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Tax Topic Index

Tax Topics

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Rev. date: 12/23/2014

Interest Expense

Tax Topic 505
Interest is an amount you pay for the use of borrowed money. Some interest can be claimed as a deduction or as a credit. To deduct interest you paid on a debt, review each expense to determine how it qualifies and where to take the deduction. For more information, see Publication 17, Your Federal Income Tax for Individuals, and Publication 550, Investment Interest and Expenses.
When you prepay interest, you must allocate the interest over the tax years to which the interest applies. You may deduct in each year only the interest that applies to that year. However, an exception applies to points paid on a principal residence, see Tax Topic 504.
Types of interest deductible as itemized deductions on Form 1040 (Schedule A), Itemized Deductions, include:
Types of interest deductible elsewhere on the return include:
You can deduct student loan interest as an adjustment to income on Form 1040 or Form 1040-A, U.S. Individual Income Tax Return. For information on deducting student loan interest, refer to Tax Topic 456, Publication 970, Tax Benefits for Education and Can I Claim a Deduction for Student Loan Interest? on
Types of interest not deductible include personal interest, such as:
You may be able to take a credit against your federal income tax for certain mortgage interest if a mortgage credit certificate (MCC) was issued to you by a state or local government for low-income housing. Use Form 8396, Mortgage Interest Credit, to figure the amount. For further information, refer to Publication 530, Tax Information for Homeowners. If you sell your home after you have taken this credit and/or the First-Time Homebuyer credit, you may have to repay all or part of the credit(s). For information on repayment of a mortgage subsidy, see Publication 523, Selling Your Home. For repayment of the First-time Homebuyer credit, refer to Tax Topic 611.

Mortgage Interest

Qualified mortgage interest is interest and points you pay on a loan secured by your main home or a second home. Your main home is where you live most of the time, such as a house, cooperative apartment, condominium, mobile home, house trailer, or houseboat. It must have sleeping, cooking and toilet facilities.
A second home can include any other residence you own and choose to treat as a second home. You do not have to use the home during the year. However, if you rent it to others, you must also use it as a home during the year for more than the greater of 14 days or 10 percent of the number of days you rent it, for the interest to qualify as qualified residence interest. For more information regarding a qualified residence (home), see Publication 936, Home Mortgage Interest Deduction and Can I Deduct My Mortgage Related Expenses? on
Qualified mortgage interest and points are generally reported to you on Form 1098, Mortgage Interest Statement, by the financial institution to which you made the payments. The following mortgages yield qualified mortgage interest and you can deduct all of the interest on these mortgages:
If one or more of your mortgages does not fit into any of these categories, refer to Publication 936, Home Mortgage Interest Deduction, to figure the amount of interest you can deduct as an itemized deduction. You may be subject to a limit (phaseout) on some of your itemized deductions including mortgage interest. For more information on the limitations based on your adjusted gross income, please refer to the Instructions i1040gi.pdf (PDF) and Tax Topic 501.