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Colorado Amended Tax Return 2011

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Colorado Amended Tax Return 2011

Colorado amended tax return 2011 23. Colorado amended tax return 2011   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. Colorado amended tax return 2011 Mortgage proceeds used for business or investment. Colorado amended tax return 2011 Introduction This chapter discusses what interest expenses you can deduct. Colorado amended tax return 2011 Interest is the amount you pay for the use of borrowed money. Colorado amended tax return 2011 The following are types of interest you can deduct as itemized deductions on Schedule A (Form 1040). Colorado amended tax return 2011 Home mortgage interest, including certain points and mortgage insurance premiums. Colorado amended tax return 2011 Investment interest. Colorado amended tax return 2011 This chapter explains these deductions. Colorado amended tax return 2011 It also explains where to deduct other types of interest and lists some types of interest you cannot deduct. Colorado amended tax return 2011 Use Table 23-1 to find out where to get more information on various types of interest, including investment interest. Colorado amended tax return 2011 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). Colorado amended tax return 2011 The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. Colorado amended tax return 2011 You can deduct home mortgage interest if all the following conditions are met. Colorado amended tax return 2011 You file Form 1040 and itemize deductions on Schedule A (Form 1040). Colorado amended tax return 2011 The mortgage is a secured debt on a qualified home in which you have an ownership interest. Colorado amended tax return 2011 (Generally, your mortgage is a secured debt if you put your home up as collateral to protect the interest of the lender. Colorado amended tax return 2011 The term “qualified home” means your main home or second home. Colorado amended tax return 2011 For details, see Publication 936. Colorado amended tax return 2011 )  Both you and the lender must intend that the loan be repaid. Colorado amended tax return 2011 Amount Deductible In most cases, you can deduct all of your home mortgage interest. Colorado amended tax return 2011 How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds. Colorado amended tax return 2011 Fully deductible interest. Colorado amended tax return 2011   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. Colorado amended tax return 2011 (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. Colorado amended tax return 2011 )   The three categories are as follows: Mortgages you took out on or before October 13, 1987 (called grandfathered debt). Colorado amended tax return 2011 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). Colorado amended tax return 2011 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). Colorado amended tax return 2011 The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home. Colorado amended tax return 2011   See Part II of Publication 936 for more detailed definitions of grandfathered, home acquisition, and home equity debt. Colorado amended tax return 2011    You can use Figure 23-A to check whether your home mortgage interest is fully deductible. Colorado amended tax return 2011 Figure 23-A. Colorado amended tax return 2011 Is My Home Mortgage Interest Fully Deductible? Please click here for the text description of the image. Colorado amended tax return 2011 Figure 23-A. Colorado amended tax return 2011 Is My Interest Fully Deductible? Limits on deduction. Colorado amended tax return 2011   You cannot fully deduct interest on a mortgage that does not fit into any of the three categories listed earlier. Colorado amended tax return 2011 If this applies to you, see Part II of Publication 936 to figure the amount of interest you can deduct. Colorado amended tax return 2011 Special Situations This section describes certain items that can be included as home mortgage interest and others that cannot. Colorado amended tax return 2011 It also describes certain special situations that may affect your deduction. Colorado amended tax return 2011 Late payment charge on mortgage payment. Colorado amended tax return 2011   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. Colorado amended tax return 2011 Mortgage prepayment penalty. Colorado amended tax return 2011   If you pay off your home mortgage early, you may have to pay a penalty. Colorado amended tax return 2011 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. Colorado amended tax return 2011 Sale of home. Colorado amended tax return 2011   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. Colorado amended tax return 2011 Example. Colorado amended tax return 2011 John and Peggy Harris sold their home on May 7. Colorado amended tax return 2011 Through April 30, they made home mortgage interest payments of $1,220. Colorado amended tax return 2011 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. Colorado amended tax return 2011 Their mortgage interest deduction is $1,270 ($1,220 + $50). Colorado amended tax return 2011 Prepaid interest. Colorado amended tax return 2011   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. Colorado amended tax return 2011 You can deduct in each year only the interest that qualifies as home mortgage interest for that year. Colorado amended tax return 2011 However, there is an exception that applies to points, discussed later. Colorado amended tax return 2011 Mortgage interest credit. Colorado amended tax return 2011   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. Colorado amended tax return 2011 Figure the credit on Form 8396, Mortgage Interest Credit. Colorado amended tax return 2011 If you take this credit, you must reduce your mortgage interest deduction by the amount of the credit. Colorado amended tax return 2011   For more information on the credit, see chapter 37. Colorado amended tax return 2011 Ministers' and military housing allowance. Colorado amended tax return 2011   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. Colorado amended tax return 2011 Hardest Hit Fund and Emergency Homeowners' Loan Programs. Colorado amended tax return 2011   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. Colorado amended tax return 2011 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. Colorado amended tax return 2011 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. Colorado amended tax return 2011 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). Colorado amended tax return 2011 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. Colorado amended tax return 2011 Mortgage assistance payments under section 235 of the National Housing Act. Colorado amended tax return 2011   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. Colorado amended tax return 2011 You cannot deduct the interest that is paid for you. Colorado amended tax return 2011 No other effect on taxes. Colorado amended tax return 2011   Do not include these mortgage assistance payments in your income. Colorado amended tax return 2011 Also, do not use these payments to reduce other deductions, such as real estate taxes. Colorado amended tax return 2011 Divorced or separated individuals. Colorado amended tax return 2011   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. Colorado amended tax return 2011 See the discussion of Payments for jointly-owned home in chapter 18. Colorado amended tax return 2011 Redeemable ground rents. Colorado amended tax return 2011   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct them as mortgage interest. Colorado amended tax return 2011   Payments made to end the lease and to buy the lessor's entire interest in the land are not deductible as mortgage interest. Colorado amended tax return 2011 For more information, see Publication 936. Colorado amended tax return 2011 Nonredeemable ground rents. Colorado amended tax return 2011   Payments on a nonredeemable ground rent are not mortgage interest. Colorado amended tax return 2011 You can deduct them as rent if they are a business expense or if they are for rental property. Colorado amended tax return 2011 Reverse mortgages. Colorado amended tax return 2011   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. Colorado amended tax return 2011 With a reverse mortgage, you retain title to your home. Colorado amended tax return 2011 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. Colorado amended tax return 2011 Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Colorado amended tax return 2011 Any interest (including original issue discount) accrued on a reverse mortgage is not deductible until the loan is paid in full. Colorado amended tax return 2011 Your deduction may be limited because a reverse mortgage loan generally is subject to the limit on Home Equity Debt discussed in Publication 936. Colorado amended tax return 2011 Rental payments. Colorado amended tax return 2011   If you live in a house before final settlement on the purchase, any payments you make for that period are rent and not interest. Colorado amended tax return 2011 This is true even if the settlement papers call them interest. Colorado amended tax return 2011 You cannot deduct these payments as home mortgage interest. Colorado amended tax return 2011 Mortgage proceeds invested in tax-exempt securities. Colorado amended tax return 2011   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. Colorado amended tax return 2011 “Grandfathered debt” and “home equity debt” are defined earlier under Amount Deductible. Colorado amended tax return 2011 Refunds of interest. Colorado amended tax return 2011   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. Colorado amended tax return 2011 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. Colorado amended tax return 2011 However, you need to include it only up to the amount of the deduction that reduced your tax in the earlier year. Colorado amended tax return 2011 This is true whether the interest overcharge was refunded to you or was used to reduce the outstanding principal on your mortgage. Colorado amended tax return 2011    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. Colorado amended tax return 2011 For information about Form 1098, see Form 1098, Mortgage Interest Statement , later. Colorado amended tax return 2011   For more information on how to treat refunds of interest deducted in earlier years, see Recoveries in chapter 12. Colorado amended tax return 2011 Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Colorado amended tax return 2011 Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. Colorado amended tax return 2011 A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. Colorado amended tax return 2011 See Points paid by the seller , later. Colorado amended tax return 2011 General Rule You generally cannot deduct the full amount of points in the year paid. Colorado amended tax return 2011 Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. Colorado amended tax return 2011 See Deduction Allowed Ratably , next. Colorado amended tax return 2011 For exceptions to the general rule, see Deduction Allowed in Year Paid , later. Colorado amended tax return 2011 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. Colorado amended tax return 2011 You use the cash method of accounting. Colorado amended tax return 2011 This means you report income in the year you receive it and deduct expenses in the year you pay them. Colorado amended tax return 2011 Most individuals use this method. Colorado amended tax return 2011 Your loan is secured by a home. Colorado amended tax return 2011 (The home does not need to be your main home. Colorado amended tax return 2011 ) Your loan period is not more than 30 years. Colorado amended tax return 2011 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. Colorado amended tax return 2011 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. Colorado amended tax return 2011 Deduction Allowed in Year Paid You can fully deduct points in the year paid if you meet all the following tests. Colorado amended tax return 2011 (You can use Figure 23-B as a quick guide to see whether your points are fully deductible in the year paid. Colorado amended tax return 2011 ) Your loan is secured by your main home. Colorado amended tax return 2011 (Your main home is the one you ordinarily live in most of the time. Colorado amended tax return 2011 ) Paying points is an established business practice in the area where the loan was made. Colorado amended tax return 2011 The points paid were not more than the points generally charged in that area. Colorado amended tax return 2011 You use the cash method of accounting. Colorado amended tax return 2011 This means you report income in the year you receive it and deduct expenses in the year you pay them. Colorado amended tax return 2011 (If you want more information about this method, see Accounting Methods in chapter 1. Colorado amended tax return 2011 ) 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. Colorado amended tax return 2011 The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. Colorado amended tax return 2011 The funds you provided are not required to have been applied to the points. Colorado amended tax return 2011 They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. Colorado amended tax return 2011 You cannot have borrowed these funds from your lender or mortgage broker. Colorado amended tax return 2011 You use your loan to buy or build your main home. Colorado amended tax return 2011 The points were computed as a percentage of the principal amount of the mortgage. Colorado amended tax return 2011 The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. Colorado amended tax return 2011 The points may be shown as paid from either your funds or the seller's. Colorado amended tax return 2011 Figure 23-B. Colorado amended tax return 2011 Are My Points Fully Deductible This Year? Please click here for the text description of the image. Colorado amended tax return 2011 Figure 23-B. Colorado amended tax return 2011 Are My Points Fully Deductible This Year? Note. Colorado amended tax return 2011 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. Colorado amended tax return 2011 Home improvement loan. Colorado amended tax return 2011   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. Colorado amended tax return 2011 Second home. Colorado amended tax return 2011 You cannot fully deduct in the year paid points you pay on loans secured by your second home. Colorado amended tax return 2011 You can deduct these points only over the life of the loan. Colorado amended tax return 2011 Refinancing. Colorado amended tax return 2011   Generally, points you pay to refinance a mortgage are not deductible in full in the year you pay them. Colorado amended tax return 2011 This is true even if the new mortgage is secured by your main home. Colorado amended tax return 2011   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. Colorado amended tax return 2011 You can deduct the rest of the points over the life of the loan. Colorado amended tax return 2011 Example 1. Colorado amended tax return 2011 In 1998, Bill Fields got a mortgage to buy a home. Colorado amended tax return 2011 In 2013, Bill refinanced that mortgage with a 15-year $100,000 mortgage loan. Colorado amended tax return 2011 The mortgage is secured by his home. Colorado amended tax return 2011 To get the new loan, he had to pay three points ($3,000). Colorado amended tax return 2011 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. Colorado amended tax return 2011 Bill paid the points out of his private funds, rather than out of the proceeds of the new loan. Colorado amended tax return 2011 The payment of points is an established practice in the area, and the points charged are not more than the amount generally charged there. Colorado amended tax return 2011 Bill's first payment on the new loan was due July 1. Colorado amended tax return 2011 He made six payments on the loan in 2013 and is a cash basis taxpayer. Colorado amended tax return 2011 Bill used the funds from the new mortgage to repay his existing mortgage. Colorado amended tax return 2011 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. Colorado amended tax return 2011 He cannot deduct all of the points in 2013. Colorado amended tax return 2011 He can deduct two points ($2,000) ratably over the life of the loan. Colorado amended tax return 2011 He deducts $67 [($2,000 ÷ 180 months) × 6 payments] of the points in 2013. Colorado amended tax return 2011 The other point ($1,000) was a fee for services and is not deductible. Colorado amended tax return 2011 Example 2. Colorado amended tax return 2011 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. Colorado amended tax return 2011 Bill deducts 25% ($25,000 ÷ $100,000) of the points ($2,000) in 2013. Colorado amended tax return 2011 His deduction is $500 ($2,000 × 25%). Colorado amended tax return 2011 Bill also deducts the ratable part of the remaining $1,500 ($2,000 − $500) that must be spread over the life of the loan. Colorado amended tax return 2011 This is $50 [($1,500 ÷ 180 months) × 6 payments] in 2013. Colorado amended tax return 2011 The total amount Bill deducts in 2013 is $550 ($500 + $50). Colorado amended tax return 2011 Special Situations This section describes certain special situations that may affect your deduction of points. Colorado amended tax return 2011 Original issue discount. Colorado amended tax return 2011   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. Colorado amended tax return 2011 This reduction results in original issue discount, which is discussed in chapter 4 of Publication 535. Colorado amended tax return 2011 Amounts charged for services. Colorado amended tax return 2011   Amounts charged by the lender for specific services connected to the loan are not interest. Colorado amended tax return 2011 Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. Colorado amended tax return 2011 You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. Colorado amended tax return 2011 Points paid by the seller. Colorado amended tax return 2011   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Colorado amended tax return 2011 Treatment by seller. Colorado amended tax return 2011   The seller cannot deduct these fees as interest. Colorado amended tax return 2011 But they are a selling expense that reduces the amount realized by the seller. Colorado amended tax return 2011 See chapter 15 for information on selling your home. Colorado amended tax return 2011 Treatment by buyer. Colorado amended tax return 2011    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. Colorado amended tax return 2011 If all the tests under Deduction Allowed in Year Paid , earlier, are met, the buyer can deduct the points in the year paid. Colorado amended tax return 2011 If any of those tests are not met, the buyer deducts the points over the life of the loan. Colorado amended tax return 2011   For information about basis, see chapter 13. Colorado amended tax return 2011 Funds provided are less than points. Colorado amended tax return 2011   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. Colorado amended tax return 2011 In addition, you can deduct any points paid by the seller. Colorado amended tax return 2011 Example 1. Colorado amended tax return 2011 When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). Colorado amended tax return 2011 You meet all the tests for deducting points in the year paid, except the only funds you provided were a $750 down payment. Colorado amended tax return 2011 Of the $1,000 charged for points, you can deduct $750 in the year paid. Colorado amended tax return 2011 You spread the remaining $250 over the life of the mortgage. Colorado amended tax return 2011 Example 2. Colorado amended tax return 2011 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. Colorado amended tax return 2011 In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). Colorado amended tax return 2011 You spread the remaining $250 over the life of the mortgage. Colorado amended tax return 2011 You must reduce the basis of your home by the $1,000 paid by the seller. Colorado amended tax return 2011 Excess points. Colorado amended tax return 2011   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. Colorado amended tax return 2011 You must spread any additional points over the life of the mortgage. Colorado amended tax return 2011 Mortgage ending early. Colorado amended tax return 2011   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. Colorado amended tax return 2011 However, if you refinance the mortgage with the same lender, you cannot deduct any remaining balance of spread points. Colorado amended tax return 2011 Instead, deduct the remaining balance over the term of the new loan. Colorado amended tax return 2011    A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Colorado amended tax return 2011 Example. Colorado amended tax return 2011 Dan paid $3,000 in points in 2002 that he had to spread out over the 15-year life of the mortgage. Colorado amended tax return 2011 He deducts $200 points per year. Colorado amended tax return 2011 Through 2012, Dan has deducted $2,200 of the points. Colorado amended tax return 2011 Dan prepaid his mortgage in full in 2013. Colorado amended tax return 2011 He can deduct the remaining $800 of points in 2013. Colorado amended tax return 2011 Limits on deduction. Colorado amended tax return 2011   You cannot fully deduct points paid on a mortgage unless the mortgage fits into one of the categories listed earlier under Fully deductible interest . Colorado amended tax return 2011 See Publication 936 for details. Colorado amended tax return 2011 Mortgage Insurance Premiums You can treat amounts you paid during 2013 for qualified mortgage insurance as home mortgage interest. Colorado amended tax return 2011 The insurance must be in connection with home acquisition debt and the insurance contract must have been issued after 2006. Colorado amended tax return 2011 Qualified mortgage insurance. Colorado amended tax return 2011   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). Colorado amended tax return 2011   Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. Colorado amended tax return 2011 If provided by the Rural Housing Service, it is commonly known as a guarantee fee. Colorado amended tax return 2011 These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. Colorado amended tax return 2011 Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098. Colorado amended tax return 2011 Special rules for prepaid mortgage insurance. Colorado amended tax return 2011   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. Colorado amended tax return 2011 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. Colorado amended tax return 2011 No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. Colorado amended tax return 2011 This paragraph does not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. Colorado amended tax return 2011 See the Example below. Colorado amended tax return 2011 Example. Colorado amended tax return 2011 Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. Colorado amended tax return 2011 Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May. Colorado amended tax return 2011 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. Colorado amended tax return 2011 Ryan's adjusted gross income (AGI) for 2012 is $76,000. Colorado amended tax return 2011 Ryan can deduct $880 ($9,240 ÷ 84 × 8 months) for qualified mortgage insurance premiums in 2012. Colorado amended tax return 2011 For 2013, Ryan can deduct $1,320 ($9,240 ÷ 84 × 12 months) if his AGI is $100,000 or less. Colorado amended tax return 2011 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). Colorado amended tax return 2011 Limit on deduction. Colorado amended tax return 2011   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. Colorado amended tax return 2011 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. Colorado amended tax return 2011 If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. Colorado amended tax return 2011 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. Colorado amended tax return 2011 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. Colorado amended tax return 2011 A governmental unit is a person for purposes of furnishing the statement. Colorado amended tax return 2011 The statement for each year should be sent to you by January 31 of the following year. Colorado amended tax return 2011 A copy of this form will also be sent to the IRS. Colorado amended tax return 2011 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. Colorado amended tax return 2011 However, it should not show any interest that was paid for you by a government agency. Colorado amended tax return 2011 As a general rule, Form 1098 will include only points that you can fully deduct in the year paid. Colorado amended tax return 2011 However, certain points not included on Form 1098 also may be deductible, either in the year paid or over the life of the loan. Colorado amended tax return 2011 See Points , earlier, to determine whether you can deduct points not shown on Form 1098. Colorado amended tax return 2011 Prepaid interest on Form 1098. Colorado amended tax return 2011   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. Colorado amended tax return 2011 However, you cannot deduct the prepaid amount for January 2014 in 2013. Colorado amended tax return 2011 (See Prepaid interest , earlier. Colorado amended tax return 2011 ) You will have to figure the interest that accrued for 2014 and subtract it from the amount in box 1. Colorado amended tax return 2011 You will include the interest for January 2014 with the other interest you pay for 2014. Colorado amended tax return 2011 See How To Report , later. Colorado amended tax return 2011 Refunded interest. Colorado amended tax return 2011   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. Colorado amended tax return 2011 See Refunds of interest , earlier. Colorado amended tax return 2011 Mortgage insurance premiums. Colorado amended tax return 2011   The amount of mortgage insurance premiums you paid during 2013 may be shown in box 4 of Form 1098. Colorado amended tax return 2011 See Mortgage Insurance Premiums, earlier. Colorado amended tax return 2011 Investment Interest This section discusses interest expenses you may be able to deduct as an investor. Colorado amended tax return 2011 If you borrow money to buy property you hold for investment, the interest you pay is investment interest. Colorado amended tax return 2011 You can deduct investment interest subject to the limit discussed later. Colorado amended tax return 2011 However, you cannot deduct interest you incurred to produce tax-exempt income. Colorado amended tax return 2011 Nor can you deduct interest expenses on straddles. Colorado amended tax return 2011 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. Colorado amended tax return 2011 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. Colorado amended tax return 2011 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). Colorado amended tax return 2011 Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). Colorado amended tax return 2011 Partners, shareholders, and beneficiaries. Colorado amended tax return 2011   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. Colorado amended tax return 2011 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. Colorado amended tax return 2011 Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. Colorado amended tax return 2011 The allocation is not affected by the use of property that secures the debt. Colorado amended tax return 2011 Limit on Deduction Generally, your deduction for investment interest expense is limited to the amount of your net investment income. Colorado amended tax return 2011 You can carry over the amount of investment interest that you could not deduct because of this limit to the next tax year. Colorado amended tax return 2011 The interest carried over is treated as investment interest paid or accrued in that next year. Colorado amended tax return 2011 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. Colorado amended tax return 2011 Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. Colorado amended tax return 2011 Investment income. Colorado amended tax return 2011    This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). Colorado amended tax return 2011 Investment income does not include Alaska Permanent Fund dividends. Colorado amended tax return 2011 It also does not include qualified dividends or net capital gain unless you choose to include them. Colorado amended tax return 2011 Choosing to include qualified dividends. Colorado amended tax return 2011   Investment income generally does not include qualified dividends, discussed in chapter 8. Colorado amended tax return 2011 However, you can choose to include all or part of your qualified dividends in investment income. Colorado amended tax return 2011   You make this choice by completing Form 4952, line 4g, according to its instructions. Colorado amended tax return 2011   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. Colorado amended tax return 2011 Choosing to include net capital gain. Colorado amended tax return 2011   Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). Colorado amended tax return 2011 However, you can choose to include all or part of your net capital gain in investment income. Colorado amended tax return 2011    You make this choice by completing Form 4952, line 4g, according to its instructions. Colorado amended tax return 2011   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. Colorado amended tax return 2011    Before making either choice, consider the overall effect on your tax liability. Colorado amended tax return 2011 Compare your tax if you make one or both of these choices with your tax if you do not. Colorado amended tax return 2011 Investment income of child reported on parent's return. Colorado amended tax return 2011    Investment income includes the part of your child's interest and dividend income that you choose to report on your return. Colorado amended tax return 2011 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. Colorado amended tax return 2011 Child's qualified dividends. Colorado amended tax return 2011   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. Colorado amended tax return 2011 However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. Colorado amended tax return 2011   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). Colorado amended tax return 2011 Child's Alaska Permanent Fund dividends. Colorado amended tax return 2011   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. Colorado amended tax return 2011 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. Colorado amended tax return 2011 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. Colorado amended tax return 2011 Subtract the result from the amount on Form 8814, line 12. Colorado amended tax return 2011 Child's capital gain distributions. Colorado amended tax return 2011    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. Colorado amended tax return 2011 However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. Colorado amended tax return 2011   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). Colorado amended tax return 2011 Investment expenses. Colorado amended tax return 2011   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. Colorado amended tax return 2011 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. Colorado amended tax return 2011 Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A, line 27. Colorado amended tax return 2011 Losses from passive activities. Colorado amended tax return 2011   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). Colorado amended tax return 2011 See Publication 925, Passive Activity and At-Risk Rules, for information about passive activities. Colorado amended tax return 2011 Form 4952 Use Form 4952, Investment Interest Expense Deduction, to figure your deduction for investment interest. Colorado amended tax return 2011 Exception to use of Form 4952. Colorado amended tax return 2011   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. Colorado amended tax return 2011 Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. Colorado amended tax return 2011 You do not have any other deductible investment expenses. Colorado amended tax return 2011 You have no carryover of investment interest expense from 2012. Colorado amended tax return 2011 If you meet all of these tests, you can deduct all of your investment interest. Colorado amended tax return 2011 More Information For more information on investment interest, see Interest Expenses in chapter 3 of Publication 550. Colorado amended tax return 2011 Items You Cannot Deduct Some interest payments are not deductible. Colorado amended tax return 2011 Certain expenses similar to interest also are not deductible. Colorado amended tax return 2011 Nondeductible expenses include the following items. Colorado amended tax return 2011 Personal interest (discussed later). Colorado amended tax return 2011 Service charges (however, see Other Expenses (Line 23) in chapter 28). Colorado amended tax return 2011 Annual fees for credit cards. Colorado amended tax return 2011 Loan fees. Colorado amended tax return 2011 Credit investigation fees. Colorado amended tax return 2011 Interest to purchase or carry tax-exempt securities. Colorado amended tax return 2011 Penalties. Colorado amended tax return 2011   You cannot deduct fines and penalties paid to a government for violations of law, regardless of their nature. Colorado amended tax return 2011 Personal Interest Personal interest is not deductible. Colorado amended tax return 2011 Personal interest is any interest that is not home mortgage interest, investment interest, business interest, or other deductible interest. Colorado amended tax return 2011 It includes the following items. Colorado amended tax return 2011 Interest on car loans (unless you use the car for business). Colorado amended tax return 2011 Interest on federal, state, or local income tax. Colorado amended tax return 2011 Finance charges on credit cards, retail installment contracts, and revolving charge accounts incurred for personal expenses. Colorado amended tax return 2011 Late payment charges by a public utility. Colorado amended tax return 2011 You may be able to deduct interest you pay on a qualified student loan. Colorado amended tax return 2011 For details, see Publication 970, Tax Benefits for Education. Colorado amended tax return 2011 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. Colorado amended tax return 2011 However, you do not have to allocate home mortgage interest if it is fully deductible, regardless of how the funds are used. Colorado amended tax return 2011 You allocate interest (other than fully deductible home mortgage interest) on a loan in the same way as the loan itself is allocated. Colorado amended tax return 2011 You do this by tracing disbursements of the debt proceeds to specific uses. Colorado amended tax return 2011 For details on how to do this, see chapter 4 of Publication 535. Colorado amended tax return 2011 How To Report You must file Form 1040 to deduct any home mortgage interest expense on your tax return. Colorado amended tax return 2011 Where you deduct your interest expense generally depends on how you use the loan proceeds. Colorado amended tax return 2011 See Table 23-1 for a summary of where to deduct your interest expense. Colorado amended tax return 2011 Home mortgage interest and points. Colorado amended tax return 2011   Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. Colorado amended tax return 2011 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. Colorado amended tax return 2011 Attach a statement explaining the difference and print “See attached” next to line 10. Colorado amended tax return 2011    Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. Colorado amended tax return 2011 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. Colorado amended tax return 2011 The seller must give you this number and you must give the seller your TIN. Colorado amended tax return 2011 A Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Colorado amended tax return 2011 Failure to meet any of these requirements may result in a $50 penalty for each failure. Colorado amended tax return 2011 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. Colorado amended tax return 2011 See Social Security Number (SSN) in chapter 1 for more information about TINs. Colorado amended tax return 2011    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. Colorado amended tax return 2011   Deduct mortgage insurance premiums on Schedule A (Form 1040), line 13. Colorado amended tax return 2011 More than one borrower. Colorado amended tax return 2011   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. Colorado amended tax return 2011 Show how much of the interest each of you paid, and give the name and address of the person who received the form. Colorado amended tax return 2011 Deduct your share of the interest on Schedule A (Form 1040), line 11, and print “See attached” next to the line. Colorado amended tax return 2011 Also, deduct your share of any qualified mortgage insurance premiums on Schedule A (Form 1040), line 13. Colorado amended tax return 2011   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. Colorado amended tax return 2011 You should let each of the other borrowers know what his or her share is. Colorado amended tax return 2011 Mortgage proceeds used for business or investment. Colorado amended tax return 2011    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. Colorado amended tax return 2011 It shows where to deduct the part of your excess interest that is for those activities. Colorado amended tax return 2011 Investment interest. Colorado amended tax return 2011    Deduct investment interest, subject to certain limits discussed in Publication 550, on Schedule A (Form 1040), line 14. Colorado amended tax return 2011 Amortization of bond premium. Colorado amended tax return 2011   There are various ways to treat the premium you pay to buy taxable bonds. Colorado amended tax return 2011 See Bond Premium Amortization in Publication 550. Colorado amended tax return 2011 Income-producing rental or royalty interest. Colorado amended tax return 2011   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). Colorado amended tax return 2011 Example. Colorado amended tax return 2011 You rent out part of your home and borrow money to make repairs. Colorado amended tax return 2011 You can deduct only the interest payment for the rented part in Part I of Schedule E (Form 1040). Colorado amended tax return 2011 Deduct the rest of the interest payment on Schedule A (Form 1040) if it is deductible home mortgage interest. Colorado amended tax return 2011 Table 23-1. Colorado amended tax return 2011 Where To Deduct Your Interest Expense IF you have . Colorado amended tax return 2011 . Colorado amended tax return 2011 . Colorado amended tax return 2011 THEN deduct it on . Colorado amended tax return 2011 . Colorado amended tax return 2011 . Colorado amended tax return 2011 AND for more information go to . Colorado amended tax return 2011 . Colorado amended tax return 2011 . Colorado amended tax return 2011 deductible student loan interest Form 1040, line 33, or Form 1040A, line 18 Publication 970. Colorado amended tax return 2011 deductible home mortgage interest and points reported on Form 1098 Schedule A (Form 1040), line 10 Publication 936. Colorado amended tax return 2011 deductible home mortgage interest not reported on Form 1098 Schedule A (Form 1040), line 11 Publication 936. Colorado amended tax return 2011 deductible points not reported on Form 1098 Schedule A (Form 1040), line 12 Publication 936. Colorado amended tax return 2011 deductible mortgage insurance premiums Schedule A (Form 1040), line 13 Publication 936. Colorado amended tax return 2011 deductible investment interest (other than incurred to produce rents or royalties) Schedule A (Form 1040), line 14 Publication 550. Colorado amended tax return 2011 deductible business interest (non-farm) Schedule C or C-EZ (Form 1040) Publication 535. Colorado amended tax return 2011 deductible farm business interest Schedule F (Form 1040) Publications 225 and 535. Colorado amended tax return 2011 deductible interest incurred to produce rents or royalties Schedule E (Form 1040) Publications 527 and 535. Colorado amended tax return 2011 personal interest not deductible. Colorado amended tax return 2011 Prev  Up  Next   Home   More Online Publications

The Colorado Amended Tax Return 2011

Colorado amended tax return 2011 Publication 527 - Additional Material Prev  Up  Next   Home   More Online Publications