Can I factor mortgage prepayments into mortgage credit calculations? (I have an MCC). I know I can't *deduct* them, but what if I paid $400 of 2020's interest in 2019?

[ced67]

I know I can't deduct mortgage prepayments, but I have a Mortgage Credit Certificate. If I made two of 2020's payments before December 31st of 2019, can I factor the interest portion of those into my MCC calculations?

[JulieS]

No, you can't. The amount you enter for mortgage interest that you paid cannot be more than the amount reported by your lender in box 1 of Form 1098.

This is the IRS instruction for Form 8396, line 1:

"Enter the interest you paid during the year on the loan amount shown on your MCC. In most cases, this will be the amount in box 1 on Form 1098, Mortgage Interest Statement, or on a similar statement you received from your mortgage holder. If the loan amount on your MCC is less than your total mortgage loan, you must allocate the interest to determine the part that relates to the loan covered by the MCC."

The instructions to the lender for Form 1098, clearly state that prepaid interest should not be included in box 1. Click here to learn more.