Publication 936 - Home Mortgage Interest Deduction - Department Of Treasury - 2004 Page 11
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16[($180,000 × 10) + $179,000 + $178,000].
Interest paid divided by interest rate method.
Complete lines 1 and 2 of Table 1 by includ-
You can use this method if at all times in 2004
ing the separate average balances of any
Therefore, the average balance of the home
the mortgage was secured by your qualified
grandfathered debt and home acquisition debt in
acquisition debt for 2005 is $179,750
home and the interest was paid at least monthly.
($2,157,000 ÷ 12).
your mixed-use mortgage. Do not use the meth-
ods described earlier in this section to figure the
Complete the following worksheet to
average balance of either category. Instead, for
figure your average balance.
Line 1
each category, use the following method.
Figure the average balance for the current year
1. Figure the balance of that category of debt
of each mortgage you had on all qualified homes
for each month. This is the amount of the
on October 13, 1987 (grandfathered debt). Add
1. Enter the interest paid in 2004. Do
loan proceeds allocated to that category,
the results together and enter the total on line 1.
not include points or any other
reduced by your principal payments on the
interest paid in 2004 that is for a year
Include the average balance for the current year
mortgage previously applied to that cate-
after 2004. However, do include
for any grandfathered debt part of a mixed-use
gory. Principal payments on a mixed-use
interest that is for 2004 but was paid
mortgage are applied in full to each cate-
mortgage.
in an earlier year . . . . . . . . . . . . .
gory of debt, until its balance is zero, in the
2. Enter the annual interest rate on the
following order:
Line 2
mortgage. If the interest rate varied
a. First, any home equity debt,
in 2004, use the lowest rate for the
Figure the average balance for the current year
year . . . . . . . . . . . . . . . . . . . . . .
b. Next, any grandfathered debt, and
of each mortgage you took out on all qualified
3. Divide the amount on line 1 by the
c. Finally, any home acquisition debt.
homes after October 13, 1987, to buy, build, or
amount on line 2. Enter the result . .
substantially improve the home (home acquisi-
2. Add together the monthly balances figured
tion debt). Add the results together and enter the
Example. Mr. Blue had a line of credit se-
in (1).
total on line 2. Include the average balance for
cured by his main home all year. He paid interest
the current year for any home acquisition debt
of $2,500 on this loan. The interest rate on the
3. Divide the result in (2) by 12.
loan was 9% (.09) all year. His average balance
part of a mixed-use mortgage.
Complete line 9 of Table 1 by including the
using this method is $27,778, figured as follows.
average balance of the entire mixed-use mort-
gage, figured under one of the methods de-
Line 7
1. Enter the interest paid in 2004. Do
scribed earlier in this section.
not include points or any other
The amount on line 7 cannot be more than the
interest paid in 2004 that is for a
Example 1. In 1986, Sharon took out a
year after 2004. However, do
smaller of:
include interest that is for 2004 but
$1,400,000 mortgage to buy her main home
was paid in an earlier year . . . . .
$2,500
(grandfathered debt). On March 2, 2004, when
1. $100,000 ($50,000 if married filing sepa-
2. Enter the annual interest rate on
the home had a fair market value of $1,700,000
rately), or
the mortgage. If the interest rate
and she owed $1,100,000 on the mortgage,
2. The total of each home’s fair market value
varied in 2004, use the lowest rate
Sharon took out a second mortgage for
for the year . . . . . . . . . . . . . . .
.09
(FMV) reduced (but not below zero) by the
$200,000. She used $180,000 of the proceeds
3. Divide the amount on line 1 by the
amount of its home acquisition debt and
to make substantial improvements to her home
amount on line 2. Enter the result
$27,778
grandfathered debt. Determine the FMV
(home acquisition debt) and the remaining
and the outstanding home acquisition and
$20,000 to buy a car (home equity debt). Under
Statements provided by your lender. If you
grandfathered debt for each home on the
the loan agreement, Sharon must make princi-
receive monthly statements showing the closing
date that the last debt was secured by the
pal payments of $1,000 at the end of each
balance or the average balance for the month,
home.
month. During 2004, her principal payments on
you can use either to figure your average bal-
the second mortgage totaled $10,000.
See Home equity debt limit under Home Eq-
ance for the year. You can treat the balance as
To complete Table 1, line 2, Sharon must
uity Debt, earlier, for more information about fair
zero for any month the mortgage was not se-
figure a separate average balance for the part of
cured by your qualified home.
market value.
her second mortgage that is home acquisition
For each mortgage, figure your average bal-
debt. The January and February balances were
ance by adding your monthly closing or average
Line 9
zero. The March through December balances
balances and dividing that total by the number of
months the home secured by that mortgage was
were all $180,000, because none of her princi-
Figure the average balance for the current year
a qualified home during the year.
pal payments are applied to the home acquisi-
of each outstanding home mortgage. Add the
If your lender can give you your average
tion debt. (They are all applied to the home
average balances together and enter the total
equity debt, reducing it to $10,000 [$20,000 −
balance for the year, you can use that amount.
on line 9. See Average Mortgage Balance, ear-
$10,000].) The monthly balances of the home
Example. Ms. Brown had a home equity
acquisition debt total $1,800,000 ($180,000 ×
lier.
loan secured by her main home all year. She
10). Therefore, the average balance of the home
Note. When figuring the average balance of
received monthly statements showing her aver-
acquisition debt for 2004 was $150,000
a mixed-use mortgage, for line 9 determine the
age balance for each month. She may figure her
($1,800,000 ÷ 12).
average balance of the entire mortgage.
average balance for the year by adding her
monthly average balances and dividing the total
Example 2. The facts are the same as in
by 12.
Line 10
Example 1. In 2005, Sharon’s January through
October principal payments on her second mort-
Mixed-use mortgages. A mixed-use mort-
If you make payments to a financial institution, or
gage are applied to the home equity debt, reduc-
gage is a loan that consists of more than one of
to a person whose business is making loans,
ing it to zero. The balance of the home
the three categories of debt (grandfathered
you should get Form 1098 or a similar statement
acquisition debt remains $180,000 for each of
debt, home acquisition debt, and home equity
from the lender. This form will show the amount
those months. Because her November and De-
debt). For example, a mortgage you took out
of interest to enter on line 10. Also include on
cember principal payments are applied to the
during the year is a mixed-use mortgage if you
this line any other interest payments made on
home acquisition debt, the November balance is
used its proceeds partly to refinance a mortgage
$179,000 ($180,000 − $1,000) and the Decem-
debts secured by a qualified home for which you
that you took out in an earlier year to buy your
ber balance is $178,000 ($180,000 − $2,000).
did not receive a Form 1098. Do not include
home (home acquisition debt) and partly to buy
a car (home equity debt).
The monthly balances total $2,157,000
points on this line.
Page 11
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