How to Write Off Accumulated Interest & Penalties for an Unpaid Property Loan
The IRS tax laws allow you to only write off mortgage interest, prepayment penalties and property taxes on your unpaid property loan during the current tax year beginning January 1 and ending December 31. You can also deduct points you paid to your lender during the tax year you purchased your property. The mortgage interest deduction applies to all real-estate loans, including home equity loans, lines of credit or credit-card loans. Deductions on loans secured by your personal residence or second home used for personal use only can be taken on mortgage balances totaling up to $1,000,000 for two qualified homes. Mortgage interest write-offs on investment property are taken against income received.
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Things You'll Need
- IRS Form 1098 for personal residences or second homes
- IRS Form 4952 for investment property
- IRS Form 1040 or 1040A for itemized deductions
- Canceled checks or receipts for mortgage payments, pre-payment penalties, interest, points and property taxes
- Turbo Tax Software, or a hire a tax professional to prepare your income tax return
Instructions
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Mortgage Interest Deductions
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Mortgage Interest Deductions Keep copies of canceled checks, lender statements and receipts for your mortgage loan payments so you can calculate and deduct the mortgage interest, any borrower paid points you paid when you purchased your personal residence, second home or investment property, property taxes and prepayment penalties for the current tax year on your income taxes.
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Mortgage Interest Deductions Obtain Form 1098 Mortage Interest Statement for personal residence or second home mortgage interest paid or Form 4952 Investment Interest Expense Deduction for investment property mortgage interest paid from your lender for reporting to the IRS. Your lender must provide you with the forms documenting receipt of mortgage interest, pre-payment penalties and borrower points paid by you to them during the calendar year which total $600 or more.
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Mortgage Interest Deductions Use Turbo Tax Software, or hire a tax preparer to prepare your income tax return and take your deductions. You will save money on your taxes by using the mortgage interest deduction and property-tax write-offs.
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File your return online or by mail, and attach copies of Form 1098 or Form 4952, whichever is applicable. Keep copies of your income-tax return in case you are audited by the IRS. Retain filing confirmation or a proof of mailing receipt if you send your return by delivery other than by regular mail.
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Tips & Warnings
You can only write off mortgage interest deductions, property taxes and pre-payment penalties during the current tax year. Points paid to your lender can only be deducted for the tax year you purchased the property. Real estate property taxes are deductible only if they are based upon your assessed property value, and the municipality charges the same uniform tax rate for all property in your area.
References
Resources
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