J.K. Lasser's Your Income Tax 2015: For Preparing Your 2014 Tax Return

Chapter 15Itemized Deduction for Interest Expenses

On Schedule A of Form 1040, you may deduct three types of interest charges:

• Home mortgage interest, which includes interest on qualifying home acquisition loans (15.2) and home equity loans (15.3)
• Points (15.8)
• Investment interest (15.10), but only up to the amount of net investment income (15.10).

Premiums paid for qualified mortgage insurance on a principal or second residence will not be deductible for 2014 unless Congress extends the pre-2014 law authorizing the deduction (15.6).

Interest on personal loans (such as loans to buy autos and other personal items and credit card finance charges) is not deductible with the exception of qualifying student loan interest; see Chapter 33.

Interest on loans for business purposes is fully deductible on Schedule C. Interest on loans related to rental property is fully deductible from rental income on Schedule E. Whether interest is a business, investment, or a personal expense generally depends upon the use made of the money borrowed, not on the kind of property used to secure the loan. However, interest on a loan secured by a first or second home may be deductible as home equity mortgage interest regardless of the way you use the loan.

Interest on a loan used to finance an investment in a passive activity is subject to the limitations discussed in Chapter 10. However, if you rent out a second home that qualifies as a second residence, the portion of mortgage interest allocable to ...