More on Mortgage Interest

[S T]

Has anyone else noticed that the mortgage companies are including prepayment penalties (early loan pay out) on the 1098 form. Regular mortgage interest of $6,655 and prepayment penalty of $6,787.

How do we treat that, when we have possibily mortgage over limits?

Original loan $263,815, payoff on refinance included, a separate stated prepayment penalty of $6787. Refinanced loan is $380,000 which includes all of the old payoffs including prepayment of $6,787 and new costs of new loan including finance costs of $3383, and points of $3800.

Can we separate out the prepayment for 100% deduct on the old loan.

New Loan is $380,000, so with all of the above costs am I over the $100K limit?

Any help or guidance would be appreciated!

Sandy

[jainen]

won't get a full deduction

>>Can we separate out the prepayment for 100% deduct on the old loan<<

The acquisition debt has been paid down to $263,815 and will remain at that amount until the rest of the new loan gets paid off.. The prepay penalty and all the new loan costs were paid with proceeds from the equity portion of the new loan.

If you want to be exact, he has $16,185 of non-qualified home equity debt (beyond the 100K limit), so approximately 4% of his interest is not deductible. I wouldn't worry about that, just tell him if he refinances again to take any more cash out, he won't get a full deduction.

[S T]

Mortgage Interest

Thanks Jainen,

You always make it seem so easy, I don't know why I have to complicate it. Gradually I am beginning to understand this Qualified Mortgage Interest, I think! But I will more than likely have another one I don't understand.

Fortunately on this client, they sold the home Jan 2007. What a waste, it cost them a fortune in costs and prepay penalties.

Sandy