Prepaid interest.
If you pay interest in advance 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 deduct in each year only the interest that qualifies as home mortgage interest for that year. However, there is an exception that applies to points, discussed later.
If the points were paid on an original mortgage loan they are generally fully deductible in the year paid. If this is not an original loan read on.
Points also known as loan origination fees are deductible:
- Here is information you may find important about loan origination fees/points. The loan origination fees on the original loan can be deducted in the year you paid them as long as the loan proceeds were used to buy, build or improve the home. If there are loan origination fees on a refinanced loan they will have to be amortized over the life of the loan to the extent there was not additional funds used to buy, build or improve the home. If extra money was borrowed to buy, build or improve the home the points attributable to that portion can be deducted in the year of the refinance, while the rest of the points should be deducted over the life of the mortgage each year until it ends.
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Loan or mortgage ends. If your loan or mortgage ends, you may be able to deduct any remaining points (OID) in the tax year in which the loan or mortgage ends. A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. However, if the refinancing is with the same lender, the remaining points (OID) generally are not deductible in the year in which the refinancing occurs, but may be deductible over the term of the new mortgage or loan. Simply divide the total or adjusted amount by the number of months of the life of the loan. This needs to be tracked until the loan is paid off.
In TurboTax Premier follow these steps to enter your interest.
- Federal Taxes > Deductions & Credits > Your Home > Mortgage Interest > Follow the prompts to enter your expense
- Click the screenshot to enlarge and view
