AMT and mortgage interest

[AccTaxMan]

If I remember correctly, AMT would only recapture the tax benefit of real estate property tax, but it has no effect on the mortgage interest deduction of the primary home loan. Is it right?

[AccTaxMan]

Let me rephrase my question in this way:

Taxpayer receives a mortgage interest statement in December and he has the grace period to pay it until January next year. If the taxpayer decides to make the payment before the end of this year, are there any special situations that the AMT would negate the tax benefit?

[Roland Slugg]

Your second post didn't "rephrase" the first one; instead you asked a completely different Q. I'll reply to both.

Regarding your first Q ... In recalculating taxable income for AMT purposes, ALL taxes deducted on Schedule A are added back, not just real estate taxes. (Code §56(b)(1)(A)(ii))

Regarding your second Q ... The interest portion of mortgage payments that most people pay on or shortly after the 1st of each month is actually the interest that accrued during the month just ended. A payment paid, say, on January 5, 2016 pays the loan's interest for the month of December 2015. Thus, a borrower can pay his January 1st 2016 payment in December 2015 and deduct the interest portion on his 2015 income tax return ... if he itemizes. Savvy taxpayers know this and routinely do it whenever they want the deduction in the current year. Anyone doing this would be well-advised to make the payment several days before year-end ... say NLT December 22nd or 23rd if a check is mailed ... in order that the lender processes the payment and includes it on that year's F-1098. For payments that are paid electronically, a payment can probably be submitted up until the last business day of the year, although to be safe it would be prudent to do it one or two days earlier anyway. If payments are "auto-paid," it will be necessary to contact the lender and arrange for the payment to be paid earlier than its normal pay date. For some payments it may be possible to make a one-time change like that online.

Mortgage interest that's deductible for regular tax purposes is also deductible for AMT purposes, with one exception. Mortgage interest on loans that were not used to acquire or improve the residence is not deductible when figuring AMTI. This would apply, in most cases, to home equity loans. For more information about this point see Code §56(b)(1)(C) and §56(e).