the rental value of the leased land increased since the lease began, part of your capital investment is for that increase in the rental value. Amend my federal tax return The rest is for your investment in the permanent improvements. Amend my federal tax return   The part that is for the increased rental value of the land is a cost of getting a lease, and you amortize it over the remaining term of the lease. Amend my federal tax return You can depreciate the part that is for your investment in the improvements over the recovery period of the property as discussed earlier, without regard to the lease term. Amend my federal tax return Capitalizing Rent Expenses Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Amend my federal tax return Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. Amend my federal tax return You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Amend my federal tax return Indirect costs include amounts incurred for renting or leasing equipment, facilities, or land. Amend my federal tax return Uniform capitalization rules. Amend my federal tax return   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. Amend my federal tax return Produce real property or tangible personal property. Amend my federal tax return For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. Amend my federal tax return Acquire property for resale. Amend my federal tax return However, these rules do not apply to the following property. Amend my federal tax return Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. Amend my federal tax return Property you produce if you meet either of the following conditions. Amend my federal tax return Your indirect costs of producing the property are $200,000 or less. Amend my federal tax return You use the cash method of accounting and do not account for inventories. Amend my federal tax return Example 1. Amend my federal tax return You rent construction equipment to build a storage facility. Amend my federal tax return If you are subject to the uniform capitalization rules, you must capitalize as part of the cost of the building the rent you paid for the equipment. Amend my federal tax return You recover your cost by claiming a deduction for depreciation on the building. Amend my federal tax return Example 2. Amend my federal tax return You rent space in a facility to conduct your business of manufacturing tools. Amend my federal tax return If you are subject to the uniform capitalization rules, you must include the rent you paid to occupy the facility in the cost of the tools you produce. Amend my federal tax return More information. Amend my federal tax return   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. Amend my federal tax return Prev  Up  Next   Home   More Online Publications
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Amend my federal tax return 23. Amend my federal tax return   Interest Expense Table of Contents Introduction Useful Items - You may want to see: Home Mortgage InterestAmount Deductible Points Mortgage Insurance Premiums Form 1098, Mortgage Interest Statement Investment InterestInvestment Property Allocation of Interest Expense Limit on Deduction Items You Cannot DeductPersonal Interest Allocation of Interest How To ReportMore than one borrower. Amend my federal tax return Mortgage proceeds used for business or investment. Amend my federal tax return Introduction This chapter discusses what interest expenses you can deduct. Amend my federal tax return Interest is the amount you pay for the use of borrowed money. Amend my federal tax return The following are types of interest you can deduct as itemized deductions on Schedule A (Form 1040). Amend my federal tax return Home mortgage interest, including certain points and mortgage insurance premiums. Amend my federal tax return Investment interest. Amend my federal tax return This chapter explains these deductions. Amend my federal tax return It also explains where to deduct other types of interest and lists some types of interest you cannot deduct. Amend my federal tax return Use Table 23-1 to find out where to get more information on various types of interest, including investment interest. Amend my federal tax return Useful Items - You may want to see: Publication 936 Home Mortgage Interest Deduction 550 Investment Income and Expenses Home Mortgage Interest Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). Amend my federal tax return The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. Amend my federal tax return You can deduct home mortgage interest if all the following conditions are met. Amend my federal tax return You file Form 1040 and itemize deductions on Schedule A (Form 1040). Amend my federal tax return The mortgage is a secured debt on a qualified home in which you have an ownership interest. Amend my federal tax return (Generally, your mortgage is a secured debt if you put your home up as collateral to protect the interest of the lender. Amend my federal tax return The term “qualified home” means your main home or second home. Amend my federal tax return For details, see Publication 936. Amend my federal tax return )  Both you and the lender must intend that the loan be repaid. Amend my federal tax return Amount Deductible In most cases, you can deduct all of your home mortgage interest. Amend my federal tax return How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. Amend my federal tax return Fully deductible interest. Amend my federal tax return   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. Amend my federal tax return (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. Amend my federal tax return )   The three categories are as follows: Mortgages you took out on or before October 13, 1987 (called grandfathered debt). Amend my federal tax return 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). Amend my federal tax return 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). Amend my federal tax return The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. Amend my federal tax return   See Part II of Publication 936 for more detailed definitions of grandfathered, home acquisition, and home equity debt. Amend my federal tax return    You can use Figure 23-A to check whether your home mortgage interest is fully deductible. Amend my federal tax return Figure 23-A. Amend my federal tax return Is My Home Mortgage Interest Fully Deductible? Please click here for the text description of the image. Amend my federal tax return Figure 23-A. Amend my federal tax return Is My Interest Fully Deductible? Limits on deduction. Amend my federal tax return   You cannot fully deduct interest on a mortgage that does not fit into any of the three categories listed earlier. Amend my federal tax return If this applies to you, see Part II of Publication 936 to figure the amount of interest you can deduct. Amend my federal tax return Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. Amend my federal tax return It also describes certain special situations that may affect your deduction. Amend my federal tax return Late payment charge on mortgage payment. Amend my federal tax return   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. Amend my federal tax return Mortgage prepayment penalty. Amend my federal tax return   If you pay off your home mortgage early, you may have to pay a penalty. Amend my federal tax return 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. Amend my federal tax return Sale of home. Amend my federal tax return   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 sale. Amend my federal tax return Example. Amend my federal tax return John and Peggy Harris sold their home on May 7. Amend my federal tax return Through April 30, they made home mortgage interest payments of $1,220. Amend my federal tax return 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. Amend my federal tax return Their mortgage interest deduction is $1,270 ($1,220 + $50). Amend my federal tax return Prepaid interest. Amend my federal tax return   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. Amend my federal tax return You can deduct in each year only the interest that qualifies as home mortgage interest for that year. Amend my federal tax return However, there is an exception that applies to points, discussed later. Amend my federal tax return Mortgage interest credit. Amend my federal tax return   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. Amend my federal tax return Figure the credit on Form 8396, Mortgage Interest Credit. Amend my federal tax return If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. Amend my federal tax return   For more information on the credit, see chapter 37. Amend my federal tax return Ministers' and military housing allowance. Amend my federal tax return   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. Amend my federal tax return Hardest Hit Fund and Emergency Homeowners' Loan Programs. Amend my federal tax return   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. Amend my federal tax return 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. Amend my federal tax return 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. Amend my federal tax return 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 (real property taxes). Amend my federal tax return 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. Amend my federal tax return Mortgage assistance payments under section 235 of the National Housing Act. Amend my federal tax return   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. Amend my federal tax return You cannot deduct the interest that is paid for you. Amend my federal tax return No other effect on taxes. Amend my federal tax return   Do not include these mortgage assistance payments in your income. Amend my federal tax return Also, do not use these payments to reduce other deductions, such as real estate taxes. Amend my federal tax return Divorced or separated individuals. Amend my federal tax return   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. Amend my federal tax return See the discussion of Payments for jointly-owned home in chapter 18. Amend my federal tax return Redeemable ground rents. Amend my federal tax return   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. Amend my federal tax return   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. Amend my federal tax return For more information, see Publication 936. Amend my federal tax return Nonredeemable ground rents. Amend my federal tax return   Payments on a nonredeemable ground rent are not mortgage interest. Amend my federal tax return You can deduct them as rent if they are a business expense or if they are for rental property. Amend my federal tax return Reverse mortgages. Amend my federal tax return   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. Amend my federal tax return With a reverse mortgage, you retain title to your home. Amend my federal tax return 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. Amend my federal tax return Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Amend my federal tax return Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until the loan is paid in full. Amend my federal tax return Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Publication 936. Amend my federal tax return Rental payments. Amend my federal tax return   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. Amend my federal tax return This is true even if the settlement papers call them interest. Amend my federal tax return You cannot deduct these payments as home mortgage interest. Amend my federal tax return Mortgage proceeds invested in tax-exempt securities. Amend my federal tax return   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. Amend my federal tax return “Grandfathered debt” and “home equity debt” are defined earlier under Amount Deductible. Amend my federal tax return Refunds of interest. Amend my federal tax return   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. Amend my federal tax return 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. Amend my federal tax return However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. Amend my federal tax return This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. Amend my federal tax return    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. Amend my federal tax return For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. Amend my federal tax return   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in chapter 12. Amend my federal tax return Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Amend my federal tax return Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. Amend my federal tax return A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. Amend my federal tax return See Points paid by the seller , later. Amend my federal tax return General Rule You generally cannot deduct the full amount of points in the year paid. Amend my federal tax return Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. Amend my federal tax return See Deduction Allowed Ratably , next. Amend my federal tax return For exceptions to the general rule, see Deduction Allowed in Year Paid , later. Amend my federal tax return 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. Amend my federal tax return You use the cash method of accounting. Amend my federal tax return This means you report income in the year you receive it and deduct expenses in the year you pay them. Amend my federal tax return Most individuals use this method. Amend my federal tax return Your loan is secured by a home. Amend my federal tax return (The home does not need to be your main home. Amend my federal tax return ) Your loan period is not more than 30 years. Amend my federal tax return 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. Amend my federal tax return 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. Amend my federal tax return Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. Amend my federal tax return (You can use Figure 23-B as a quick guide to see whether your points are fully deductible in the year paid. Amend my federal tax return ) Your loan is secured by your main home. Amend my federal tax return (Your main home is the one you ordinarily live in most of the time. Amend my federal tax return ) Paying points is an established business practice in the area where the loan was made. Amend my federal tax return The points paid were not more than the points generally charged in that area. Amend my federal tax return You use the cash method of accounting. Amend my federal tax return This means you report income in the year you receive it and deduct expenses in the year you pay them. Amend my federal tax return (If you want more information about this method, see Accounting Methods in chapter 1. Amend my federal tax return ) 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. Amend my federal tax return The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. Amend my federal tax return The funds you provided are not required to have been applied to the points. Amend my federal tax return They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. Amend my federal tax return You cannot have borrowed these funds from your lender or mortgage broker. Amend my federal tax return You use your loan to buy or build your main home. Amend my federal tax return The points were computed as a percentage of the principal amount of the mortgage. Amend my federal tax return The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. Amend my federal tax return The points may be shown as paid from either your funds or the seller's. Amend my federal tax return Figure 23-B. Amend my federal tax return Are My Points Fully Deductible This Year? Please click here for the text description of the image. Amend my federal tax return Figure 23-B. Amend my federal tax return Are My Points Fully Deductible This Year? Note. Amend my federal tax return 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. Amend my federal tax return Home improvement loan. Amend my federal tax return   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. Amend my federal tax return Second home. Amend my federal tax return You cannot fully deduct in the year paid points you pay on loans secured by your second home. Amend my federal tax return You can deduct these points only over the life of the loan. Amend my federal tax return Refinancing. Amend my federal tax return   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. Amend my federal tax return This is true even if the new mortgage is secured by your main home. Amend my federal tax return   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 , earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. Amend my federal tax return You can deduct the rest of the points over the life of the loan. Amend my federal tax return Example 1. Amend my federal tax return In 1998, Bill Fields got a mortgage to buy a home. Amend my federal tax return In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. Amend my federal tax return The mortgage is secured by his home. Amend my federal tax return To get the new loan, he had to pay three points ($3,000). Amend my federal tax return 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. Amend my federal tax return Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. Amend my federal tax return The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. Amend my federal tax return Bill's first payment on the new loan was due July 1. Amend my federal tax return He made six payments on the loan in 2013 and is a cash basis taxpayer. Amend my federal tax return Bill used the funds from the new mortgage to repay his existing mortgage. Amend my federal tax return 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. Amend my federal tax return He cannot deduct all of the points in 2013. Amend my federal tax return He can deduct two points ($2,000) ratably over the life of the loan. Amend my federal tax return He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. Amend my federal tax return The other point ($1,000) was a fee for services and is not deductible. Amend my federal tax return Example 2. Amend my federal tax return 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. Amend my federal tax return Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. Amend my federal tax return His deduction is $500 ($2,000 × 25%). Amend my federal tax return Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. Amend my federal tax return This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. Amend my federal tax return The total amount Bill deducts in 2013 is $550 ($500 + $50). Amend my federal tax return Special Situations This section describes certain special situations that may affect your deduction of points. Amend my federal tax return Original issue discount. Amend my federal tax return   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. Amend my federal tax return This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. Amend my federal tax return Amounts charged for services. Amend my federal tax return   Amounts charged by the lender for specific services connected to the loan are not interest. Amend my federal tax return Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. Amend my federal tax return You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. Amend my federal tax return Points paid by the seller. Amend my federal tax return   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Amend my federal tax return Treatment by seller. Amend my federal tax return   The seller cannot deduct these fees as interest. Amend my federal tax return But they are a selling expense that reduces the amount realized by the seller. Amend my federal tax return See chapter 15 for information on selling your home. Amend my federal tax return Treatment by buyer. Amend my federal tax return    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. Amend my federal tax return If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. Amend my federal tax return If any of those tests are not met, the buyer deducts the points over the life of the loan. Amend my federal tax return   For information about basis, see chapter 13. Amend my federal tax return Funds provided are less than points. Amend my federal tax return   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. Amend my federal tax return In addition, you can deduct any points paid by the seller. Amend my federal tax return Example 1. Amend my federal tax return When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). Amend my federal tax return You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. Amend my federal tax return Of the $1,000 charged for points, you can deduct $750 in the year paid. Amend my federal tax return You spread the remaining $250 over the life of the mortgage. Amend my federal tax return Example 2. Amend my federal tax return 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. Amend my federal tax return In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). Amend my federal tax return You spread the remaining $250 over the life of the mortgage. Amend my federal tax return You must reduce the basis of your home by the $1,000 paid by the seller. Amend my federal tax return Excess points. Amend my federal tax return   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. Amend my federal tax return You must spread any additional points over the life of the mortgage. Amend my federal tax return Mortgage ending early. Amend my federal tax return   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. Amend my federal tax return However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. Amend my federal tax return Instead, deduct the remaining balance over the term of the new loan. Amend my federal tax return    A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Amend my federal tax return Example. Amend my federal tax return Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. Amend my federal tax return He deducts $200 points per year. Amend my federal tax return Through 2012, Dan has deducted $2,200 of the points. Amend my federal tax return Dan prepaid his mortgage in full in 2013. Amend my federal tax return He can deduct the remaining $800 of points in 2013. Amend my federal tax return Limits on deduction. Amend my federal tax return   You cannot fully deduct points paid on a mortgage unless the mortgage fits into one of the categories listed earlier under Fully deductible interest . Amend my federal tax return See Publication 936 for details. Amend my federal tax return Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. Amend my federal tax return The insurance must be in connection with home acquisition debt and the insurance contract must have been issued after 2006. Amend my federal tax return Qualified mortgage insurance. Amend my federal tax return   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). Amend my federal tax return   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. Amend my federal tax return If provided by the Rural Housing Service, it is commonly known as a guarantee fee. Amend my federal tax return These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. Amend my federal tax return Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. Amend my federal tax return Special rules for prepaid mortgage insurance. Amend my federal tax return   Generally, if you paid premiums for qualified mortgage insurance that are allocable to periods after the close of the tax year, such premiums are treated as paid in the period to which they are allocated. Amend my federal tax return 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. Amend my federal tax return No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. Amend my federal tax return This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. Amend my federal tax return See the Example below. Amend my federal tax return Example. Amend my federal tax return Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. Amend my federal tax return Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. Amend my federal tax return 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. Amend my federal tax return Ryan's adjusted gross income (AGI) for 2012 is $76,000. Amend my federal tax return Ryan can deduct $880 ($9,240 ÷ 84 × 8 months) for qualified mortgage insurance premiums in 2012. Amend my federal tax return For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 × 12 months) if his AGI is $100,000 or less. Amend my federal tax return 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). Amend my federal tax return Limit on deduction. Amend my federal tax return   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. Amend my federal tax return 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. Amend my federal tax return If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. Amend my federal tax return 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. Amend my federal tax return You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. Amend my federal tax return A governmental unit is a person for purposes of furnishing the statement. Amend my federal tax return The statement for each year should be sent to you by January 31 of the following year. Amend my federal tax return A copy of this form will also be sent to the IRS. Amend my federal tax return 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. Amend my federal tax return However, it should not show any interest that was paid for you by a government agency. Amend my federal tax return As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. Amend my federal tax return However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. Amend my federal tax return See Points , earlier, to determine whether you can deduct points not shown on Form 1098. Amend my federal tax return Prepaid interest on Form 1098. Amend my federal tax return   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. Amend my federal tax return However, you cannot deduct the prepaid amount for January 2014 in 2013. Amend my federal tax return (See Prepaid interest , earlier. Amend my federal tax return ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. Amend my federal tax return You will include the interest for January 2014 with the other interest you pay for 2014. Amend my federal tax return See How To Report , later. Amend my federal tax return Refunded interest. Amend my federal tax return   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. Amend my federal tax return See Refunds of interest , earlier. Amend my federal tax return Mortgage insurance premiums. Amend my federal tax return   The amount of mortgage insurance premiums you paid during 2013 may be shown in box 4 of Form 1098. Amend my federal tax return See Mortgage Insurance Premiums, earlier. Amend my federal tax return Investment Interest This section discusses interest expenses you may be able to deduct as an investor. Amend my federal tax return If you borrow money to buy property you hold for investment, the interest you pay is investment interest. Amend my federal tax return You can deduct investment interest subject to the limit discussed later. Amend my federal tax return However, you cannot deduct interest you incurred to produce tax-exempt income. Amend my federal tax return Nor can you deduct interest expenses on straddles. Amend my federal tax return Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. Amend my federal tax return Investment Property Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. Amend my federal tax return It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). Amend my federal tax return Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). Amend my federal tax return Partners, shareholders, and beneficiaries. Amend my federal tax return   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. Amend my federal tax return Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. Amend my federal tax return Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. Amend my federal tax return The allocation is not affected by the use of property that secures the debt. Amend my federal tax return Limit on Deduction Generally, your deduction for investment interest expense is limited to the amount of your net investment income. Amend my federal tax return You can carry over the amount of investment interest that you could not deduct because of this limit to the next tax year. Amend my federal tax return The interest carried over is treated as investment interest paid or accrued in that next year. Amend my federal tax return You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. Amend my federal tax return Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. Amend my federal tax return Investment income. Amend my federal tax return    This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). Amend my federal tax return Investment income does not include Alaska Permanent Fund dividends. Amend my federal tax return It also does not include qualified dividends or net capital gain unless you choose to include them. Amend my federal tax return Choosing to include qualified dividends. Amend my federal tax return   Investment income generally does not include qualified dividends, discussed in chapter 8. Amend my federal tax return However, you can choose to include all or part of your qualified dividends in investment income. Amend my federal tax return   You make this choice by completing Form 4952, line 4g, according to its instructions. Amend my federal tax return   If you choose to include any amount of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. Amend my federal tax return Choosing to include net capital gain. Amend my federal tax return   Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). Amend my federal tax return However, you can choose to include all or part of your net capital gain in investment income. Amend my federal tax return    You make this choice by completing Form 4952, line 4g, according to its instructions. Amend my federal tax return   If you choose to include any amount of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. Amend my federal tax return    Before making either choice, consider the overall effect on your tax liability. Amend my federal tax return Compare your tax if you make one or both of these choices with your tax if you do not. Amend my federal tax return Investment income of child reported on parent's return. Amend my federal tax return    Investment income includes the part of your child's interest and dividend income that you choose to report on your return. Amend my federal tax return If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814, Parents' Election To Report Child's Interest and Dividends. Amend my federal tax return Child's qualified dividends. Amend my federal tax return   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. Amend my federal tax return However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. Amend my federal tax return   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). Amend my federal tax return Child's Alaska Permanent Fund dividends. Amend my federal tax return   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. Amend my federal tax return To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. Amend my federal tax return Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. Amend my federal tax return Subtract the result from the amount on Form 8814, line 12. Amend my federal tax return Child's capital gain distributions. Amend my federal tax return    If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D, line 13, or Form 1040, line 13) generally does not count as investment income. Amend my federal tax return However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. Amend my federal tax return   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). Amend my federal tax return Investment expenses. Amend my federal tax return   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. Amend my federal tax return Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. Amend my federal tax return Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A, line 27. Amend my federal tax return Losses from passive activities. Amend my federal tax return   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). Amend my federal tax return See Publication 925, Passive Activity and At-Risk Rules, for information about passive activities. Amend my federal tax return Form 4952 Use Form 4952, Investment Interest Expense Deduction, to figure your deduction for investment interest. Amend my federal tax return Exception to use of Form 4952. Amend my federal tax return   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. Amend my federal tax return Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. Amend my federal tax return You do not have any other deductible investment expenses. Amend my federal tax return You have no carryover of investment interest expense from 2012. Amend my federal tax return If you meet all of these tests, you can deduct all of your investment interest. Amend my federal tax return More Information For more information on investment interest, see Interest Expenses in chapter 3 of Publication 550. Amend my federal tax return Items You Cannot Deduct Some interest payments are not deductible. Amend my federal tax return Certain expenses similar to interest also are not deductible. Amend my federal tax return Nondeductible expenses include the following items. Amend my federal tax return Personal interest (discussed later). Amend my federal tax return Service charges (however, see Other Expenses (Line 23) in chapter 28). Amend my federal tax return Annual fees for credit cards. Amend my federal tax return Loan fees. Amend my federal tax return Credit investigation fees. Amend my federal tax return Interest to purchase or carry tax-exempt securities. Amend my federal tax return Penalties. Amend my federal tax return   You cannot deduct fines and penalties paid to a government for violations of law, regardless of their nature. Amend my federal tax return Personal Interest Personal interest is not deductible. Amend my federal tax return Personal interest is any interest that is not home mortgage interest, investment interest, business interest, or other deductible interest. Amend my federal tax return It includes the following items. Amend my federal tax return Interest on car loans (unless you use the car for business). Amend my federal tax return Interest on federal, state, or local income tax. Amend my federal tax return Finance charges on credit cards, retail installment contracts, and revolving charge accounts incurred for personal expenses. Amend my federal tax return Late payment charges by a public utility. Amend my federal tax return You may be able to deduct interest you pay on a qualified student loan. Amend my federal tax return For details, see Publication 970, Tax Benefits for Education. Amend my federal tax return Allocation of Interest If you use the proceeds of a loan for more than one purpose (for example, personal and business), you must allocate the interest on the loan to each use. Amend my federal tax return However, you do not have to allocate home mortgage interest if it is fully deductible, regardless of how the funds are used. Amend my federal tax return You allocate interest (other than fully deductible home mortgage interest) on a loan in the same way as the loan itself is allocated. Amend my federal tax return You do this by tracing disbursements of the debt proceeds to specific uses. Amend my federal tax return For details on how to do this, see chapter 4 of Publication 535. Amend my federal tax return How To Report You must file Form 1040 to deduct any home mortgage interest expense on your tax return. Amend my federal tax return Where you deduct your interest expense generally depends on how you use the loan proceeds. Amend my federal tax return See Table 23-1 for a summary of where to deduct your interest expense. Amend my federal tax return Home mortgage interest and points. Amend my federal tax return   Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. Amend my federal tax return 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. Amend my federal tax return Attach a statement explaining the difference and print “See attached” next to line 10. Amend my federal tax return    Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. Amend my federal tax return 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. Amend my federal tax return The seller must give you this number and you must give the seller your TIN. Amend my federal tax return A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Amend my federal tax return Failure to meet any of these requirements may result in a $50 penalty for each failure. Amend my federal tax return 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. Amend my federal tax return See Social Security Number (SSN) in chapter 1 for more information about TINs. Amend my federal tax return    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. Amend my federal tax return   Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. Amend my federal tax return More than one borrower. Amend my federal tax return   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. Amend my federal tax return Show how much of the interest each of you paid, and give the name and address of the person who received the form. Amend my federal tax return Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. Amend my federal tax return Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. Amend my federal tax return   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. Amend my federal tax return You should let each of the other borrowers know what his or her share is. Amend my federal tax return Mortgage proceeds used for business or investment. Amend my federal tax return    If your home mortgage interest deduction is limited, but all or part of the mortgage proceeds were used for business, investment, or other deductible activities, see Table 23-1. Amend my federal tax return It shows where to deduct the part of your excess interest that is for those activities. Amend my federal tax return Investment interest. Amend my federal tax return    Deduct investment interest, subject to certain limits discussed in Publication 550, on Schedule A (Form 1040), line 14. Amend my federal tax return Amortization of bond premium. Amend my federal tax return   There are various ways to treat the premium you pay to buy taxable bonds. Amend my federal tax return See Bond Premium Amortization in Publication 550. Amend my federal tax return Income-producing rental or royalty interest. Amend my federal tax return   Deduct interest on a loan for income-producing rental or royalty property that is not used in your business in Part I of Schedule E (Form 1040). Amend my federal tax return Example. Amend my federal tax return You rent out part of your home and borrow money to make repairs. Amend my federal tax return You can deduct only the interest payment for the rented part in Part I of Schedule E (Form 1040). Amend my federal tax return Deduct the rest of the interest payment on Schedule A (Form 1040) if it is deductible home mortgage interest. Amend my federal tax return Table 23-1. Amend my federal tax return Where To Deduct Your Interest Expense IF you have . Amend my federal tax return . Amend my federal tax return . Amend my federal tax return THEN deduct it on . Amend my federal tax return . Amend my federal tax return . Amend my federal tax return AND for more information go to . Amend my federal tax return . Amend my federal tax return . Amend my federal tax return deductible student loan interest Form 1040, line 33, or Form 1040A, line 18 Publication 970. Amend my federal tax return deductible home mortgage interest and points reported on Form 1098 Schedule A (Form 1040), line 10 Publication 936. Amend my federal tax return deductible home mortgage interest not reported on Form 1098 Schedule A (Form 1040), line 11 Publication 936. Amend my federal tax return deductible points not reported on Form 1098 Schedule A (Form 1040), line 12 Publication 936. Amend my federal tax return deductible mortgage insurance premiums Schedule A (Form 1040), line 13 Publication 936. Amend my federal tax return deductible investment interest (other than incurred to produce rents or royalties) Schedule A (Form 1040), line 14 Publication 550. Amend my federal tax return deductible business interest (non-farm) Schedule C or C-EZ (Form 1040) Publication 535. Amend my federal tax return deductible farm business interest Schedule F (Form 1040) Publications 225 and 535. Amend my federal tax return deductible interest incurred to produce rents or royalties Schedule E (Form 1040) Publications 527 and 535. Amend my federal tax return personal interest not deductible. Amend my federal tax return Prev  Up  Next   Home   More Online Publications