Publication 936 - Home Mortgage Interest Deduction

Separate returns. If you are married filing

your home acquisition debt, which is limited to

of Housing and Urban Development

the cost of your home plus the cost of any

separately and you and your spouse own more

(HUD) or a state.

improvements. (See

Home Acquisition Debt

than one home, you can each take into account

Part II.) Dividing the fair market value may affect

only one home as a qualified home. However, if

2. You meet the rules to deduct all of the

your home equity debt limit, also explained in

you both consent in writing, then one spouse

mortgage interest on your loan and all of

Part

II.

can take both the main home and a second

the real estate taxes on your main home.

home into account.

Renting out part of home. If you rent out

If you meet these tests, then you can deduct all

part of a qualified home to another person (ten-

of the payments you actually made during the

Special Situations

ant), you can treat the rented part as being used

year to your mortgage servicer, the State HFA,

by you for residential living only if all of the

or HUD on the home mortgage (including the

This section describes certain items that can be

following conditions apply.

amount shown on box 3 of Form 1098 – MA,

included as home mortgage interest and others

Mortgage Assistance Payments), but not more

•

The rented part of your home is used by

that cannot. It also describes certain special

than the sum of the amounts shown on Form

the tenant primarily for residential living.

situations that may affect your deduction.

1098, Mortgage Interest Statement, in box 1

•

The rented part of your home is not a

(mortgage interest received), box 4 (mortgage

Late payment charge on mortgage payment.

self-contained residential unit having sep-

insurance premiums), and box 5 (real property

You can deduct as home mortgage interest a

arate sleeping, cooking, and toilet facili-

taxes). However, you are not required to use

late payment charge if it was not for a specific

ties.

this special method to compute your deduction

service performed in connection with your mort-

for mortgage interest and real estate taxes on

gage loan.

•

You do not rent (directly or by sublease)

your main home.

the same or different parts of your home to

Mortgage prepayment penalty. If you pay off

Mortgage assistance payments under sec-

more than two tenants at any time during

your home mortgage early, you may have to pay

tion 235 of the National Housing Act. If you

the tax year. If two persons (and depen-

a penalty. You can deduct that penalty as home

qualify for mortgage assistance payments for

dents of either) share the same sleeping

mortgage interest provided the penalty is not for

lower-income families under section 235 of the

quarters, they are treated as one tenant.

a specific service performed or cost incurred in

National Housing Act, part or all of the interest

connection with your mortgage loan.

Office in home. If you have an office in your

on your mortgage may be paid for you. You

Sale of home. If you sell your home, you can

cannot deduct the interest that is paid for you.

home that you use in your business, see Publi-

cation 587, Business Use of Your Home. It ex-

deduct your home mortgage interest (subject to

No other effect on taxes. Do not include

any limits that apply) paid up to, but not includ-

plains how to figure your deduction for the

these mortgage assistance payments in your

business use of your home, which includes the

ing, the date of the sale.

income. Also, do not use these payments to

business part of your home mortgage interest.

reduce other deductions, such as real estate

Example. John and Peggy Harris sold their

Home under construction. You can treat a

taxes.

home on May 7. Through April 30, they made

home under construction as a qualified home for

home mortgage interest payments of $1,220.

Divorced or separated individuals. If a di-

a period of up to 24 months, but only if it be-

The settlement sheet for the sale of the home

vorce or separation agreement requires you or

comes your qualified home at the time it is ready

showed $50 interest for the 6-day period in May

your spouse or former spouse to pay home

for occupancy.

up to, but not including, the date of sale. Their

mortgage interest on a home owned by both of

The 24-month period can start any time on or

mortgage interest deduction is $1,270 ($1,220 +

you, the payment of interest may be alimony.

after the day construction begins.

$50).

See the discussion of Payments for

Home destroyed. You may be able to con-

jointly-owned home under Alimony in Publica-

Prepaid interest. If you pay interest in ad-

tinue treating your home as a qualified home

tion 504, Divorced or Separated Individuals.

vance for a period that goes beyond the end of

even after it is destroyed in a fire, storm, tor-

Redeemable ground rents. In some states

the tax year, you must spread this interest over

nado, earthquake, or other casualty. This means

(such as Maryland), you can buy your home

the tax years to which it applies. You can deduct

you can continue to deduct the interest you pay

subject to a ground rent. A ground rent is an

in each year only the interest that qualifies as

on your home mortgage, subject to the limits

obligation you assume to pay a fixed amount per

home mortgage interest for that year. However,

described in this publication.

year on the property. Under this arrangement,

there is an exception that applies to points, dis-

You can continue treating a destroyed home

you are leasing (rather than buying) the land on

cussed later.

as a qualified home if, within a reasonable pe-

which your home is located.

riod of time after the home is destroyed, you:

Mortgage interest credit. You may be able to

If you make annual or periodic rental pay-

•

claim a mortgage interest credit if you were

Rebuild the destroyed home and move

ments on a redeemable ground rent, you can

issued a mortgage credit certificate (MCC) by a

into it, or

deduct them as mortgage interest.

state or local government. Figure the credit on

A ground rent is a redeemable ground rent if

•

Sell the land on which the home was lo-

Form 8396, Mortgage Interest Credit. If you take

all of the following are true.

cated.

this credit, you must reduce your mortgage inter-

•

Your lease, including renewal periods, is

est deduction by the amount of the credit.

This rule applies to your main home and to a

for more than 15 years.

See Form 8396 and Publication 530 for more

second home that you treat as a qualified home.

•

information on the mortgage interest credit.

You can freely assign the lease.

Time-sharing arrangements. You can treat a

•

Ministers’ and military housing allowance.

You have a present or future right (under

home you own under a time-sharing plan as a

If you are a minister or a member of the uni-

state or local law) to end the lease and

qualified home if it meets all the requirements. A

formed services and receive a housing allow-

buy the lessor’s entire interest in the land

time-sharing plan is an arrangement between

ance that is not taxable, you can still deduct your

by paying a specific amount.

two or more people that limits each person’s

home mortgage interest.

•

interest in the home or right to use it to a certain

The lessor’s interest in the land is primarily

part of the year.

Hardest Hit Fund and Emergency Homeown-

a security interest to protect the rental

ers’ Loan Programs. You can use a special

payments to which he or she is entitled.

Rental of time-share. If you rent out your

method to compute your deduction for mortgage

time-share, it qualifies as a second home only if

interest and real estate taxes on your main

Payments made to end the lease and to buy

you also use it as a home during the year. See

home if you meet the following two conditions.

the lessor’s entire interest in the land are not

Second home rented

out, earlier, for the use

deductible as mortgage interest.

requirement. To know whether you meet that

1. You received assistance under:

requirement, count your days of use and rental

Nonredeemable ground rents. Payments

of the home only during the time you have a right

a. A State Housing Finance Agency (State

on a nonredeemable ground rent are not mort-

HFA) Hardest Hit Fund program in

to use it or to receive any benefits from the rental

gage interest. You can deduct them as rent if

of it.

which program payments could be used

they are a business expense or if they are for

to pay mortgage interest, or

rental property.

Married taxpayers. If you are married and file

a joint return, your qualified home(s) can be

b. An Emergency Homeowners’ Loan Pro-

Reverse mortgages. A reverse mortgage is a

owned either jointly or by only one spouse.

gram administered by the Department

loan where the lender pays you (in a lump sum,

Publication 936 (2011)

Page 4

Publication 936 - Home Mortgage Interest Deduction - 2011 Page 4

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