Publication 530 - Tax Information For First-Time Homeowners

Example 2. The facts are the same as in

number (SSN) or employer identification num-

1098 showing the refund in box 3. Generally,

Example 1, except that the person who sold you

ber (EIN) on the dotted lines next to line 11. The

you must include the refund in income in the

your home also paid one point ($1,000) to help

seller must give you this number and you must

year you receive it. See Refund of home mort-

you get your mortgage. In the year paid, you can

give the seller your SSN. Form W-9, Request for

gage interest, earlier, under Home Mortgage

deduct $1,750 ($750 of the amount you were

Taxpayer Identification Number and Certifica-

Interest.

charged plus the $1,000 paid by the seller). You

tion, can be used for this purpose. Failure to

More than one borrower. If you and at least

spread the remaining $250 over the life of the

meet either of these requirements may result in

one other person (other than your spouse if you

mortgage. You must reduce the basis of your

a $50 penalty for each failure.

file a joint return) were liable for and paid interest

home by the $1,000 paid by the seller.

on a mortgage that was for your home, and the

Excess points. If you meet all the tests under

other person received a Form 1098 showing the

Mortgage Interest Statement

Exception except that the points paid were more

interest that was paid during the year, attach a

than are generally charged in your area (test 3),

If you paid $600 or more of mortgage interest

statement to your return explaining this. Show

you can deduct in the year paid only the points

(including certain points) during the year on any

how much of the interest each of you paid, and

that are generally charged. You must spread

one mortgage to a mortgage holder in the

give the name and address of the person who

any additional points over the life of the mort-

course of that holder’s trade or business, you

received the form. Deduct your share of the

gage.

should receive a Form 1098, Mortgage Interest

interest on line 11 of Schedule A (Form 1040),

Statement, or similar statement from the mort-

and write “See attached” to the right of that line.

Mortgage ending early. If you spread your

gage holder. The statement will show the total

deduction for points over the life of the mort-

interest paid on your mortgage during the year. If

gage, you can deduct any remaining balance in

you bought a main home during the year, it also

the year the mortgage ends. A mortgage may

Mortgage Interest

will show the deductible points you paid and any

end early due to a prepayment, refinancing,

points you can deduct that were paid by the

foreclosure, or similar event.

Credit

person who sold you your home. See Points,

earlier.

Example. Dan paid $3,000 in points in 1995

The mortgage interest credit is intended to help

The interest you paid at settlement should be

that he had to spread out over the 15-year life of

lower-income individuals afford home owner-

included on the statement. If it is not, add the

the mortgage. He had deducted $1,400 of these

ship. If you qualify, you can claim the credit each

interest from the settlement sheet that qualifies

points through 2001.

year for part of the home mortgage interest you

as home mortgage interest to the total shown on

Dan prepaid his mortgage in full in 2002. He

pay.

Form 1098 or similar statement. Put the total on

can deduct the remaining $1,600 of points in

line 10 of Schedule A (Form 1040) and attach a

2002.

Who qualifies. You may be eligible for the

statement to your return explaining the differ-

credit if you were issued a mortgage credit

Exception. If you refinance the mortgage

ence. Write “See attached” to the right of line 10.

certificate (MCC) from your state or local gov-

with the same lender, you cannot deduct any

A mortgage holder can be a financial institu-

ernment. Generally, an MCC is issued only in

remaining points for the year. Instead, deduct

tion, a governmental unit, or a cooperative hous-

connection with a new mortgage for the

them over the term of the new loan.

ing corporation. If a statement comes from a

purchase of your main home.

cooperative housing corporation, it generally will

Form 1098. The mortgage interest statement

The MCC will show the certificate credit rate

show your share of interest.

you receive should show not only the total inter-

you will use to figure your credit. It also will show

You should receive your mortgage interest

est paid during the year, but also your deductible

the certified indebtedness amount. Only the in-

statement for each year by January 31 of the

points paid during the year. See Mortgage Inter-

terest on that amount qualifies for the credit. See

following year. A copy of this form will be sent to

est Statement, later.

Figuring the credit, later.

the IRS also.

You must contact the appropriate gov-

Where To Deduct

TIP

Example. You bought a new home on May

ernment agency about getting an MCC

Home Mortgage Interest

3. You paid no points on the purchase. During

before you get a mortgage and buy

the year, you made mortgage payments which

your home. Contact your state or local housing

Enter on line 10 of your Schedule A (Form 1040)

included $1,872 deductible interest on your new

finance agency for information about the availa-

the home mortgage interest and points reported

home. The settlement sheet for the purchase of

bility of MCCs in your area.

to you on Form 1098 (discussed next). If you did

the home included interest of $232 for 29 days in

not receive a Form 1098, enter your deductible

May. The mortgage statement you receive from

How to claim the credit. To claim the credit,

interest on line 11, and any deductible points on

the lender includes total interest of $2,104

complete Form 8396 and attach it to your Form

line 12. See Table 1 for a summary of where to

($1,872 + $232). You can deduct the $2,104 if

1040. Include the credit in your total for line 52 of

deduct home mortgage interest and real estate

you itemize your deductions.

Form 1040; be sure to check box a on that line.

taxes.

Reducing your home mortgage interest de-

If you paid home mortgage interest to the

Refund of overpaid interest. If you receive a

duction. If you itemize your deductions on

person from whom you bought your home, show

refund of mortgage interest you overpaid in a

Schedule A (Form 1040), you must reduce your

that person’s name, address, and social security

prior year, you generally will receive a Form

home mortgage interest deduction by the

Table 1. Where To Deduct Interest and Taxes Paid on Your Home

amount of the mortgage interest credit shown on

line 3 of Form 8396. You must do this even if part

See the text for information on what expenses are eligible.

of that amount is to be carried forward to 2003.

IF you are eligible to deduct . . .

THEN report the amount

Selling your home. If you purchase a home

on Schedule A (Form 1040) . . .

after 1990 using an MCC, and you sell that

home within 9 years, you will have to recapture

Real estate taxes

line 6

(repay) a portion of the credit. For additional

information, see Publication 523.

Home mortgage interest and points reported

line 10

on Form 1098

Figuring the Credit

Home mortgage interest not reported on Form

line 11

Figure your credit on Form 8396.

1098

Mortgage not more than certified indebted-

Points not reported on

line 12

ness. If your mortgage loan amount is equal to

Form 1098

(or smaller than) the certified indebtedness

amount shown on your MCC, enter on line 1 of

Page 6

Publication 530 - Tax Information For First-Time Homeowners - 2002 Page 6

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