Interest paid is deductible in many cases if the taxpayer was legally liable for the debt. Refer to the table below.
Where to Deduct Interest Expenses Paid
|Form of Debt||Deduct Interest On|
|Investment Debt||Form 4952 -> Schedule A|
|Investment Debt - Royalties||Schedule E|
|Qualified Home Mortgage||Schedule A|
|Business Property||Schedule C, E or F|
|Rental Property||Schedule E|
|Student Loan Interest||Form 1040 Schedule 1|
|Personal Debt Interest||Not deductible|
Qualified Home Mortgage Interest
For tax years beginning in 2018 and through 2025, the deductible amount of home mortgage interest paid varies depending on the date of the mortgage, the amount of the mortgage, and how the taxpayer uses the proceeds. A qualified home is the taxpayer's main home or second home.
- Mortgages taken out on or before October 13, 1987 - There are no limits. Interest is fully deductible regardless of how the proceeds of the loan are used.
- Mortgages acquired after October 13, 1987 and before December 15, 2017 - The combined acquisition debt on the taxpayer's main and second home is limited to $1,000,000 ($500,000 for MFS filing status). In order to deduct interest paid, the proceeds must have been used to buy, build or substantially improve the taxpayer's main or second home.
- Mortgages acquired after December 15, 2017 - The combined acquisition debt on the taxpayer's main and second home is limited to $750,000 ($375,000 for MFS filing status). In order to deduct interest paid, the proceeds must have been used to buy, build or substantially improve the taxpayer's main or second home.
Home equity debt acquired after December 15, 2017 - The deduction for home equity interest is suspended unless the proceeds are used to buy, build, or improve the home that secures the loan.
The deduction for investment interest expense is limited to the taxpayer's net investment income. The amount not allowed due to the deduction limit can be carried forward to the following year. Note that on a brokerage statement the phrase "margin interest" is investment interest.
Complete Form 4952 to calculate the amount of investment interest expense that can be deducted in the current year and the carryforward, if any. Form 4952 does not have to be be completed if all of the following apply:
- Investment interest expense does not exceed investment income from interest and ordinary dividends minus qualified dividends, and
- The taxpayer has no other deductible investment expenses (e.g., depreciation, depletion, and any expense reported on Form 1099-INT or 1099-OID), and
- The taxpayer has no carryforward of disallowed investment interest expense from the prior year.
In TaxSlayer Pro, to enter investment interest in Schedule A if Form 4952 is not required, from the Main Menu of the tax return (Form 1040) select:
- Itemized Deductions
- Interest You Paid
- Investment Interest - Click Ok, then enter the amount