CARR, RIGGS & INGRAM, LLC

IT’S YOUR MONEY By SARA APPLEWHITE CARR • RIGGS & INGRAM, LLC REAL ESTATE INCOME TAX Q&A PART II Q: I took out a home equity loan secured by my main home to pay off personal debts. Is this interest deductible, and if so, where do I enter this amount on my tax return? A: No. A loan secured by your personal residence and meeting certain other requirements is considered home equity indebtedness. Interest paid on home equity indebtedness is only deductible if the proceeds of the loan are used to buy, build, or substantially improve the home securing the loan. Q: If I must deduct points over the life of my mortgage, and I have a 30-year mortgage, should I divide the points paid by 30 and enter that amount on Schedule A? A: No. While you must deduct the points over the life of the loan ratably (equally), you don’t divide the points by 30 years. Instead, you divide the points by the number of payments scheduled over the term of the loan (360 monthly payments in the case of a 30-year mortgage) and deduct points each year according to the number of payments you made in that year (less than twelve payments in some cases). If the loan ends prematurely, for example, because you paid it off or refinanced with a different lender, then the remaining points are deductible in that year. Any deductible points not included on Form 1098 (usually not included on the Form when refinancing) should be entered on Schedule A (Form 1040 or 1040-SR), Itemized Deductions, line 8c “Points not reported to you on Form 1098.” Brought to you as a service to the community by: CARR • RIGGS & INGRAM, LLC 4267 Lafayette St., Marianna, FL 32446 (850) 526-3207