John R. Bullis: Home mortgage interest tax information

What is paid for interest on qualified home mortgages can be an itemized deduction on Schedule A of form 1040.

The 2016 form 1098 reports the amount of interest paid and some new additional information. It is to show the balance of principal owed at Jan. 1, 2016, the date the mortgage began and the address of the property that secures the mortgage.

You might quickly estimate the rate of interest and think about refinancing if it will save you money.

That new information also helps IRS consider if the mortgage is “qualified residential debt” and therefore whether the interest really qualifies as deductible home mortgage interest.

If the mortgage (debt) began after Oct. 13, 1987, and it was to buy, build or improve you home then it probably is qualified if the total debt is not more than $1 million. Also you can have $100,000 of home equity debt (usually a line of credit) that is also secured by your home. The home equity loan proceeds do not have to be used to buy, build or improve your home. It qualifies as deductible interest even if you used it to buy a vehicle, go on a trip or some other expenditure.

Our Ninth Circuit Court of Appeals held in August 2015 that the debt limits apply to unmarried owners, not the property. So if two individuals that are not married bought a home, they each can have deductible home mortgage interest on debt of $1 million. That’s a total of up to $2 million of debt on the home. Also, each of them can have up to $100,000 of home equity debt. However a married couple is limited to $1 million qualified debt and $100,000 of home equity debt.

That sounds to me like just another penalty for being married. On the other hand, not many folks have mortgages of more than $1 million.

Congress long ago decided everyone should be able to deduct home mortgage interest on two homes. A second home, condo, mobile home, trailer, boat or similar property qualifies if it has sleeping, cooking and toilet facilities. Just remember the debt must be secured by the home and it must be recorded in the county records.

That means if you loan money to a child or someone else so they can buy a home, the debt (promissory note, etc.) must be recorded in the public records for the borrower to have deductible home mortgage interest. The borrower must have legal, equitable or beneficial ownership of the mortgaged property.

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser. He is founder emeritus of Bullis and Company CPAs.