DEDUCTIONS   Itemized Deduction   Home Mortgage Interest Mortgage Reported On Form 1098   What is home mortgage interest? Home mortgage interest is interest you pay on a loan secured by your main home or a second home. The loan may be a mortgage to buy your home, a second mortgage, a home equity loan, or line of credit. You can deduct home mortgage interest only if you meet all the following conditions. You must file Form 1040 and itemize deductions on Schedule A. You must be legally liable for the own home loan, not paid for someone else. The mortgage must be a secured debt on a qualified home. For more information refer Publication 17.   Can I get deduction for points? In addition to the interest rate on a mortgage lenders usually charge points. The points are paid up front at closing. The stated interest rate for the loan is usually lower when points are paid up front. They are tax deductible on your tax return if they are charged for the use of money. Points are fully tax deductible on your tax return in the tax year they are paid, if they meet all following required conditions, Your loan is secured by your main home. Paying points is an established business practice in the area where the loan was made. The points paid were not more than the points generally charged in that area.  You use the cash method of accounting. You use your loan to buy or build your main home. The points were computed as a percentage of the principal amount of the mortgage. The amount is clearly shown on the settlement statement as points charged for the mortgage. For conditions that apply refer publication 17.   I have a mortgage for my primary residence and a second mortgage for land that I intend to build a home on. Can the interest be deducted for the second mortgage? Unless you have begun construction of a home on the bare land that you can occupy within 24 months, the land would be considered an investment and the interest you paid on the second mortgage would not qualify as deductible mortgage interest. However, it would constitute investment interest if you itemize your deductions. For more information, refer Publication 550, Investment Income and Expenses, chapter 3 and Publication 936, Home Mortgage Interest Deduction   Is interest on a home equity line of credit deductible as a second mortgage? You may deduct home equity debt interest, as an itemized deduction, if you are legally liable to pay the interest, pay the interest in the tax year, secure the debt with your home, and do not exceed certain limitations. For more information, refer Publication 936, Home Mortgage Interest Deduction; and Tax Topic 505, Interest Expense.   I refinanced my home last year and paid points. Are they all deductible this year? Generally points paid to refinance your home are not deductible in their entirety in the year paid. They are "amortized" or deducted over the life of the loan. For more information, refer Publication 936, Home Mortgage Interest Deduction, and Tax Topic 504, Home Mortgage Points.   I took out a home equity loan to pay off personal debts. Is this interest deductible? Where do I enter this amount on my tax return? A loan taken out for reasons other than to buy, build, or substantially improve your home, such as to pay off personal debts may qualify as home equity debt. The interest would be deducted on Form 1040, Schedule A (PDF), Itemized Deductions. The amount you can deduct as interest on home equity debt is subject to certain limitations. For more information, refer Publication 936, Home Mortgage Interest Deduction; and Tax Topic 505, Interest Expense.   Our home was seriously damaged by flooding last year. Are there special provisions for claiming a loss since our home is located in a declared disaster area? Casualty losses not compensated for by insurance or otherwise are generally deductible only in the year the casualty occurred. However, if you have a deductible loss from a disaster in an area that is officially designated by the President of the United States as eligible for federal disaster assistance, you can choose to deduct that loss on your return for the year immediately preceding the loss year. In other words, you may treat the loss as having occurred in either the current year or the previous year, whichever provides the best tax results for you. If you have already filed your return for the preceding year, the loss may be claimed by filing an amended return, Form 1040X (PDF), Amended U.S. Individual Income Tax Return. For more information on disaster area losses (including flood losses), refer Tax Topic 515, Disaster Area Losses (Including Flood Losses), or Publication 547, Casualties, Disasters and Thefts . Publication 584, Casualty, Disaster, and Theft Loss Workbook, can be used to help you catalog your property.   Is the mortgage interest and property tax on a second residence deductible? The mortgage interest on a second home which you use as a residence for some portion of the taxable year is generally deductible if the interest satisfies the same requirements for deductibility as interest on a primary residence. Real estate taxes paid on your primary and second residence are, generally, deductible. Deductible real estate taxes include any state, local, or foreign taxes on real property levied for the general public welfare. Deductible real estate taxes do not include taxes charged for local benefits and improvements that increase the value of the property. For more information, refer Publication 17, Your Federal Income Tax for Individuals; chapter 24 Tax Topic 503, Deductible Taxes; and Publication 530, Tax Information for First-Time Home Owners.   If I must deduct points over the life of my mortgage, and I have a 30 year mortgage, does this mean that I divide the points paid by 30 and enter that amount on Schedule A? No, you don't divide the points by 30. If you choose to use the straight-line method, you need to divide the points by the number of payments over the term of the loan and deduct points for a year according to the number of payments made in the year. If the loan ends prematurely, due to payoff or refinance with a different lender, for example, then the remaining points are deducted in that year. Points not included in Form 1098 (PDF) (usually not included on a refinance) should be entered on Form 1040, Schedule A (PDF), Itemized Deductions. For more information, refer Publication 936, Home Mortgage Interest Deduction; and Tax Topic 504, Home Mortgage Points. 18           4.461% 19           4.462% 20           4.461% 21           2.231% Assets that can't be depreciated on your tax return Not all assets can be depreciated on your tax return. Land and farmland cannot be depreciated on your tax return. Farm buildings and machinery are depreciable on your tax return. Inventory and property held for sale to customers cannot be depreciated on your tax return. Goodwill, going concern value, covenants not to compete, information databases, customer lists, franchises, licenses, trademarks, and other intangibles cannot be depreciated on your tax return but are amortizable over fifteen (15) years on your tax return.