Mortgage Interest Limit

[dmofford120]

If I enter the 1098 for my low interest (introductory rate) HELOC, the calculation to limit the mortage interest deduction looks like it is prorated and actually ends up increasing my federal taxes by almost a $1,000.  Is it required to enter the 1098 if I am clearly over the $750,000 limit?

[RaifH]

No, it is not required. However, once the introductory rate expires, it does require IRS consent to put the HELOC back on your tax return in future years. 

Also, if the HELOC was used to pay for anything besides substantially improving, acquiring, or building your home, the debt is considered home equity debt, not home acquisition debt. In that case, the interest paid is not deductible and the HELOC would not be included on your tax return. 

[dmofford120]

It was entirely used to finish the home, we just didn't want to have it built into our long term mortgage as we will be paying it off in less than a year.  Thanks for the answer.

Can I ask one more question.  I have a situation where the mortgage company sold the mortgage.  I have points that I was allocating over the life of the mortgage.  When I put that the first mortgage was paid off it deducts the entire amount.  So I ended up not putting it on the first one and just put it on the new mortgage provider.  Is that correct?  This way it will continue to amortize over the life the loan.

[PatriciaV]

Yes, you may continue to amortize the points. IRS Publication 936 states on page 9:

“If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. However, if you refinance 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 prepayment, refinancing, foreclosure, or similar event.”