2017 Publication 936 P936

User Manual: 936

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Contents

What’s New .................. 1

Reminders ................... 1

Introduction .................. 2

Part I. Home Mortgage Interest ...... 2

Secured Debt ............... 3

Qualified Home .............. 4

Special Situations ............ 4

Points ................... 5

Form 1098, Mortgage Interest

Statement ............... 8

How To Report .............. 8

Special Rule for

Tenant-Stockholders in

Cooperative Housing

Corporations ............. 8

Part II. Limits on Home Mortgage

Interest Deduction ........... 9

Home Acquisition Debt ......... 9

Home Equity Debt ........... 10

Grandfathered Debt .......... 10

Worksheet To Figure Your

Qualified Loan Limit and

Deductible Home Mortgage

Interest For the Current Year ... 11

How To Get Tax Help ........... 14

Index ..................... 16

What’s New

Mortgage insurance premiums. The item-

ized deduction for mortgage insurance premi-

ums expired on December 31, 2016.

At the time this publication went to

print, Congress was considering legis-

lation to extend the itemized deduction

for mortgage insurance premiums. To find out if

this legislation was enacted, and for more de-

tails, go to IRS.gov/Extenders.

Reminders

Future developments. For the latest informa-

tion about developments related to Pub. 936,

Home Mortgage Interest Deduction, such as

legislation enacted after it was published, go to

IRS.gov/Pub936.

Photographs of missing children. The Inter-

nal Revenue Service is a proud partner with the

National Center for Missing & Exploited

Children® (NCMEC). Photographs of missing

children selected by the Center may appear in

this publication on pages that would otherwise

be blank. You can help bring these children

home by looking at the photographs and calling

1-800-THE-LOST (1-800-843-5678) if you rec-

ognize a child.

CAUTION

Department

of the

Treasury

Internal

Revenue

Service

Publication 936

Cat. No. 10426G

Home

Mortgage

Interest

Deduction

For use in preparing

2017 Returns

Get forms and other information faster and easier at:

•IRS.gov (English)

•IRS.gov/Spanish (Español)

•IRS.gov/Chinese (中文)

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Jan 31, 2018

Introduction

This publication discusses the rules for deduct-

ing home mortgage interest.

Part I contains general information on home

mortgage interest, including points. It also ex-

plains how to report deductible interest on your

tax return.

Part II explains how your deduction for home

mortgage interest may be limited. It contains

Table 1, which is a worksheet you can use to

figure the limit on your deduction.

Comments and suggestions. We welcome

your comments about this publication and your

suggestions for future editions.

You can send us comments through

IRS.gov/FormComments. Or you can write to:

Internal Revenue Service

Tax Forms and Publications

1111 Constitution Ave. NW, IR-6526

Washington, DC 20224

Although we can’t respond individually to

each comment received, we do appreciate your

feedback and will consider your comments as

we revise our tax forms, instructions, and publi-

cations.

Ordering forms and publications. Visit

IRS.gov/FormsPubs to download forms and

publications. Otherwise, you can go to IRS.gov/

OrderForms to order current and prior-year

forms and instructions. Your order should arrive

within 10 business days.

Tax questions. If you have a tax question

not answered by this publication, check

IRS.gov and How To Get Tax Help at the end of

this publication.

Useful Items

You may want to see:

Publication

Selling Your Home 523

Residential Rental Property

Tax Information for Homeowners

Business Expenses

See How To Get Tax Help near the end of this

publication, for information about getting these

publications.

Part I. Home

Mortgage Interest

This part explains what you can deduct as

home mortgage interest. It includes discussions

on points and how to report deductible interest

on your tax return.

Generally, home mortgage interest is any in-

terest you pay on a loan secured by your home

(main home or a second home). The loan may

be a mortgage to buy your home, a second

mortgage, a line of credit, or a home equity

loan.

You can deduct home mortgage interest if

all the following conditions are met.

You file Form 1040 and itemize deductions

on Schedule A (Form 1040).

The mortgage is a secured debt on a quali-

fied home in which you have an ownership

interest. Secured Debt and Qualified

Home are explained later.

Both you and the lender must intend that the

loan be repaid.

Fully deductible interest. In most cases, you

can deduct all of your home mortgage interest.

How much you can deduct depends on the date

of the mortgage, the amount of the mortgage,

and how you use the mortgage proceeds.

If all of your mortgages fit into one or more of

the following three categories at all times during

the year, you can deduct all of the interest on

those mortgages. (If any one mortgage fits into

more than one category, add the debt that fits in

each category to your other debt in the same

527

530

535

category.) If one or more of your mortgages

doesn’t fit into any of these categories, use Part

II of this publication to figure the amount of in-

terest you can deduct.

The three categories are as follows.

1. Mortgages you took out on or before Octo-

ber 13, 1987 (called grandfathered debt).

2. Mortgages you (or your spouse if married

filing a joint return) took out after October

13, 1987, to buy, build, or improve your

home (called home acquisition debt), but

only if throughout 2017 these mortgages

plus any grandfathered debt totaled $1

million or less ($500,000 or less if married

filing separately).

3. Mortgages you (or your spouse if married

filing a joint return) took out after October

13, 1987, that are home equity debt but

that aren’t home acquisition debt, but only

if throughout 2017 these mortgages to-

taled $100,000 or less ($50,000 or less if

married filing separately) and totaled no

more than the fair market value of your

home reduced by (1) and (2).

The dollar limits for the second and third cate-

gories apply to the combined mortgages on

your main home and second home.

See Part II for more detailed definitions of

grandfathered, home acquisition, and home

equity debt.

You can use Figure A to check whether your

home mortgage interest is fully deductible.

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Page 2 Publication 936 (2017)

Yes

Figure A. Is My Home Mortgage Interest Fully Deductible?

(Instructions: Include balances of ALL mortgages secured by your main home and second home.)

Start Here:

Do you meet the conditions to deduct home

mortgage interest?

Were your (or your spouse's if married ling a

joint return) total mortgage balances $100,000 or

less ($50,000 or less if married ling separately) at

all times during the year?

You can’t deduct the interest payments as home

mortgage interest.

Go to Part II of this publication to determine the

limits on your deductible home mortgage interest.

Were your (or your spouse's if married ling a

joint return) grandfathered debt plus home

acquisition debt balances $1,000,000 or less

($500,000 or less if married ling separately) at all

times during the year?

Were your (or your spouse's if married ling a

joint return) home equity debt balances $100,000

or less ($50,000 or less if married ling separately)

at all times during the year?

Your home mortgage interest is fully deductible. You

don’t need to read Part II of this publication.

Were all of your home mortgages taken out on or

before October 13, 1987?

Were all of your home mortgages taken out after

October 13, 1987, used to buy, build, or improve the

main home secured by that main home mortgage or

used to buy, build, or improve the second home

secured by that second home mortgage, or both?

 You must itemize deductions on Schedule A (Form 1040). The loan must be a secured debt on a qualied home. See Part I, Home Mortgage Interest.

 If all mortgages on your main or second home exceed the home’s fair market value, a lower limit may apply. See Home equity debt limit under Home Equity

Debt in Part II.

 Amounts over the $1,000,000 limit ($500,000 if married ling separately) may qualify as home equity debt if they aren’t more than the total home equity

debt limit. See Part II of this publication for more information about grandfathered debt, home acquisition debt, and home equity debt.

See Table 2 in Part II of this publication for where to deduct other types of interest payments.

Were your (or your spouse's if married ling a

joint return) mortgage balances $1,000,000 or

less ($500,000 or less if married ling separately)

at all times during the year?

Secured Debt

You can deduct your home mortgage interest

only if your mortgage is a secured debt. A se-

cured debt is one in which you sign an instru-

ment (such as a mortgage, deed of trust, or

land contract) that:

Makes your ownership in a qualified home

security for payment of the debt,

Provides, in case of default, that your

home could satisfy the debt, and

Is recorded or is otherwise perfected under

any state or local law that applies.

In other words, your mortgage is a secured

debt if you put your home up as collateral to

protect the interests of the lender. If you can't

pay the debt, your home can then serve as pay-

ment to the lender to satisfy (pay) the debt. In

this publication, mortgage will refer to secured

debt.

Debt not secured by home. A debt isn’t se-

cured by your home if it is secured solely be-

cause of a lien on your general assets or if it is a

security interest that attaches to the property

without your consent (such as a mechanic's lien

or judgment lien).

A debt isn’t secured by your home if it once

was, but is no longer secured by your home.

Wraparound mortgage. This isn’t a se-

cured debt unless it is recorded or otherwise

perfected under state law.

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Publication 936 (2017) Page 3

Example. Beth owns a home subject to a

mortgage of $40,000. She sells the home for

$100,000 to John, who takes it subject to the

$40,000 mortgage. Beth continues to make the

payments on the $40,000 note. John pays

$10,000 down and gives Beth a $90,000 note

secured by a wraparound mortgage on the

home. Beth doesn't record or otherwise perfect

the $90,000 mortgage under the state law that

applies. Therefore, the mortgage isn't a secured

debt and John can't deduct any of the interest

he pays on it as home mortgage interest.

Choice to treat the debt as not secured by

your home. You can choose to treat any debt

secured by your qualified home as not secured

by the home. This treatment begins with the tax

year for which you make the choice and contin-

ues for all later tax years. You can revoke your

choice only with the consent of the Internal Rev-

enue Service (IRS).

You may want to treat a debt as not secured

by your home if the interest on that debt is fully

deductible (for example, as a business ex-

pense) whether or not it qualifies as home mort-

gage interest. This may allow you, if the limits in

Part II apply, more of a deduction for interest on

other debts that are deductible only as home

mortgage interest.

Cooperative apartment owner. If you own

stock in a cooperative housing corporation, see

the Special Rule for Tenant-Stockholders in Co-

operative Housing Corporations, near the end

of this Part I.

Qualified Home

For you to take a home mortgage interest de-

duction, your debt must be secured by a quali-

fied home. This means your main home or your

second home. A home includes a house, con-

dominium, cooperative, mobile home, house

trailer, boat, or similar property that has sleep-

ing, cooking, and toilet facilities.

The interest you pay on a mortgage on a

home other than your main or second home

may be deductible if the proceeds of the loan

were used for business, investment, or other

deductible purposes. Otherwise, it is consid-

ered personal interest and isn't deductible.

Main home. You can have only one main

home at any one time. This is the home where

you ordinarily live most of the time.

Second home. A second home is a home that

you choose to treat as your second home.

Second home not rented out. If you have

a second home that you don’t hold out for rent

or resale to others at any time during the year,

you can treat it as a qualified home. You don't

have to use the home during the year.

Second home rented out. If you have a

second home and rent it out part of the year,

you also must use it as a home during the year

for it to be a qualified home. You must use this

home more than 14 days or more than 10% of

the number of days during the year that the

home is rented at a fair rental, whichever is lon-

ger. If you don't use the home long enough, it is

considered rental property and not a second

home. For information on residential rental

property, see Pub. 527.

More than one second home. If you have

more than one second home, you can treat only

one as the qualified second home during any

year. However, you can change the home you

treat as a second home during the year in the

following situations.

If you get a new home during the year, you

can choose to treat the new home as your

second home as of the day you buy it.

If your main home no longer qualifies as

your main home, you can choose to treat it

as your second home as of the day you

stop using it as your main home.

If your second home is sold during the year

or becomes your main home, you can

choose a new second home as of the day

you sell the old one or begin using it as

your main home.

Divided use of your home. The only part of

your home that is considered a qualified home

is the part you use for residential living. If you

use part of your home for other than residential

living, such as a home office, you must allocate

the use of your home. You must then divide

both the cost and fair market value of your

home between the part that is a qualified home

and the part that isn't. Dividing the cost may af-

fect the amount of your home acquisition debt,

which is limited to the cost of your home plus

the cost of any improvements. (See Home Ac-

quisition Debt in Part II.) Dividing the fair market

value may affect your home equity debt limit,

also explained in Part II.

Renting out part of home. If you rent out

part of a qualified home to another person (ten-

ant), you can treat the rented part as being used

by you for residential living only if all of the fol-

lowing conditions apply.

The rented part of your home is used by

the tenant primarily for residential living.

The rented part of your home isn't a

self-contained residential unit having sepa-

rate sleeping, cooking, and toilet facilities.

You don't rent (directly or by sublease) the

same or different parts of your home to

more than two tenants at any time during

the tax year. If two persons (and depend-

ents of either) share the same sleeping

quarters, they are treated as one tenant.

Office in home. If you have an office in

your home that you use in your business, see

Pub. 587, Business Use of Your Home. It ex-

plains how to figure your deduction for the busi-

ness use of your home, which includes the busi-

ness part of your home mortgage interest.

Home under construction. You can treat a

home under construction as a qualified home

for a period of up to 24 months, but only if it be-

comes your qualified home at the time it is

ready for occupancy.

The 24-month period can start any time on

or after the day construction begins.

Home destroyed. You may be able to con-

tinue treating your home as a qualified home

even after it is destroyed in a fire, storm, tor-

nado, earthquake, or other casualty. This

means you can continue to deduct the interest

you pay on your home mortgage, subject to the

limits described in this publication.

You can continue treating a destroyed home

as a qualified home if, within a reasonable pe-

riod of time after the home is destroyed, you:

Rebuild the destroyed home and move into

it, or

Sell the land on which the home was loca-

ted.

This rule applies to your main home and to a

second home that you treat as a qualified

home.

Time-sharing arrangements. You can treat a

home you own under a time-sharing plan as a

qualified home if it meets all the requirements.

A time-sharing plan is an arrangement between

two or more people that limits each person's in-

terest in the home or right to use it to a certain

part of the year.

Rental of time-share. If you rent out your

time-share, it qualifies as a second home only if

you also use it as a home during the year. See

Second home rented out, earlier, for the use re-

quirement. To know whether you meet that re-

quirement, count your days of use and rental of

the home only during the time you have a right

to use it or to receive any benefits from the

rental of it.

Married taxpayers. If you're married and file a

joint return, your qualified home(s) can be

owned either jointly or by only one spouse.

Separate returns. If you're married filing

separately and you and your spouse own more

than one home, you can each take into account

only one home as a qualified home. However, if

you both consent in writing, then one spouse

can take both the main home and a second

home into account.

Special Situations

This section describes certain items that can be

included as home mortgage interest and others

that can't. It also describes certain special situa-

tions that may affect your deduction.

Late payment charge on mortgage pay-

ment. You can deduct as home mortgage in-

terest a late payment charge if it wasn't for a

specific service performed in connection with

your mortgage loan.

Mortgage prepayment penalty. If you pay off

your home mortgage early, you may have to

pay a penalty. You can deduct that penalty as

home mortgage interest provided the penalty

isn't for a specific service performed or cost in-

curred in connection with your mortgage loan.

Sale of home. If you sell your home, you can

deduct your home mortgage interest (subject to

any limits that apply) paid up to, but not includ-

ing, the date of the sale.

Example. John and Peggy Harris sold their

home on May 7. Through April 30, they made

home mortgage interest payments of $1,220.

The settlement sheet for the sale of the home

showed $50 interest for the 6-day period in May

up to, but not including, the date of sale. Their

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Page 4 Publication 936 (2017)

mortgage interest deduction is $1,270 ($1,220

+ $50).

Prepaid interest. If you pay interest in ad-

vance for a period that goes beyond the end of

the tax year, you must spread this interest over

the tax years to which it applies. You can de-

duct in each year only the interest that qualifies

as home mortgage interest for that year. How-

ever, there is an exception that applies to

points, discussed later.

Mortgage interest credit. You may be able to

claim a mortgage interest credit if you were is-

sued a mortgage credit certificate (MCC) by a

state or local government. Figure the credit on

Form 8396, Mortgage Interest Credit. If you

take this credit, you must reduce your mortgage

interest deduction by the amount of the credit.

See Form 8396 and Pub. 530 for more infor-

mation on the mortgage interest credit.

Ministers' and military housing allowance.

If you're a minister or a member of the uni-

formed services and receive a housing allow-

ance that isn't taxable, you can still deduct your

home mortgage interest.

Hardest Hit Fund and Emergency Home-

owners' Loan Programs. You can use a spe-

cial method to compute your deduction for

mortgage interest and real estate taxes on your

main home if you meet the following two condi-

tions.

1. You received assistance under:

a. A State Housing Finance Agency

(State HFA) Hardest Hit Fund pro-

gram in which program payments

could be used to pay mortgage inter-

est, or

b. An Emergency Homeowners' Loan

Program administered by the Depart-

ment of Housing and Urban Develop-

ment (HUD) or a state.

2. You meet the rules to deduct all of the

mortgage interest on your loan and all of

the real estate taxes on your main home.

If you meet these conditions, then you can de-

duct all of the payments you actually made dur-

ing the year to your mortgage servicer, the

State HFA, or HUD on the home mortgage (in-

cluding the amount shown on box 3 of Form

1098-MA, Mortgage Assistance Payments), but

not more than the sum of the amounts shown

on Form 1098, Mortgage Interest Statement, in

box 1 (mortgage interest received from

payer(s)/borrower(s)) and box 11 (real property

taxes). However, you're not required to use this

special method to compute your deduction for

mortgage interest and real estate taxes on your

main home.

Mortgage assistance payments under sec-

tion 235 of the National Housing Act. If you

qualify for mortgage assistance payments for

lower-income families under section 235 of the

National Housing Act, part or all of the interest

on your mortgage may be paid for you. You

can't deduct the interest that is paid for you.

No other effect on taxes. Don’t include

these mortgage assistance payments in your

income. Also, don't use these payments to re-

duce other deductions, such as real estate

taxes.

Divorced or separated individuals. If a di-

vorce or separation agreement requires you or

your spouse or former spouse to pay home

mortgage interest on a home owned by both of

you, the payment of interest may be alimony.

See the discussion of Payments for

jointly-owned home under Alimony in Pub. 504,

Divorced or Separated Individuals.

Redeemable ground rents. In some states

(such as Maryland), you can buy your home

subject to a ground rent. A ground rent is an ob-

ligation you assume to pay a fixed amount per

year on the property. Under this arrangement,

you're leasing (rather than buying) the land on

which your home is located.

If you make annual or periodic rental pay-

ments on a redeemable ground rent, you can

deduct them as mortgage interest.

A ground rent is a redeemable ground rent if

all of the following are true.

Your lease, including renewal periods, is

for more than 15 years.

You can freely assign the lease.

You have a present or future right (under

state or local law) to end the lease and buy

the lessor's entire interest in the land by

paying a specific amount.

The lessor's interest in the land is primarily

a security interest to protect the rental pay-

ments to which he or she is entitled.

Payments made to end the lease and to buy

the lessor's entire interest in the land aren't de-

ductible as mortgage interest.

Nonredeemable ground rents. Payments

on a nonredeemable ground rent aren't mort-

gage interest. You can deduct them as rent if

they are a business expense or if they are for

rental property.

Reverse mortgages. A reverse mortgage is a

loan where the lender pays you (in a lump sum,

a monthly advance, a line of credit, or a combi-

nation of all three) while you continue to live in

your home. With a reverse mortgage, you retain

title to your home. Depending on the plan, your

reverse mortgage becomes due with interest

when you move, sell your home, reach the end

of a pre-selected loan period, or die. Because

reverse mortgages are considered loan advan-

ces and not income, the amount you receive

isn't taxable. Any interest (including original is-

sue discount) accrued on a reverse mortgage

isn't deductible until you actually pay it, which is

usually when you pay off the loan in full. Your

deduction may be limited because a reverse

mortgage loan generally is subject to the limit

on Home Equity Debt discussed in Part II.

Rental payments. If you live in a house before

final settlement on the purchase, any payments

you make for that period are rent and not inter-

est. This is true even if the settlement papers

call them interest. You can't deduct these pay-

ments as home mortgage interest.

Mortgage proceeds invested in tax-exempt

securities. You can't deduct the home mort-

gage interest on grandfathered debt or home

equity debt if you used the proceeds of the

mortgage to buy securities or certificates that

produce tax-free income. “Grandfathered debt”

and “home equity debt” are defined in Part II of

this publication.

Refunds of interest. If you receive a refund of

interest in the same tax year you paid it, you

must reduce your interest expense by the

amount refunded to you. If you receive a refund

of interest you deducted in an earlier year, you

generally must include the refund in income in

the year you receive it. However, you need to

include it only up to the amount of the deduction

that reduced your tax in the earlier year. This is

true whether the interest overcharge was refun-

ded to you or was used to reduce the outstand-

ing principal on your mortgage. If you need to

include the refund in income, report it on Form

1040, line 21.

If you received a refund of interest you over-

paid in an earlier year, you generally will receive

a Form 1098, Mortgage Interest Statement,

showing the refund in box 4. For information

about Form 1098, see Form 1098, Mortgage In-

terest Statement, later.

For more information on how to treat refunds

of interest deducted in earlier years, see Recov-

eries in Pub. 525, Taxable and Nontaxable In-

come.

Cooperative apartment owner. If you

own a cooperative apartment, you must reduce

your home mortgage interest deduction by your

share of any cash portion of a patronage divi-

dend that the cooperative receives. The patron-

age dividend is a partial refund to the coopera-

tive housing corporation of mortgage interest if

paid in a prior year.

If you receive a Form 1098 from the cooper-

ative housing corporation, the form should show

only the amount you can deduct.

SBA disaster home loans. Interest paid on

disaster home loans from the Small Business

Administration (SBA) is deductible as mortgage

interest if the requirements discussed earlier

under Home Mortgage Interest are met.

Points

The term “points” is used to describe certain

charges paid, or treated as paid, by a borrower

to obtain a home mortgage. Points may also be

called loan origination fees, maximum loan

charges, loan discount, or discount points.

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Publication 936 (2017) Page 5

Yes

Figure B. Are My Points Fully Deductible This Year?

Start Here:

Is the loan secured by your main home?

Is the payment of points an established

business practice in your area?

Do you use the cash method of

accounting?

Were the funds you provided (other than

those you borrowed from your lender or

mortgage broker), plus any points the

seller paid, at least as much as the points

charged?*

Did you take out the loan to improve your

main home?

Did you take out the loan to buy or build

your main home?

Were the points computed as a

percentage of the principal amount of the

mortgage?

Is the amount paid clearly shown as

points on the settlement statement?

You can fully deduct the points this year

on Schedule A (Form 1040).

Were the points paid in place of

amounts that ordinarily are separately

stated on the settlement sheet?

You cannot fully deduct the points this

year. See the discussion on Points.

* The funds you provided are not required to have been applied to the points. They can include a down payment, an escrow deposit, earnest money, and other

funds you paid at or before closing for any purpose.

Were the points paid more than the

amount generally charged in your area?

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Page 6 Publication 936 (2017)

A borrower is treated as paying any points

that a home seller pays for the borrower's mort-

gage. See Points paid by the seller, later.

General Rule

You generally can't deduct the full amount of

points in the year paid. Because they are pre-

paid interest, you generally deduct them ratably

over the life (term) of the mortgage. See Deduc-

tion Allowed Ratably, next.

For exceptions to the general rule, see De-

duction Allowed in Year Paid, later.

Deduction Allowed Ratably

If you don't meet the tests listed under Deduc-

tion Allowed in Year Paid, later, the loan isn't a

home improvement loan, or you choose not to

deduct your points in full in the year paid, you

can deduct the points ratably (equally) over the

life of the loan if you meet all the following tests.

1. You use the cash method of accounting.

This means you report income in the year

you receive it and deduct expenses in the

year you pay them. Most individuals use

this method.

2. Your loan is secured by a home. (The

home doesn't need to be your main

home.)

3. Your loan period isn't more than 30 years.

4. If your loan period is more than 10 years,

the terms of your loan are the same as

other loans offered in your area for the

same or longer period.

5. Either your loan amount is $250,000 or

less, or the number of points isn't more

than:

a. 4, if your loan period is 15 years or

less, or

b. 6, if your loan period is more than 15

years.

Example. You use the cash method of ac-

counting. In 2017, you took out a $100,000 loan

payable over 20 years. The terms of the loan

are the same as for other 20-year loans offered

in your area. You paid $4,800 in points. You

made 3 monthly payments on the loan in 2017.

You can deduct $60 [($4,800 ÷ 240 months) x 3

payments] in 2017. In 2018, if you make all

twelve payments, you will be able to deduct

$240 ($20 x 12).

Deduction Allowed in Year Paid

You can fully deduct points in the year paid if

you meet all the following tests. (You can use

Figure B as a quick guide to see whether your

points are fully deductible in the year paid.)

1. Your loan is secured by your main home.

(Your main home is the one you ordinarily

live in most of the time.)

2. Paying points is an established business

practice in the area where the loan was

made.

3. The points paid weren't more than the

points generally charged in that area.

4. You use the cash method of accounting.

This means you report income in the year

you receive it and deduct expenses in the

year you pay them. Most individuals use

this method.

5. The points weren't paid in place of

amounts that ordinarily are stated sepa-

rately on the settlement statement, such

as appraisal fees, inspection fees, title

fees, attorney fees, and property taxes.

6. The funds you provided at or before clos-

ing, plus any points the seller paid, were at

least as much as the points charged. The

funds you provided aren't required to have

been applied to the points. They can in-

clude a down payment, an escrow de-

posit, earnest money, and other funds you

paid at or before closing for any purpose.

You can't have borrowed these funds from

your lender or mortgage broker.

7. You use your loan to buy or build your

main home.

8. The points were computed as a percent-

age of the principal amount of the mort-

gage.

9. The amount is clearly shown on the settle-

ment statement (such as the Settlement

Statement, Form HUD-1) as points

charged for the mortgage. The points may

be shown as paid from either your funds or

the seller's.

Note. If you meet all of these tests, you can

choose to either fully deduct the points in the

year paid, or deduct them over the life of the

loan.

Home improvement loan. You can also fully

deduct in the year paid points paid on a loan to

improve your main home, if tests (1) through (6)

are met.

Second home. You can't fully deduct

in the year paid points you pay on

loans secured by your second home.

You can deduct these points only over the life of

the loan.

Refinancing. Generally, points you pay to refi-

nance a mortgage aren't deductible in full in the

year you pay them. This is true even if the new

mortgage is secured by your main home.

However, if you use part of the refinanced

mortgage proceeds to improve your main home

and you meet the first 6 tests listed under De-

duction Allowed in Year Paid, you can fully de-

duct the part of the points related to the im-

provement in the year you paid them with your

own funds. You can deduct the rest of the

points over the life of the loan.

Example 1. In 1998, Bill Fields got a mort-

gage to buy a home. In 2017, Bill refinanced

that mortgage with a 15-year $100,000 mort-

gage loan. The mortgage is secured by his

home. To get the new loan, he had to pay three

points ($3,000). Two points ($2,000) were for

prepaid interest, and one point ($1,000) was

charged for services, in place of amounts that

ordinarily are stated separately on the settle-

ment statement. Bill paid the points out of his

private funds, rather than out of the proceeds of

CAUTION

the new loan. The payment of points is an es-

tablished practice in the area, and the points

charged aren't more than the amount generally

charged there. Bill's first payment on the new

loan was due July 1. He made six payments on

the loan in 2017 and is a cash basis taxpayer.

Bill used the funds from the new mortgage

to repay his existing mortgage. Although the

new mortgage loan was for Bill's continued

ownership of his main home, it wasn't for the

purchase or improvement of that home. He

can't deduct all of the points in 2017. He can

deduct two points ($2,000) ratably over the life

of the loan. He deducts $67 [($2,000 ÷ 180

months) × 6 payments] of the points in 2017.

The other point ($1,000) was a fee for services

and isn't deductible.

Example 2. The facts are the same as in

Example 1, except that Bill used $25,000 of the

loan proceeds to improve his home and

$75,000 to repay his existing mortgage. Bill de-

ducts 25% ($25,000 ÷ $100,000) of the points

($2,000) in 2017. His deduction is $500 ($2,000

× 25%).

Bill also deducts the ratable part of the re-

maining $1,500 ($2,000 − $500) that must be

spread over the life of the loan. This is $50

[($1,500 ÷ 180 months) × 6 payments] in 2017.

The total amount Bill deducts in 2017 is $550

($500 + $50).

Special Situations

This section describes certain special situations

that may affect your deduction of points.

Original issue discount. If you don't qualify to

either deduct the points in the year paid or de-

duct them ratably over the life of the loan, or if

you choose not to use either of these methods,

the points reduce the issue price of the loan.

This reduction results in original issue discount,

which is discussed in chapter 4 of Pub. 535.

Amounts charged for services. Amounts

charged by the lender for specific services con-

nected to the loan aren't interest. Examples of

these charges are:

Appraisal fees,

Department of Veteran’s Affairs (VA) fund-

ing fees,

Mortgage Insurance Premiums,

Notary fees, and

Preparation costs for the mortgage note or

deed of trust.

You can't deduct these amounts as points ei-

ther in the year paid or over the life of the mort-

gage.

Points paid by the seller. The term “points”

includes loan placement fees that the seller

pays to the lender to arrange financing for the

buyer.

Treatment by seller. The seller can't de-

duct these fees as interest. But they are a sell-

ing expense that reduces the amount realized

by the seller. See Pub. 523 for information on

selling your home.

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

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Publication 936 (2017) Page 7

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 aren't 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

can't 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

2006 that he had to spread out over the 15-year

life of the mortgage. He deducts $200 points

per year. Through 2017, Dan has deducted

$2,200 of the points.

Dan prepaid his mortgage in full in 2017. He

can deduct the remaining $800 of points in

2017.

Limits on deduction. You can't 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.

Form 1098, Mortgage

Interest Statement

If you paid $600 or more of mortgage interest

(including certain points) 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, 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 shouldn't

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 2017 that accrued in full by Jan-

uary 15, 2018, this prepaid interest may be in-

cluded in box 1 of Form 1098. However, you

can't deduct the prepaid amount for January

2018 in 2017. (See Prepaid interest, earlier.)

You will have to figure the interest that accrued

for 2018 and subtract it from the amount in

box 1. You will include the interest for January

2018 with other interest you pay for 2018.

Refunded interest. If you received a refund of

mortgage interest you overpaid in an earlier

year, you generally will receive a Form 1098

showing the refund in box 4. See Refunds of in-

terest, earlier.

How To Report

Deduct the home mortgage interest and points

reported to you on Form 1098 on Schedule A

(Form 1040), line 10. If you paid more deducti-

ble interest to the financial institution than the

amount shown on Form 1098, show the larger

deductible amount on line 10. Attach a state-

ment to your paper return explaining the differ-

ence and print “See attached” next to line 10.

Deduct home mortgage interest that wasn't

reported to you on Form 1098 on Schedule A

(Form 1040), line 11. If you paid home mort-

gage interest to the person from whom you

bought your home, show that person's name,

address, and taxpayer identification number

(TIN) on the dotted lines next to line 11. The

seller must give you this number and you must

give the seller your TIN. A Form W-9, Request

for Taxpayer Identification Number and Certifi-

cation, can be used for this purpose. Failure to

meet any of these requirements may result in a

$50 penalty for each failure. The TIN can be ei-

ther a social security number, an individual tax-

payer identification number (issued by the Inter-

nal Revenue Service), or an employer

identification number.

If you can take a deduction for points that

weren’t reported to you on Form 1098, deduct

those points on Schedule A (Form 1040),

line 12.

More than one borrower. If you and at least

one other person (other than your spouse if you

file a joint return) were liable for and paid inter-

est on a mortgage that was for your home, and

the other person received a Form 1098 showing

the interest that was paid during the year, at-

tach a statement to your return explaining this.

Show how much of the interest each of you

paid, and give the name and address of the per-

son who received the form. Deduct your share

of the interest on Schedule A (Form 1040),

line 11, and print “See attached” next to the line.

Similarly, if you're the payer of record on a

mortgage on which there are other borrowers

entitled to a deduction for the interest shown on

the Form 1098 you received, deduct only your

share of the interest on Schedule A (Form

1040), line 10. Let each of the other borrowers

know what his or her share is.

Mortgage proceeds used for business or in-

vestment. If your home mortgage interest de-

duction is limited under the rules explained in

Part II, but all or part of the mortgage proceeds

were used for business, investment, or other

deductible activities, see Table 2 near the end

of this publication. It shows where to deduct the

part of your excess interest that is for those ac-

tivities. The Table 1 Instructions for line 13 in

Part II explain how to divide the excess interest

among the activities for which the mortgage

proceeds were used.

Special Rule for

Tenant-Stockholders in

Cooperative Housing

Corporations

A qualified home includes stock in a coopera-

tive housing corporation owned by a ten-

ant-stockholder. This applies only if the ten-

ant-stockholder is entitled to live in the house or

apartment because of owning stock in the co-

operative.

Cooperative housing corporation. This is a

corporation that meets all of the following condi-

tions.

1. Has only one class of stock outstanding,

2. Has no stockholders other than those who

own the stock that can live in a house,

apartment, or house trailer owned or

leased by the corporation,

3. Has no stockholders who can receive any

distribution out of capital other than on a

liquidation of the corporation, and

4. Meets at least one of the following require-

ments.

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Page 8 Publication 936 (2017)

a. Receives at least 80% of its gross in-

come for the year in which the mort-

gage interest is paid or incurred from

tenant-stockholders. For this purpose,

gross income is all income received

during the entire year, including

amounts received before the corpora-

tion changed to cooperative owner-

ship.

b. At all times during the year, at least

80% of the total square footage of the

corporation's property is used or avail-

able for use by the tenant-stockhold-

ers for residential or residential-rela-

ted use.

c. At least 90% of the corporation's ex-

penditures paid or incurred during the

year are for the acquisition, construc-

tion, management, maintenance, or

care of corporate property for the ben-

efit of the tenant-stockholders.

Stock used to secure debt. In some cases,

you can't use your cooperative housing stock to

secure a debt because of either:

Restrictions under local or state law, or

Restrictions in the cooperative agreement

(other than restrictions in which the main

purpose is to permit the tenant-

stockholder to treat unsecured debt as se-

cured debt).

However, you can treat a debt as secured by

the stock to the extent that the proceeds are

used to buy the stock under the allocation of in-

terest rules. See chapter 4 of Pub. 535 for de-

tails on these rules.

Figuring deductible home mortgage inter-

est. Generally, if you're a tenant-stockholder,

you can deduct payments you make for your

share of the interest paid or incurred by the co-

operative. The interest must be on a debt to

buy, build, change, improve, or maintain the co-

operative's housing, or on a debt to buy the

land.

Figure your share of this interest by multiply-

ing the total by the following fraction.

Your shares of stock in the

cooperative

The total shares of stock

in the cooperative

Limits on deduction. To figure how the

limits discussed in Part II apply to you, treat

your share of the cooperative's debt as debt in-

curred by you. The cooperative should deter-

mine your share of its grandfathered debt, its

home acquisition debt, and its home equity

debt. (Your share of each of these types of debt

is equal to the average balance of each debt

multiplied by the fraction just given.) After your

share of the average balance of each type of

debt is determined, you include it with the aver-

age balance of that type of debt secured by

your stock.

Form 1098. The cooperative should give

you a Form 1098 showing your share of the in-

terest. Use the rules in this publication to deter-

mine your deductible mortgage interest.

Part II. Limits on Home

Mortgage Interest

Deduction

This part of the publication discusses the limits

on deductible home mortgage interest. These

limits apply to your home mortgage interest ex-

pense if you have a home mortgage that

doesn't fit into any of the three categories listed

at the beginning of Part I under Fully deductible

interest.

Your home mortgage interest deduction is

limited to the interest on the part of your home

mortgage debt that isn't more than your quali-

fied loan limit. This is the part of your home

mortgage debt that is grandfathered debt or that

isn't more than the limits for home acquisition

debt and home equity debt. Table 1 can help

you figure your qualified loan limit and your de-

ductible home mortgage interest.

Home Acquisition Debt

Home acquisition debt is a mortgage you took

out after October 13, 1987, to buy, build, or sub-

stantially improve a qualified home (your main

or second home). It also must be secured by

that home.

If the amount of your mortgage is more than

the cost of the home plus the cost of any sub-

stantial improvements, only the debt that isn't

more than the cost of the home plus improve-

ments qualifies as home acquisition debt. The

additional debt may qualify as home equity debt

(discussed later).

Home acquisition debt limit. The total

amount you (or your spouse if married filing a

joint return) can treat as home acquisition debt

at any time on your main home and second

home can't be more than $1 million ($500,000 if

married filing separately). This limit is reduced

(but not below zero) by the amount of your

grandfathered debt (discussed later). Debt over

this limit may qualify as home equity debt (also

discussed later).

Refinanced home acquisition debt. Any se-

cured debt you use to refinance home acquisi-

tion debt is treated as home acquisition debt.

However, the new debt will qualify as home ac-

quisition debt only up to the amount of the bal-

ance of the old mortgage principal just before

the refinancing. Any additional debt not used to

buy, build, or substantially improve a qualified

home isn't home acquisition debt, but may qual-

ify as home equity debt (discussed later).

Mortgage that qualifies later. A mortgage

that doesn't qualify as home acquisition debt

because it doesn't meet all the requirements

may qualify at a later time. For example, a debt

that you use to buy your home may not qualify

as home acquisition debt because it isn't se-

cured by the home. However, if the debt is later

secured by the home, it may qualify as home

acquisition debt after that time. Similarly, a debt

that you use to buy property may not qualify be-

cause the property isn't a qualified home. How-

ever, if the property later becomes a qualified

home, the debt may qualify after that time.

Mortgage treated as used to buy, build, or

improve home. A mortgage secured by a

qualified home may be treated as home acquis-

ition debt, even if you don't actually use the pro-

ceeds to buy, build, or substantially improve the

home. This applies in the following situations.

1. You buy your home within 90 days before

or after the date you take out the mort-

gage. The home acquisition debt is limited

to the home's cost, plus the cost of any

substantial improvements within the limit

described below in (2) or (3). (See Exam-

ple 1 later.)

2. You build or improve your home and take

out the mortgage before the work is com-

pleted. The home acquisition debt is limi-

ted to the amount of the expenses incur-

red within 24 months before the date of

the mortgage.

3. You build or improve your home and take

out the mortgage within 90 days after the

work is completed. The home acquisition

debt is limited to the amount of the expen-

ses incurred within the period beginning

24 months before the work is completed

and ending on the date of the mortgage.

(See Example 2 later.)

Example 1. You bought your main home on

June 3 for $175,000. You paid for the home with

cash you got from the sale of your old home. On

July 15, you took out a mortgage of $150,000

secured by your main home. You used the

$150,000 to invest in stocks. You can treat the

mortgage as taken out to buy your home be-

cause you bought the home within 90 days be-

fore you took out the mortgage. The entire mort-

gage qualifies as home acquisition debt

because it wasn't more than the home's cost.

Example 2. On January 31, John began

building a home on the lot that he owned. He

used $45,000 of his personal funds to build the

home. The home was completed on October

31. On November 21, John took out a $36,000

mortgage that was secured by the home. The

mortgage can be treated as used to build the

home because it was taken out within 90 days

after the home was completed. The entire mort-

gage qualifies as home acquisition debt be-

cause it wasn't more than the expenses incur-

red within the period beginning 24 months

before the home was completed. This is illustra-

ted by Figure C.

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Publication 936 (2017) Page 9

EPS File Name: 10426g01 Size: Width = 14.0 picas, Depth = 13.3 picas

Figure C.

John

Starts

Building

Home

Completed

($45,000 in

Personal

Funds Used)

$36,000

Mortgage

Taken Out

Jan. 31 Oct. 31 Nov. 21

9 Months

(Within 24 Months)

22 Days

(Within 90 Days)

䊱䊱䊱

䊲䊲

Date of the mortgage. The date you take

out your mortgage is the day the loan proceeds

are disbursed. This is generally the closing

date. You can treat the day you apply in writing

for your mortgage as the date you take it out.

However, this applies only if you receive the

loan proceeds within a reasonable time (such

as within 30 days) after your application is ap-

proved. If a timely application you make is re-

jected, a reasonable additional time will be al-

lowed to make a new application.

Cost of home or improvements. To deter-

mine your cost, include amounts paid to acquire

any interest in a qualified home or to substan-

tially improve the home.

The cost of building or substantially improv-

ing a qualified home includes the costs to ac-

quire real property and building materials, fees

for architects and design plans, and required

building permits.

Substantial improvement. An improve-

ment is substantial if it:

Adds to the value of your home,

Prolongs your home's useful life, or

Adapts your home to new uses.

Repairs that maintain your home in good

condition, such as repainting your home, aren't

substantial improvements. However, if you

paint your home as part of a renovation that

substantially improves your qualified home, you

can include the painting costs in the cost of the

improvements.

Acquiring an interest in a home because

of a divorce. If you incur debt to acquire the in-

terest of a spouse or former spouse in a home,

because of a divorce or legal separation, you

can treat that debt as home acquisition debt.

Part of home not a qualified home. To

figure your home acquisition debt, you must di-

vide the cost of your home and improvements

between the part of your home that is a qualified

home and any part that isn't a qualified home.

See Divided use of your home under Qualified

Home in Part I.

Home Equity Debt

If you took out a loan for reasons other than to

buy, build, or substantially improve your home,

it may qualify as home equity debt. In addition,

debt you incurred to buy, build, or substantially

improve your home, to the extent it is more than

the home acquisition debt limit (discussed ear-

lier), may qualify as home equity debt.

Home equity debt is a mortgage you took

out after October 13, 1987, that:

Doesn't qualify as home acquisition debt or

as grandfathered debt, and

Is secured by your qualified home.

Example. You bought your home for cash

10 years ago. You didn't have a mortgage on

your home until last year, when you took out a

$50,000 loan, secured by your home, to pay for

your daughter's college tuition and your father's

medical bills. This loan is home equity debt.

Home equity debt limit. There is a limit on the

amount of debt that can be treated as home

equity debt. The total home equity debt on your

main home and second home is limited to the

smaller of:

$100,000 ($50,000 if married filing sepa-

rately), or

The total of each home's fair market value

(FMV) reduced (but not below zero) by the

amount of its home acquisition debt and

grandfathered debt. Determine the FMV

and the outstanding home acquisition and

grandfathered debt for each home on the

date that the last debt was secured by the

home.

Example. You own one home that you

bought in 2003. Its FMV now is $110,000, and

the current balance on your original mortgage

(home acquisition debt) is $95,000. Bank M of-

fers you a home mortgage loan of 125% of the

FMV of the home less any outstanding mort-

gages or other liens. To consolidate some of

your other debts, you take out a $42,500 home

mortgage loan [(125% × $110,000) − $95,000]

with Bank M.

Your home equity debt is limited to $15,000.

This is the smaller of:

$100,000, the maximum limit, or

$15,000, the amount that the FMV of

$110,000 exceeds the amount of home ac-

quisition debt of $95,000.

Debt higher than limit. Interest on

amounts over the home equity debt limit (such

as the interest on $27,500 [$42,500 − $15,000]

in the preceding example) generally is treated

as personal interest and isn't deductible. But if

the proceeds of the loan were used for invest-

ment, business, or other deductible purposes,

the interest may be deductible. If it is, see the

Table 1 Instructions for line 13 for an explana-

tion of how to allocate the excess interest.

Part of home not a qualified home. To

figure the limit on your home equity debt, you

must divide the FMV of your home between the

part that is a qualified home and any part that

isn't a qualified home. See Divided use of your

home under Qualified Home in Part I.

Fair market value (FMV). This is the price

at which the home would change hands be-

tween you and a buyer, neither having to sell or

buy, and both having reasonable knowledge of

all relevant facts. Sales of similar homes in your

area, on about the same date your last debt

was secured by the home, may be helpful in fig-

uring the FMV.

Grandfathered Debt

If you took out a mortgage on your home before

October 14, 1987, or you refinanced such a

mortgage, it may qualify as grandfathered debt.

To qualify, it must have been secured by your

qualified home on October 13, 1987, and at all

times after that date. How you used the pro-

ceeds doesn't matter.

Grandfathered debt isn't limited. All of the in-

terest you paid on grandfathered debt is fully

deductible home mortgage interest. However,

the amount of your grandfathered debt reduces

the $1 million limit for home acquisition debt

and the limit based on your home's fair market

value for home equity debt.

Refinanced grandfathered debt. If you refi-

nanced grandfathered debt after October 13,

1987, for an amount that wasn't more than the

mortgage principal left on the debt, then you still

treat it as grandfathered debt. To the extent the

new debt is more than that mortgage principal,

it is treated as home acquisition or home equity

debt, and the mortgage is a mixed-use mort-

gage (discussed later under Average Mortgage

Balance in the Table 1 Instructions). The debt

must be secured by the qualified home.

You treat grandfathered debt that was refi-

nanced after October 13, 1987, as grandfath-

ered debt only for the term left on the debt that

was refinanced. After that, you treat it as home

acquisition debt or home equity debt, depend-

ing on how you used the proceeds.

Exception. If the debt before refinancing

was like a balloon note (the principal on the

debt wasn't amortized over the term of the

debt), then you treat the refinanced debt as

grandfathered debt for the term of the first refi-

nancing. This term can't be more than 30 years.

Example. Chester took out a $200,000 first

mortgage on his home in 1986. The mortgage

was a 5-year balloon note and the entire bal-

ance on the note was due in 1991. Chester refi-

nanced the debt in 1991 with a new 30-year

mortgage. The refinanced debt is treated as

grandfathered debt for its entire term (30 years).

Line-of-credit mortgage. If you had a

line-of-credit mortgage on October 13, 1987,

and borrowed additional amounts against it af-

ter that date, then the additional amounts are ei-

ther home acquisition debt or home equity debt

depending on how you used the proceeds. The

balance on the mortgage before you borrowed

the additional amounts is grandfathered debt.

The newly borrowed amounts aren't grandfath-

ered debt because the funds were borrowed af-

ter October 13, 1987. See Average Mortgage

Balance in the Table 1 Instructions that follow.

Table 1 Instructions

Unless you're subject to the overall limit on

itemized deductions, you can deduct all of the

interest you paid during the year on mortgages

secured by your main home or second home in

either of the following two situations.

All the mortgages are grandfathered debt.

The total of the mortgage balances for the

entire year is within the limits discussed

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Page 10 Publication 936 (2017)

earlier under Home Acquisition Debt and

Home Equity Debt.

In either of those cases, you don't need Table 1.

Otherwise, you can use Table 1 to determine

your qualified loan limit and deductible home

mortgage interest.

Fill out only one Table 1 for both your

main and second home regardless of

how many mortgages you have.

Home equity debt only. If all of your mort-

gages are home equity debt, don't fill in lines 1

through 5. Enter zero on line 6 and complete

the rest of Table 1.

TIP

Average Mortgage Balance

You have to figure the average balance of each

mortgage to determine your qualified loan limit.

You need these amounts to complete lines 1, 2,

and 9 of Table 1. You can use the highest mort-

gage balances during the year, but you may

benefit most by using the average balances.

The following are methods you can use to figure

your average mortgage balances. However, if a

mortgage has more than one category of debt,

see Mixed-use mortgages, later, in this section.

Average of first and last balance method.

You can use this method if all the following ap-

ply.

You didn't borrow any new amounts on the

mortgage during the year. (This doesn't in-

clude borrowing the original mortgage

amount.)

You didn't prepay more than 1 month's

principal during the year. (This includes

prepayment by refinancing your home or

by applying proceeds from its sale.)

You had to make level payments at fixed

equal intervals on at least a semi-annual

basis. You treat your payments as level

even if they were adjusted from time to

Worksheet To Figure Your Qualified Loan Limit and Deductible

Home Mortgage Interest For the Current Year

See the Table 1 Instructions.

Table 1.

Keep for Your Records

Part I Qualified Loan Limit

1. Enter the average balance of all your grandfathered debt. See line 1

instructions ................................................................... 1.

2. Enter the average balance of all your home acquisition debt. See line 2

instructions ................................................................... 2.

3. Enter $1,000,000 ($500,000 if married filing separately) .......................... 3.

4. Enter the larger of the amount on line 1 or the amount on line 3 .................... 4.

5. Add the amounts on lines 1 and 2. Enter the total here ............................ 5.

6. Enter the smaller of the amount on line 4 or the amount on line 5 .................. 6.

7. If you have home equity debt, enter the smaller of $100,000 ($50,000 if married filing

separately) or your limited amount. See the line 7 instructions for the limit which may

apply to you. .................................................................. 7.

8. Add the amounts on lines 6 and 7. Enter the total. This is your qualified loan

limit. ......................................................................... 8.

Part II Deductible Home Mortgage Interest

9. Enter the total of the average balances of all mortgages on all qualified homes.

See line 9 instructions ......................................................... 9.

If line 8 is less than line 9, go on to line 10.

If line 8 is equal to or more than line 9, stop here. All of your interest on all the

mortgages included on line 9 is deductible as home mortgage interest on

Schedule A (Form 1040).

10. Enter the total amount of interest that you paid. See line 10 instructions ............ 10.

11. Divide the amount on line 8 by the amount on line 9. Enter the result as a decimal

amount (rounded to three places) ............................................... 11. × .

12. Multiply the amount on line 10 by the decimal amount on line 11. Enter the result.

This is your deductible home mortgage interest. Enter this amount on

Schedule A (Form 1040) ....................................................... 12.

13. Subtract the amount on line 12 from the amount on line 10. Enter the result. This

isn't home mortgage interest. See line 13 instructions .......................... 13.

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Publication 936 (2017) Page 11

time because of changes in the interest

rate.

To figure your average balance, com-

plete the following worksheet.

1. Enter the balance as of the first

day of the year that the

mortgage was secured by your

qualified home during the year

(generally January 1) ........

2. Enter the balance as of the last

day of the year that the

mortgage was secured by your

qualified home during the year

(generally December 31) .....

3. Add amounts on lines 1 and

2..........................

4. Divide the amount on line 3 by

2. Enter the result ...........

Interest paid divided by interest rate

method. You can use this method if at all times

in 2017 the mortgage was secured by your

qualified home and the interest was paid at

least monthly.

Complete the following worksheet to

figure your average balance.

1. Enter the interest paid in 2017.

Don't include points, mortgage

insurance premiums, or any

interest paid in 2017 that is for a

year after 2017. However, do

include interest that is for 2017

but was paid in an earlier

year ........................

2. Enter the annual interest rate on

the mortgage. If the interest rate

varied in 2017, use the lowest

rate for the year ..............

3. Divide the amount on line 1 by

the amount on line 2. Enter the

result .......................

Example. Mr. Blue had a line of credit se-

cured by his main home all year. He paid inter-

est of $2,500 on this loan. The interest rate on

the loan was 9% (0.09) all year. His average

balance using this method is $27,778, figured

as follows.

1. Enter the interest paid in 2017.

Don’t include points, mortgage

insurance premiums, or any

interest paid in 2017 that is for

a year after 2017. However,

do include interest that is for

2017 but was paid in an earlier

year ....................... $2,500

2. Enter the annual interest rate

on the mortgage. If the interest

rate varied in 2017, use the

lowest rate for the year ....... 0.09

3. Divide the amount on line 1 by

the amount on line 2. Enter the

result ......................$27,778

Statements provided by your lender. If you

receive monthly statements showing the closing

balance or the average balance for the month,

you can use either to figure your average bal-

ance for the year. You can treat the balance as

zero for any month the mortgage wasn't se-

cured by your qualified home.

For each mortgage, figure your average bal-

ance by adding your monthly closing or average

balances and dividing that total by the number

of months the home secured by that mortgage

was a qualified home during the year.

If your lender can give you your average bal-

ance for the year, you can use that amount.

Example. Ms. Brown had a home equity

loan secured by her main home all year. She re-

ceived monthly statements showing her aver-

age balance for each month. She can figure her

average balance for the year by adding her

monthly average balances and dividing the total

by 12.

Mixed-use mortgages. A mixed-use mort-

gage is a loan that consists of more than one of

the three categories of debt (grandfathered

debt, home acquisition debt, and home equity

debt). For example, a mortgage you took out

during the year is a mixed-use mortgage if you

used its proceeds partly to refinance a mort-

gage that you took out in an earlier year to buy

your home (home acquisition debt) and partly to

buy a car (home equity debt).

Complete lines 1 and 2 of Table 1 by includ-

ing the separate average balances of any

grandfathered debt and home acquisition debt

in your mixed-use mortgage. Don’t use the

methods described earlier in this section to fig-

ure the average balance of either category. In-

stead, for each category, use the following

method.

1. Figure the balance of that category of debt

for each month. This is the amount of the

loan proceeds allocated to that category,

reduced by your principal payments on the

mortgage previously applied to that cate-

gory. Principal payments on a mixed-use

mortgage are applied in full to each cate-

gory of debt, until its balance is zero, in the

following order:

a. First, any home equity debt,

b. Next, any grandfathered debt, and

c. Finally, any home acquisition debt.

2. Add together the monthly balances figured

in (1).

3. Divide the result in (2) by 12.

Complete line 9 of Table 1 by including the

average balance of the entire mixed-use mort-

gage, figured under one of the methods descri-

bed earlier in this section.

Example 1. On October 1, 1987, Sharon

took out a $1,400,000 mortgage to buy her

main home (grandfathered debt). On March 2,

2016, when the home had a fair market value of

$1,700,000 and she owed $1,100,000 on the

mortgage, Sharon took out a second mortgage

for $200,000. She used $180,000 of the pro-

ceeds to make substantial improvements to her

home (home acquisition debt) and the remain-

ing $20,000 to buy a car (home equity debt).

Under the loan agreement, Sharon must make

principal payments of $1,000 at the end of each

month. During 2016, her principal payments on

the second mortgage totaled $10,000.

To complete Table 1, line 2, Sharon must

figure a separate average balance for the part

of her second mortgage that is home acquisi-

tion debt. The January and February balances

were zero. The March through December bal-

ances were all $180,000, because none of her

principal payments are applied to the home ac-

quisition debt. (They are all applied to the home

equity debt, reducing it to $10,000 [$20,000 −

$10,000].) The monthly balances of the home

acquisition debt total $1,800,000 ($180,000 ×

10). Therefore, the average balance of the

home acquisition debt for 2016 was $150,000

($1,800,000 ÷ 12).

Example 2. The facts are the same as in

Example 1. In 2017, Sharon's January through

October principal payments on her second

mortgage are applied to the home equity debt,

reducing it to zero. The balance of the home ac-

quisition debt remains $180,000 for each of

those months. Because her November and De-

cember principal payments are applied to the

home acquisition debt, the November balance

is $179,000 ($180,000 − $1,000) and the De-

cember balance is $178,000 ($180,000 −

$2,000). The monthly balances total $2,157,000

[($180,000 × 10) + $179,000 + $178,000].

Therefore, the average balance of the home ac-

quisition debt for 2017 is $179,750 ($2,157,000

÷ 12).

Line 1

Figure the average balance for the current year

of each mortgage you had on all qualified

homes on October 13, 1987 (grandfathered

debt). Add the results together and enter the to-

tal on line 1. Include the average balance for the

current year for any grandfathered debt part of

a mixed-use mortgage.

Line 2

Figure the average balance for the current year

of each mortgage you took out on all qualified

homes after October 13, 1987, to buy, build, or

substantially improve the home (home acquisi-

tion debt). Add the results together and enter

the total on line 2. Include the average balance

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Page 12 Publication 936 (2017)

for the current year for any home acquisition

debt part of a mixed-use mortgage.

Line 7

If you have home equity debt, complete line 7.

The amount on line 7 can't be more than the

smaller of:

1. $100,000 ($50,000 if married filing sepa-

rately), or

2. The total of each home's fair market value

(FMV) reduced (but not below zero) by the

amount of its home acquisition debt and

grandfathered debt. Determine the FMV

and the outstanding home acquisition and

grandfathered debt for each home on the

date that the last debt was secured by the

home.

See Home equity debt limit under Home

Equity Debt, earlier, for more information about

fair market value.

Line 9

Figure the average balance for the current year

of each outstanding home mortgage. Add the

average balances together and enter the total

on line 9. See Average Mortgage Balance, ear-

lier.

Note. When figuring the average balance of

a mixed-use mortgage, for line 9, determine the

average balance of the entire mortgage.

Line 10

If you make payments to a financial institution,

or to a person whose business is making loans,

you should get Form 1098 or a similar state-

ment from the lender. This form will show the

amount of interest to enter on line 10. Also in-

clude on this line any other interest payments

made on debts secured by a qualified home for

which you didn't receive a Form 1098. Don't in-

clude points on this line.

Claiming your deductible points. Figure

your deductible points as follows.

1. Figure your deductible points for the cur-

rent year using the rules explained under

Points in Part I.

2. Multiply the amount in item (1) by the deci-

mal amount on line 11. Enter the result on

Schedule A (Form 1040), line 10 or 12,

whichever applies. This amount is fully de-

ductible.

3. Subtract the result in item (2) from the

amount in item (1). This amount isn't de-

ductible as home mortgage interest. How-

ever, if you used any of the loan proceeds

for business or investment activities, see

the instructions for line 13, next.

Line 13

You can't deduct the amount of interest on

line 13 as home mortgage interest. If you didn't

use any of the proceeds of any mortgage inclu-

ded on line 9 of the worksheet for business,

investment, or other deductible activities, then

all the interest on line 13 is personal interest.

Personal interest isn't deductible.

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Publication 936 (2017) Page 13

If you did use all or part of any mortgage

proceeds for business, investment, or other de-

ductible activities, the part of the interest on

line 13 that is allocable to those activities can

be deducted as business, investment, or other

deductible expense, subject to any limits that

apply. Table 2 shows where to deduct that in-

terest. See Allocation of Interest in chapter 4 of

Pub. 535 for an explanation of how to determine

the use of loan proceeds.

The following two rules describe how to allo-

cate the interest on line 13 to a business or in-

vestment activity.

If you used all of the proceeds of the mort-

gages on line 9 for one activity, then all the

interest on line 13 is allocated to that activ-

ity. In this case, deduct the interest on the

form or schedule to which it applies.

If you used the proceeds of the mortgages

on line 9 for more than one activity, then

you can allocate the interest on line 13

among the activities in any manner you se-

lect (up to the total amount of interest oth-

erwise allocable to each activity, explained

next).

You figure the total amount of interest other-

wise allocable to each activity by multiplying the

amount on line 10 by the following fraction.

Amount on line 9

allocated to that activity

Total amount on line 9

Example. Don had two mortgages (A and

B) on his main home during the entire year.

Mortgage A had an average balance of

$90,000, and mortgage B had an average bal-

ance of $110,000.

Don determines that the proceeds of mort-

gage A are allocable to personal expenses for

the entire year. The proceeds of mortgage B

are allocable to his business for the entire year.

Don paid $14,000 of interest on mortgage A

and $16,000 of interest on mortgage B. He fig-

ures the amount of home mortgage interest he

can deduct by using Table 1. Since both mort-

gages are home equity debt, Don determines

that $15,000 of the interest can be deducted as

home mortgage interest.

The interest Don can allocate to his busi-

ness is the smaller of:

1. The amount on Table 1, line 13 of the

worksheet ($15,000), or

2. The total amount of interest allocable to

the business ($16,500), figured by multi-

plying the amount on line 10 (the $30,000

total interest paid) by the following frac-

tion.

$110,000 (the average balance

of the mortgage allocated

to the business)

$200,000 (the total average

balance of all mortgages)

Because $15,000 is the smaller of items (1)

and (2), that is the amount of interest Don can

allocate to his business. He deducts this

amount on his Schedule C (Form 1040).

How To Get Tax Help

If you have questions about a tax issue, need

help preparing your tax return, or want to down-

load free publications, forms, or instructions, go

to IRS.gov and find resources that can help you

right away.

Preparing and filing your tax return. Find

free options to prepare and file your return on

IRS.gov or in your local community if you qual-

ify.

The Volunteer Income Tax Assistance

(VITA) program offers free tax help to people

who generally make $54,000 or less, persons

with disabilities, the elderly, and limited-Eng-

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ing their own tax returns. The Tax Counseling

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help for all taxpayers, particularly those who are

60 years of age and older. TCE volunteers spe-

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You can go to IRS.gov and click on the Fil-

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Getting answers to your tax law

questions. On IRS.gov get answers to

your tax questions anytime, anywhere.

Go to IRS.gov/Help or IRS.gov/LetUsHelp

pages for a variety of tools that will help

Table 2. Where To Deduct Your Interest Expense

IF you have ... THEN deduct it on ... AND for more information go to ...

deductible student loan interest Form 1040, line 33, or Form 1040A,

line 18

Pub. 970, Tax Benefits for Education.

deductible home mortgage interest

and points reported on Form 1098

Schedule A (Form 1040), line 10 this publication (936).

deductible home mortgage interest

not reported on Form 1098

Schedule A (Form 1040), line 11 this publication (936).

deductible points not reported on

Form 1098

Schedule A (Form 1040), line 12 this publication (936).

deductible investment interest (other

than incurred to produce rents or

royalties)

Schedule A (Form 1040), line 14 Pub. 550, Investment Income and

Expenses.

deductible business interest

(non-farm)

Schedule C or C-EZ (Form 1040) Pub. 535.

deductible farm business interest Schedule F (Form 1040) Pubs. 225, Farmer's Tax Guide, and

535.

deductible interest incurred to

produce rents or royalties

Schedule E (Form 1040) Pubs. 527 and 535.

personal interest not deductible.

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Page 14 Publication 936 (2017)

you get answers to some of the most com-

mon tax questions.

Go to IRS.gov/ITA for the Interactive Tax

Assistant, a tool that will ask you questions

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Go to IRS.gov/Pub17 to get Pub. 17, Your

Federal Income Tax for Individuals, which

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Delayed refund for returns claiming certain

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Getting a transcript or copy of a return. The

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Mail Form 4506-T or Form 4506T-EZ (both

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Go to IRS.gov/IDProtection for information

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Go to IRS.gov/Refunds.

Due to changes in the law, the IRS can’t is-

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Download the official IRS2Go app to your

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Use the Offer in Compromise Pre-Qualifier

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Go to IRS.gov and click on Where’s My

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Understanding an IRS notice or letter. Go to

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Contacting your local IRS office. Keep in

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Getting tax information in other languages.

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Taxpayers can find information on IRS.gov in

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Service Is Here To Help You

What is the Taxpayer Advocate

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The Taxpayer Advocate Service (TAS) is an in-

dependent organization within the IRS that

helps taxpayers and protects taxpayer rights.

Our job is to ensure that every taxpayer is trea-

ted fairly and that you know and understand

your rights under the Taxpayer Bill of Rights.

What Can the Taxpayer Advocate

Service Do For You?

We can help you resolve problems that you

can’t resolve with the IRS. And our service is

free. If you qualify for our assistance, you will be

assigned to one advocate who will work with

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Publication 936 (2017) Page 15

you throughout the process and will do every-

thing possible to resolve your issue. TAS can

help you if:

Your problem is causing financial difficulty

for you, your family, or your business,

You face (or your business is facing) an

immediate threat of adverse action, or

You’ve tried repeatedly to contact the IRS

but no one has responded, or the IRS

hasn’t responded by the date promised.

How Can You Reach Us?

We have offices in every state, the District of

Columbia, and Puerto Rico. Your local advo-

cate’s number is in your local directory and at

TaxpayerAdvocate.IRS.gov. You can also call

us at 1-877-777-4778.

How Can You Learn About Your

Taxpayer Rights?

The Taxpayer Bill of Rights describes 10 basic

rights that all taxpayers have when dealing with

the IRS. Our Tax Toolkit at

TaxpayerAdvocate.IRS.gov can help you un-

derstand what these rights mean to you and

how they apply. These are your rights. Know

them. Use them.

How Else Does the Taxpayer

Advocate Service Help Taxpayers?

TAS works to resolve large-scale problems that

affect many taxpayers. If you know of one of

these broad issues, please report it to us at

IRS.gov/SAMS.

Low Income Taxpayer

Clinics

Low Income Taxpayer Clinics (LITCs) serve in-

dividuals whose income is below a certain level

and need to resolve tax problems such as au-

dits, appeals, and tax collection disputes. Some

clinics can provide information about taxpayer

rights and responsibilities in different languages

for individuals who speak English as a second

language. To find a clinic near you, visit

TaxpayerAdvocate.IRS.gov/LITCmap or see

IRS Pub. 4134, Low Income Taxpayer Clinic

List.

To help us develop a more useful index, please let us know if you have ideas for index entries.

See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

Index

Acquisition debt 2, 9, 10

Alimony 5

Amortization:

Points 7

Appraisal fees 7

Armed forces:

Housing allowance 5

Assistance (See Tax help)

Average mortgage balance 11

Borrowers:

More than one 8

Seller-paid points, treatment by

buyer 7

Business:

Average mortgage balance, total

amount of interest otherwise

allowable to each activity 13

Mortgage proceeds used for 8

Clergy:

Ministers' and military housing

allowance 5

Cooperative housing 4, 5, 8, 9

Cost of home or

improvements 10

Credits 5

Date of mortgage 10

Debt:

Choice to treat as not secured by

home 4

Grandfathered 2, 10

Home acquisition 2, 9

Home equity 2, 10

Home equity only (Table 1) 11

Not secured by home 3

Secured 3

Deductions 2, 5

Home office 4

Points 7, 13

Deed preparation costs 7

Divorced taxpayers 5, 10

Emergency Homeowners' Loan

Program 5

Equity debt 2, 10

Equity debt only (Table 1) 11

Fair market value (FMV) 10

Fees:

Appraisal 7

Notaries 7

Points (See Points)

Figures (See Tables and figures)

Form 1040, Schedule A 8, 14

Form 1040, Schedule C or

C-EZ 14

Form 1040, Schedule E 14

Form 1040, Schedule F 14

Form 1098 8

Form 8396 5

Grandfathered debt 2, 10

Ground rents 5

Hardest Hit Fund Program 5

Home 2

Acquisition debt 2, 9

Construction 4

Cost of 10

Destroyed 4

Divided use 4, 10

Equity debt 2, 10

Equity debt only (Table 1) 11

Fair market value 10

Grandfathered debt 2, 10

Improvement loan, points 7

Main 4

Office in 4

Qualified 4

Renting out part of 4

Sale of 4

Second 4

Time-sharing arrangements 4

Housing allowance:

Ministers and military 5

Identity theft 15

Improvements:

Cost of 10

Home acquisition debt 9

Points 7

Substantial 10

Interest 2

(See also Mortgage interest)

Interest rate method 12

Refunded 5, 8

Where to deduct 14

Investments:

Average mortgage balance and

total amount of interest

allowable 13

Mortgage proceeds used for 5,

Joint returns 4

Lender mortgage statements 12

Limits:

Cooperative housing, mortgage

interest deduction 9

Deductibility of points 8

Home acquisition debt 9

Home equity debt 10

Home mortgage interest

deduction 9

Qualified loan limit 11

Line 10 8

Line-of-credit mortgage 10

Loans 8, 9

(See also Mortgages)

Home improvement, points 7

Qualified loan limit 11

Main home 4

Married taxpayers 4

Military housing allowance 5

Ministers' housing allowance 5

Missing children, photographs

of 1

Mixed-use mortgages 12

Mortgage interest 2

Cooperative housing 9

Credit 5

Fully deductible interest 2

Home mortgage interest 2, 5

How to report 8

Late payment charges 4

Limits on deduction 9

Ministers' and military housing

allowance 5

Prepaid interest 5, 8

Prepayment penalty 4

Refunds 5, 8

Sale of home 4

Special situations 4

Statement 8

Where to deduct 14

Worksheet to figure (Table 1) 11

Mortgage Interest Statement 8

Mortgages:

Assistance payments (under

sec. 235 of National Housing

Act) 5

Average balance 11

Date of 10

Ending early 8

Late qualifying 9

Line-of-credit 10

Mixed-use 12

Preparation costs for note or

deed of trust 7

Proceeds invested in tax-exempt

securities 5

Proceeds used for business 8

Proceeds used for investment 8

Qualified loan limit 11

Refinanced 7, 9, 10

Reverse 5

Statements provided by

lender 12

To buy, build, or improve 9

Wraparound 3

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Page 16 Publication 936 (2017)

Nonredeemable ground rents 5

Notary fees 7

Office in home 4

Penalties:

Mortgage prepayment 4

Points 5–8

Claiming deductible 13

Exception to general rule 7

Excess 8

Funds provided less than 8

General rule 7

Home improvement loans 7

Seller paid 7

Prepaid interest 5, 8

Prepayment penalties 4

Publications (See Tax help)

Qualified homes 4

Qualified loan limit:

Average mortgage balance 11

Worksheet to figure (Table 1) 11

Redeemable ground rents 5

Refinancing 7

Grandfathered debt 10

Home acquisition debt 9

Refunds 5, 8

Rent:

Nonredeemable ground rents 5

Redeemable ground rents 5

Rental payments 5

Renting of home:

Part of 4

Time-sharing arrangements 4

Repairs 10

Reverse Mortgages 5

Sale of home 4

Second home 4, 7

Secured debt 3

Seller-paid points 7

Separated taxpayers 5

Separate returns 4

Share of Interest 9

Special Method 5

Spouses 4

Statements provided by

lender 12

Stock:

Cooperative housing 9

Tables and figures:

Deductible home mortgage

interest:

Fully deductible,

determination of (Figure

A) 2

How to figure (Table 1) 11

Mortgage to buy, build, or

improve home (Figure C) 9

Points (Figure B) 5

Qualified loan limit worksheet

(Table 1) 11

Tax credits 5

Tax-exempt securities:

Mortgage proceeds invested

in 5

Tax help 14

Time-sharing arrangements 4

Valuation:

Fair market value 10

Worksheets:

Deductible home mortgage

interest 11

Qualified loan limit 11

Wraparound mortgages 3

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Publication 936 (2017) Page 17

2017 Publication 936 P936

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