Since may of 2005 I have had a minimum payment mortgage on my house. I have incurred, this year alone, $3700 in deferred interest which was added to the principal of my loan each month. I was wondering if I can declare that deferred interest as a deduction on my 2006 US income taxes. I was also wondering if I could also deduct the deferred interest from the previous year since I didn't use on my previous years tax form. Thanks in advance.
Deferred interest is not interest you paid. You can only deduct the interest you paid.
-- Alan
Did "they", meaning mortgagee, send you a form 1098 for 2005? Probably not. Will you get one this year? Probably not.
So call them and ask why not.
ChEAr$, Harlan Lunsford, EA n LA
If he borrowed money on his credit card and paid with that, he'd get the deduction. How is this different? Stu
How would he claim the deduction? The credit card company does not have the necessary perfected lien against the property. Or has the law been changed so that we can claim such things as credit card and auto loan interest again? Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans
It is different in that he did not borrow money on his credit card. Analogies almost never work when resolving tax issues.
It's a minimum payment mortgage. Each monthly payment is less than the actual interest owed. The unpaid interest is added to principal. A cash basis taxpayer can not deduct interest unless the taxpayer actually pays the interest. In this case, the debt is growing each month.
-- Alan
The credit card would have to be through a different bank.
Interest paid on the credit card loan wouldn't be deductible. Seth
You're right, I was thinking about the old days. Or the credit card is really a separate line of credit secured by a mortgage in the house. In the normal case spending borrowed money is deductible if the payment would otherwise be deductible with unborrowed money. So why is this situation any different? Stu
He borrowed on his credit card and paid that as mortgage interest. The mortgage interest is deductible. Interest on the credit card loan isn't. (I've done that, because the credit card loan was at 0%, so I let my money earn interest.) Seth
replying to A.G. Kalman, Roberta wrote: Can the deferred interest that has been added to your mortgage loan over the last 5 years be deducted in the year the loan was paid off
Yes, you deduct the deferred mortgage interest in the year you pay it. The above answer assumes that 1. The interest meets the definition of qualified mortgage interest. See page 2 of IRS Pub 936. 2. You are asking about the amount that represents the difference between the loan balance and the principal.
The Form 1098 that you receive from the lender should reflect the amount of interest you paid in the year you paid off the loan.
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