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Requirements for Home Mortgage
Interest Deductions
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Requirements
You
can deduct home mortgage interest if you meet the following requirements: 1) You must file form 1040 and itemize deductions on
Schedule A (Form 1040). 2) 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. 3) The mortgage must be a secured debt on a qualified home.
A "secured debt" is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that:
- Makes your ownership in
a qualified home security for
payment of debt.
- Provides, in any case of
default, that your home could
satisfy the debt.
- Is recorded or satisfies
similar requirements under state law.
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In other words, your mortgage is secured debt if you put your home up
as collateral to protect the interests of the lender. If you cannot
pay the debt, your home can then serve as payment to the lender to
satisfy (pay) the debt.
For a loan to be "secured", it must be recorded or satisfy similar requirements under state law. For example, if a relative gives you a loan to help you purchase a home, the relative must take the legal steps required to record the loan with local authorities; otherwise, you may not deduct interest that you pay on the loan.
A "qualified home" means your main home or your second home.
A home includes a house, condominium, cooperative, mobile home, house trailer, boat or similar property that has sleeping,
cooking and toilet facilities.
Mortgage Categories
If all of your mortgages fit into one or more of the following categories at all times during the tax year, you can deduct all of the interest on your mortgage on your tax return.
1) Mortgages you took out on or before October 13, 1987. This is known as "Grandfather
Debt".
2) Mortgages you took out after October 13, 1987 to buy, build, or improve your home. These loans are called "home
acquisition loans"
and up to $ 1 million of such debt qualifies for a mortgage interest deduction ($ 500,000 or
less if married filing separately).
3) Mortgages you took out after October 13, 1987 other than to buy, build, or improve your home. This is called
"home equity
debt".
You may deduct up to $100,000 of such debt for the interest deduction ($50,000 or less if married
filing separately).
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