Interest is the amount you pay for borrowing money. You must be
legally liable for the debt of the borrowed money to be able to
deduct the interest paid. Most interest is deductible if you
itemize your deductions, unless the interest is on a rental or
business property, or a student loan.
Home mortgage interest is paid on a loan secured by your main or
second home. The loan can be a loan to buy your home, a home equity
loan, line of credit, or a second mortgage. Most home mortgage
interest is reported on Form 1098 by the financial institution to
which you make payments.
Your main home is the home where you live most of the time. The
home can be a house, cooperative apartment, mobile home,
condominium, mobile home, house trailer, or a houseboat with
sleeping, toilet, and cooking facilities.
Your second home is any other residence you own and treat as
your second home. You do not have to use the home during the year;
however, if you rent it to others, you must also use it as a home
for 14 days or 10% of the number of days you rent it, whichever is
If your mortgages fit into one or more of these categories at
all times during the year, you can deduct the interest on the
If your mortgage doesn't fit into one of these categories, you
may be able to deduct a portion of the interest paid.
Investment interest is paid on debt to purchase or carry
property held as an investment. You can deduct investment interest
only to the extent of your net investment income.
Investment interest includes:
Investment income includes:
You cannot deduct personal interest. Personal interest is
interest paid on a loan to purchase personal property such as a
car, credit card, installment interest for personal expenses, and
other non-business related properties.
For more information please see IRS Tax
Topic 505 - Interest Expense.