Publication 530 - Tax Information For Homeowners

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for the acquisition, construction, man-

Your total mortgage balance is more than

Payments made to end the lease and buy the

agement, maintenance, or care of the

$1 million ($500,000 if married filing sepa-

lessor’s entire interest in the land are not re-

property for the benefit of the ten-

rately), or

deemable ground rents. You cannot deduct

them.

ant-shareholders during the entire tax

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You took out a mortgage for reasons other

year.

Nonredeemable ground rents. Payments

than to buy, build, or improve your home.

on a nonredeemable ground rent are not mort-

If either of these situations applies to you, you

gage interest. You can deduct them as rent only

will need to get Publication 936. You also may

Tenant-stockholders. A tenant-stockholder

if they are a business expense or if they are for

need Publication 936 if you later refinance your

can be any entity (such as a corporation, trust,

rental property.

mortgage or buy a second home.

estate, partnership, or association) as well as an

individual. The tenant-stockholder does not

Cooperative apartment. You can usually

Refund of home mortgage interest. If you

have to live in any of the cooperative’s dwelling

treat the interest on a loan you took out to buy

receive a refund of home mortgage interest that

units. The units that the tenant-stockholder has

stock in a cooperative housing corporation as

you deducted in an earlier year and that reduced

the right to occupy can be rented to others.

home mortgage interest if you own a coopera-

your tax, you generally must include the refund

tive apartment and the cooperative housing cor-

in income in the year you receive it. For more

Deductible taxes. You figure your share of

poration meets the conditions described earlier

information, see Recoveries in Publication 525.

real estate taxes in the following way.

under Special Rules for Cooperatives. In addi-

The amount of the refund will usually be shown

tion, you can treat as home mortgage interest

on the mortgage interest statement you receive

1. Divide the number of your shares of stock

your share of the corporation’s deductible mort-

from your mortgage lender. See Mortgage Inter-

by the total number of shares outstanding,

gage interest. Figure your share of mortgage

est Statement, later.

including any shares held by the corpora-

interest the same way that is shown for figuring

tion.

your share of real estate taxes in the Example

under Division of real estate taxes, earlier. For

Deductible Mortgage Interest

2. Multiply the corporation’s deductible real

more information on cooperatives, see Special

estate taxes by the number you figured in

Rule for Tenant-Stockholders in Cooperative

To be deductible, the interest you pay must be

(1). This is your share of the real estate

Housing Corporations in Publication 936.

on a loan secured by your main home or a

taxes.

second home. The loan can be a first or second

Refund of cooperative’s mortgage inter-

Generally, the corporation will tell you your

mortgage, a home improvement loan, or a home

est. You must reduce your mortgage interest

share of its real estate tax. This is the amount

equity loan.

deduction by your share of any cash portion of a

you can deduct if it reasonably reflects the cost

patronage dividend that the cooperative re-

of real estate taxes for your dwelling unit.

Prepaid interest. If you pay interest in ad-

ceives. The patronage dividend is a partial re-

vance for a period that goes beyond the end of

Refund of real estate taxes. If the corpora-

fund to the cooperative housing corporation of

the tax year, you must spread this interest over

tion receives a refund of real estate taxes it paid

mortgage interest it paid in a prior year.

the tax years to which it applies. Generally, you

in an earlier year, it must reduce the amount of

If you receive a Form 1098 from the coopera-

can deduct in each year only the interest that

real estate taxes paid this year when it allocates

tive housing corporation, the form should show

qualifies as home mortgage interest for that

the tax expense to you. Your deduction for real

only the amount you can deduct.

year. An exception applies to points, which are

estate taxes the corporation paid this year is

discussed later.

reduced by your share of the refund the corpora-

tion received.

Mortgage Interest Paid

Late payment charge on mortgage payment.

at Settlement

You can deduct as home mortgage interest a

Sales Taxes

late payment charge if it was not for a specific

One item that normally appears on a settlement

service in connection with your mortgage loan.

Generally, you can elect to deduct state and

or closing statement is home mortgage interest.

local general sales taxes instead of state and

Mortgage prepayment penalty. If you pay off

You can deduct the interest that you pay at

local income taxes as an itemized deduction on

your home mortgage early, you may have to pay

settlement if you itemize your deductions on

Schedule A (Form 1040). Deductible sales taxes

a penalty. You can deduct that penalty as home

Schedule A (Form 1040). This amount should

may include sales taxes paid on your home

mortgage interest provided the penalty is not for

be included in the mortgage interest statement

(including mobile and prefabricated), or home

a specific service performed or cost incurred in

provided by your lender. See the discussion

building materials if the tax rate was the same as

connection with your mortgage loan.

under Mortgage Interest Statement, later. Also,

the general sales tax rate. For information on

if you pay interest in advance, see Prepaid inter-

Ground rent. In some states (such as Mary-

figuring your deduction, see the Instructions for

est, earlier, and Points, next.

land), you may buy your home subject to a

Schedule A (Form 1040).

ground rent. A ground rent is an obligation you

If you elect to deduct the sales taxes

Points

assume to pay a fixed amount per year on the

paid on your home, or home building

property. Under this arrangement, you are leas-

materials, you cannot include them as

CAUTION

ing (rather than buying) the land on which your

The term “points” is used to describe certain

part of your cost basis in the home.

charges paid, or treated as paid, by a borrower

home is located.

to obtain a home mortgage. Points also may be

Redeemable ground rents. If you make

Home Mortgage Interest

called loan origination fees, maximum loan

annual or periodic rental payments on a re-

charges, loan discount, or discount points.

deemable ground rent, you can deduct the pay-

This section of the publication gives you basic

A borrower is treated as paying any points

ments as mortgage interest. The ground rent is a

information about home mortgage interest, in-

that a home seller pays for the borrower’s mort-

redeemable ground rent only if all of the follow-

cluding information on interest paid at settle-

gage. See Points paid by the seller, later.

ing are true.

ment, points, and Form 1098, Mortgage Interest

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Statement.

Your lease, including renewal periods, is

General rule. You cannot deduct the full

for more than 15 years.

Most home buyers take out a mortgage

amount of points in the year paid. They are

(loan) to buy their home. They then make

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prepaid interest, so you generally must deduct

You can freely assign the lease.

monthly payments to either the mortgage holder

them over the life (term) of the mortgage.

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You have a present or future right (under

or someone collecting the payments for the

Exception. You can deduct the full amount

state or local law) to end the lease and

mortgage holder.

of points in the year paid if you meet all the

buy the lessor’s entire interest in the land

Usually, you can deduct the entire part of

following tests.

by paying a specified amount.

your payment that is for mortgage interest, if you

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itemize your deductions on Schedule A (Form

The lessor’s interest in the land is primarily

1. Your loan is secured by your main home.

1040). However, your deduction may be limited

a security interest to protect the rental

(Generally, your main home is the one you

if:

payments to which he or she is entitled.

live in most of the time.)

Publication 530 (2011)

Page 4

Publication 530 - Tax Information For Homeowners - 2011 Page 4

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