Documents You Need
- Form 1098, Mortgage Interest Statement from your mortgage lenders.
- HUD-1 Settlement Statement from your escrow company if you bought or sold a home.
IRS Forms and Publications You Need
- Publication 936, Home Mortgage Interest Deduction (PDF, 16 pages)
- Schedule A (PDF, 2 pages)
- Instructions for Schedule A (PDF, 9 pages)
- Worksheet to calculate the limitation on mortgage interest (found on page 9 of Publication 936)
Qualifying for the Mortgage Interest DeductionMortgage interest includes interest you paid on loans to buy a home, home equity lines of credit, and construction loans. That amount you can deduct is limited. You can only deduct interest paid on your main home and a second home. Interest paid on third or fourth homes, for example, is not deductible.
You need to meet the all the following requirements in order to deduct your mortgage interest:
--Source: IRS Publication 936
- You must file Form 1040 and itemize deductions on Schedule A (Form 1040).
- You must be legally liable for the loan. You cannot deduct payments you make for someone else if you are not legally liable to make them. Both you and the lender must intend that the loan be repaid. In addition, there must be a true debtor-creditor relationship between you and the lender.
- The mortgage must be a secured debt on a qualified home.
Secured DebtThe mortgage loan must be secured by your home in order for the interest to be tax-deductible. The mortgage must:
--Source: IRS Publication 936
- Make your ownership in a qualified home security for payment of the debt,
- Provide, in case of default, that your home could satisfy the debt, and
- Be recorded or otherwise be perfected under any state or local law that applies.
Qualified HomeThe mortgage must be secured by a "qualified home" in order for the interest to be tax-deductible. A qualified home is your main home or your second home. If you own more than two personal residences, you should be working with an experienced tax professional to calculate the optimal amount of mortgage interest to deduct. "A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities," according to IRS Publication 936.
RecordkeepingYou should receive a Form 1098, Mortgage Interest Statement, from each mortgage lenders. This form reports the total interest that you paid during the tax year. You do not need to attach these to your return, since the financial institution sends a copy of Form 1098 directly to the IRS. Make sure that the mortgage interest deduction you claim on Schedule A matches the amounts reported on Forms 1098. The amount you can deduct may be less than the amount you paid, based on limitations of the mortgage interest deduction. Keep Form 1098 and worksheets used to figure your deduction with your copy of your tax return for at least three years from the date your filed your return.
Home Mortgage Interest Deduction References
- IRS Publication 936, Home Mortgage Interest Deduction (HTML Version)
- IRS Publication 936 (PDF Version)
- Frequently asked questions about the Mortgage Interest Deduction
- IRS Clarifies AMT Deduction for Home Mortgage Interest
- Internal Revenue Code Section 163(h)(3) for the limitations on the home mortgage interest deduction
- Internal Revenue Code Section 56(e) for mortgage interest adjustments for the alternative minimum tax