Requirements for Home Mortgage Interest Deductions

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:

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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