Treatment by buyer. The buyer reduces
the basis of the home by the amount of the
seller-paid points and treats the points as if he
or she had paid them. If all the tests under De-
duction Allowed in Year Paid, earlier, are met,
the buyer can deduct the points in the year
paid. If any of those tests are not met, the buyer
deducts the points over the life of the loan.
If you need information about the basis of
your home, see Pub. 523 or Pub. 530.
Funds provided are less than points. If you
meet all the tests in Deduction Allowed in Year
Paid, earlier, except that the funds you provided
were less than the points charged to you (test
(6)), you can deduct the points in the year paid,
up to the amount of funds you provided. In addi-
tion, you can deduct any points paid by the
seller.
Example 1. When you took out a $100,000
mortgage loan to buy your home in December,
you were charged one point ($1,000). You meet
all the tests for deducting points in the year
paid, except the only funds you provided were a
$750 down payment. Of the $1,000 charged for
points, you can deduct $750 in the year paid.
You spread the remaining $250 over the life of
the mortgage.
Example 2. The facts are the same as in
Example 1, except that the person who sold you
your home also paid one point ($1,000) to help
you get your mortgage. In the year paid, you
can deduct $1,750 ($750 of the amount you
were charged plus the $1,000 paid by the
seller). You spread the remaining $250 over the
life of the mortgage. You must reduce the basis
of your home by the $1,000 paid by the seller.
Excess points. If you meet all the tests in De-
duction Allowed in Year Paid, earlier, except
that the points paid were more than generally
paid in your area (test (3)), you deduct in the
year paid only the points that are generally
charged. You must spread any additional points
over the life of the mortgage.
Mortgage ending early. If you spread your
deduction for points over the life of the mort-
gage, you can deduct any remaining balance in
the year the mortgage ends. However, if you re-
finance the mortgage with the same lender, you
cannot deduct any remaining balance of spread
points. Instead, deduct the remaining balance
over the term of the new loan.
A mortgage may end early due to a prepay-
ment, refinancing, foreclosure, or similar event.
Example. Dan paid $3,000 in points in
2005 that he had to spread out over the 15-year
life of the mortgage. He deducts $200 points
per year. Through 2015, Dan has deducted
$2,200 of the points.
Dan prepaid his mortgage in full in 2016. He
can deduct the remaining $800 of points in
2016.
Limits on deduction. You cannot fully deduct
points paid on a mortgage that exceeds the lim-
its discussed in Part II. See the Table 1 Instruc-
tions for line 10.
Form 1098. The mortgage interest statement
you receive should show not only the total inter-
est paid during the year, but also your deducti-
ble points paid during the year. See Form 1098,
Mortgage Interest Statement, later.
Mortgage Insurance
Premiums
You can treat amounts you paid during 2016 for
qualified mortgage insurance as home mort-
gage interest. The insurance must be in con-
nection with home acquisition debt, and the in-
surance contract must have been issued after
2006.
Qualified mortgage insurance. Qualified
mortgage insurance is mortgage insurance pro-
vided by the Department of Veterans Affairs,
the Federal Housing Administration, or the Ru-
ral Housing Service, and private mortgage in-
surance (as defined in section 2 of the Home-
owners Protection Act of 1998 as in effect on
December 20, 2006).
Mortgage insurance provided by the Depart-
ment of Veterans Affairs is commonly known as
a funding fee. If provided by the Rural Housing
Service, it is commonly known as a guarantee
fee. The funding fee and guarantee fee can ei-
ther be included in the amount of the loan or
paid in full at the time of closing. These fees can
be deducted fully in 2016 if the mortgage insur-
ance contract was issued in 2016. Contact the
mortgage insurance issuer to determine the de-
ductible amount if it is not reported in box 5 of
Form 1098.
Special rules for prepaid mortgage insur-
ance. Generally, if you paid premiums for
qualified mortgage insurance that are properly
allocable to periods after the close of the tax
year, such premiums are treated as paid in the
period to which they are allocated. You must al-
locate the premiums over the shorter of the sta-
ted term of the mortgage or 84 months, begin-
ning with the month the insurance was
obtained. No deduction is allowed for the una-
mortized balance if the mortgage is satisfied be-
fore its term. This paragraph does not apply to
qualified mortgage insurance provided by the
Department of Veterans Affairs or the Rural
Housing Service.
Example. Ryan purchased a home in May
of 2015 and financed the home with a 15-year
mortgage. Ryan also prepaid all of the $9,240 in
private mortgage insurance required at the time
of closing in May. Since the $9,240 in private
mortgage insurance is allocable to periods after
2015, Ryan must allocate the $9,240 over the
shorter of the life of the mortgage or 84 months.
Ryan's adjusted gross income (AGI) for 2015 is
$76,000. Ryan can deduct $880 ($9,240 ÷ 84 x
8 months) for qualified mortgage insurance pre-
miums in 2015. For 2016, Ryan can deduct
$1,320 ($9,240 ÷ 84 x 12 months) if his AGI is
$100,000 or less.
In this example, the mortgage insurance
premiums are allocated over 84 months, which
is shorter than the life of the mortgage of 15
years (180 months).
Limit on deduction. If your adjusted gross in-
come on Form 1040, line 38, is more than
$100,000 ($50,000 if your filing status is mar-
ried filing separately), the amount of your mort-
gage insurance premiums that are otherwise
deductible is reduced and may be eliminated.
See Line 13 in the instructions for Schedule A
(Form 1040) and complete the Mortgage Insur-
ance Premiums Deduction Worksheet to figure
the amount you can deduct. If your adjusted
gross income is more than $109,000 ($54,500 if
married filing separately), you cannot deduct
your mortgage insurance premiums.
Form 1098. The mortgage interest statement
you receive should show not only the total inter-
est paid during the year, but also your mortgage
insurance premiums paid during the year, which
may qualify to be treated as deductible mort-
gage interest. See Form 1098, Mortgage
Interest Statement, next.
Form 1098, Mortgage
Interest Statement
If you paid $600 or more of mortgage interest
(including certain points and mortgage insur-
ance premiums) during the year on any one
mortgage, you generally will receive a Form
1098 or a similar statement from the mortgage
holder. You will receive the statement if you pay
interest to a person (including a financial institu-
tion or cooperative housing corporation) in the
course of that person's trade or business. A
governmental unit is a person for purposes of
furnishing the statement.
The statement for each year should be sent
to you by January 31 of the following year. A
copy of this form will also be sent to the IRS.
The statement will show the total interest
you paid during the year, any mortgage insur-
ance premiums you paid, and if you purchased
a main home during the year, it also will show
the deductible points paid during the year, in-
cluding seller-paid points. However, it should
not show any interest that was paid for you by a
government agency.
As a general rule, Form 1098 will include
only points that you can fully deduct in the year
paid. However, certain points not included on
Form 1098 also may be deductible, either in the
year paid or over the life of the loan. See the
earlier discussion of Points to determine
whether you can deduct points not shown on
Form 1098.
Prepaid interest on Form 1098. If you pre-
paid interest in 2016 that accrued in full by Jan-
uary 15, 2017, this prepaid interest may be in-
cluded in box 1 of Form 1098. However, you
cannot deduct the prepaid amount for January
2017 in 2016. (See Prepaid interest, earlier.)
You will have to figure the interest that accrued
for 2017 and subtract it from the amount in
box 1. You will include the interest for January
2017 with other interest you pay for 2017.
Refunded interest. If you received a refund of
mortgage interest you overpaid in an earlier
year, you generally will receive a Form 1098
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