General Rule for Interest Deduction

• The IRS rules regarding interest deductions are complex and complicated; however, there are some general rules to consider. In order for the interest you paid on a mortgage to be fully deductible, it must fit into one of three categories. The first is for loans taken out prior to October 13, 1987. The second applies to loans taken out after October 13, 1987 but only if the total of all your acquisition loan debt was one million dollars or less -- $500,000 or less if filing married filing separately--during the tax year. Finally, if the loan was taken out after October 13, 1987 for a home equity loan and all loans totaled less than $100,000 -- $50,000 if married filing separately -- during the tax year and totaled no more than the fair market value of your home minus any loans from the first two categories.
  
  

Co-owners Interest Deduction

• If you are the co-owner of a home, and the other owner is someone other than your spouse, or you and your spouse are not filing a joint return, then you may still be entitled to deduct the amount of interest you personally paid during the year. One of the owners will receive a Form 1098 from the lender showing the amount of interest paid during the year. If you paid all of the interest, then you are entitled to deduct the entire amount shown on the Form 1098. If you only paid a portion of the interest, then you are only entitled to deduct the portion that you paid and the other owner will be entitled to deduct the remainder.
  
  

Other Home Deductions

• In addition to mortgage interest, a homeowner may also be able to deduct sales taxes, real estate taxes and home mortgage insurance premiums. The same basic rule applies to these deductions as applies to the interest deduction. If you were actually responsible for paying all of the taxes and insurance premiums, then you are allowed to deduct the full amount allowable under the IRS rules. If you only paid a portion of the taxes or insurance premiums then you must prorate the amounts paid between you and the other owner.
  
  

Forms

• All itemized deductions are listed on Schedule A which is attached to your Form 1040 (see Resources). If you are claiming a mortgage interest deduction as a co-owner, you must attach a copy of the Form 1098 received by you or the co-owner along with a statement explaining why you are deducting the amount you are claiming. Instructions for completing Schedule A can also be located on the IRS website or by contacting the IRS by telephone or in person.