Publication 936 - Home Mortgage Interest Deduction

Amount on line 9

2) The total of each home’s fair market value

3) Subtract the result in item (2) from the

allocated to that activity

(FMV) reduced (but not below zero) by the

amount in item (1). This amount is not de-

Total amount on line 9

amount of its home acquisition debt and

ductible as home mortgage interest. How-

grandfathered debt. Determine the FMV

ever, if you used any of the loan proceeds

and the outstanding home acquisition and

for business or investment activities, see

Example. Don had two mortgages (A and

grandfathered debt for each home on the

the instructions for line 13, next.

B) on his main home during the entire year.

date that the last debt was secured by the

Mortgage A had an average balance of $90,000,

home.

and mortgage B had an average balance of

Line 13

See Home equity debt limit under Home Eq-

$110,000.

uity Debt, earlier, for more information about fair

Don determines that the proceeds of mort-

You cannot deduct the amount of interest on

market value.

gage A are allocable to personal expenses for

line 13 as home mortgage interest. If you did not

the entire year. The proceeds of mortgage B are

use any of the proceeds of any mortgage in-

allocable to his business for the entire year. Don

cluded on line 9 of the worksheet for business,

Line 9

paid $14,000 of interest on mortgage A and

investment, or other deductible activities, then

$16,000 of interest on mortgage B. He figures

Figure the average balance for the current year

all the interest on line 13 is personal interest.

the amount of home mortgage interest he can

of each outstanding home mortgage. Add the

Personal interest is not deductible.

deduct by using Table 1. Since both mortgages

average balances together and enter the total

If you did use all or part of any mortgage

are home equity debt, Don determines that

on line 9. See Average Mortgage Balance, ear-

proceeds for business, investment, or other de-

$15,000 of the interest can be deducted as

lier.

ductible activities, the part of the interest on line

home mortgage interest.

Note. When figuring the average balance of

13 that is allocable to those activities may be

The interest Don can allocate to his business

a mixed-use mortgage, for line 9 determine the

deducted as business, investment, or other de-

is the smaller of:

average balance of the entire mortgage.

ductible expense, subject to any limits that ap-

ply. Table 2 shows where to deduct that interest.

1) The amount on line 13 of the Table 1

See Allocation of Interest in chapter 5 of Publica-

worksheet ($15,000), or

Line 10

tion 535 for an explanation of how to determine

2) The total amount of interest allocable to

the use of loan proceeds.

If you make payments to a financial institution, or

the business ($16,500), figured by multi-

The following two rules describe how to allo-

to a person whose business is making loans,

plying the amount on line 10 (the $30,000

cate the interest on line 13 to a business or

you should get Form 1098 or a similar statement

total interest paid) by the following fraction.

investment activity.

from the lender. This form will show the amount

of interest to enter on line 10. Also include on

1) If you used all of the proceeds of the mort-

$110,000 (the average balance

this line any other interest payments made on

gages on line 9 for one activity, then all the

of the mortgage allocated

debts secured by a qualified home for which you

interest on line 13 is allocated to that activ-

to the business)

did not receive a Form 1098. Do not include

ity. In this case, deduct the interest on the

$200,000 (the total average

points on this line.

form or schedule to which it applies.

balance of all mortgages)

Claiming your deductible points. Figure

2) If you used the proceeds of the mortgages

Because $15,000 is the smaller of items (1)

your deductible points as follows.

on line 9 for more than one activity, then

and (2), that is the amount of interest Don can

you can allocate the interest on line 13

allocate to his business. He deducts this amount

1) Figure your deductible points for the cur-

among the activities in any manner you

rent year using the rules explained under

on his Schedule C (Form 1040).

select (up to the total amount of interest

Points in Part I.

otherwise allocable to each activity, ex-

plained next).

2) Multiply the amount in item (1) by the deci-

mal amount on line 11. Enter the result on

You figure the “total amount of interest other-

Schedule A (Form 1040), line 10 or 12,

wise allocable to each activity” by multiplying the

whichever applies. This amount is fully de-

amount on line 10 by the following fraction.

ductible.

Page 12

Publication 936 - Home Mortgage Interest Deduction - 2003 Page 12

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