 Income tax 2022-2023. Itemized deductions, interest you paid. Let's do some wealth preservation with some tax preparation. Support Accounting Instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Most of this information comes from the Schedule A Tax Year 2022 instructions you can find at the IRS website irs.gov irs.gov. Looking at the income tax formula we're focused down here at the itemized deductions. Remembering that the first half of the income tax formula is in essence an income statement although a strange one. We've got the income minus the equivalent of expenses being the deductions getting down to the equivalent of net income that being taxable income. Everything's topsy-turvy for taxes meaning we want taxable income as low as possible as opposed to normally when we want net income as high as possible. In prior presentations we talked about what needs to be included in income. We talked about what might be called the above the line deductions or adjustments to income to get to the subtotal of AGI adjusted gross income. An important number because it's the number often used to figure phaseouts for deductions and credits as income levels increase. Then we have the equivalent or what might be called the below the line deductions our focus now the greater of the standard or itemized deductions. We now focused on the itemized deductions to get us to the taxable income. Looking at page one of the form 1040 we're on line 12 standard or itemized deductions only taking the itemized deductions when they clear the standard deduction thresholds. Looking at schedule A now we're focused on the interest paid for the itemized deductions. Now this is one of the big ones and let's just do a quick little recap on it because if you own the home if you own a home then likely you have a loan on the home. And the interest could be a significant factor in terms of a deductible item on the home and then the other factor is the property taxes on the home. The combo between those two are usually the big items that could be pushing people over from a standard deduction to an itemized deduction. Now we have to be careful when we talk about the home loan interest because if we're doing tax preparation it's pretty straightforward. If they had if they paid interest then we can go through the deductions here we'll look at the limitations shortly. But you often get questions about should I purchase a home should I purchase or rent for my living conditions. And oftentimes when people talk to professionals in the real estate market they're talking to like mortgage brokers or other individuals bankers and whatnot that might benefit from issuing a loan. So that kind of makes their opinion a little bit biased and it's easy to kind of overstate sometimes the benefit of the interest paid on a loan. So if you get that kind of question I would think the general answer would be well it depends on the situation you do get to deduct the interest that you're going to be paying on the loan. But that doesn't necessarily mean that that's always like a good circumstance to do because for example in this example we're deducting 17000. But if that still only barely brought us over the 12950 standard deduction or the 25900 and remember the standard deductions were increased a couple years ago then then it's not going to give me a whole lot of benefits. See this 24,017 right here for example if that if if I was dealing with a married couple that had a $25,900 standard deduction then they wouldn't even be benefiting from it right. And if this number was just barely over the 25,900 even though they got a $17,000 deduction for the interest that they paid they didn't get that much of benefit. Because they barely just cleared the standard deduction which is fairly high these days. So you've got to really kind of be careful to parse out what you mean by a deduction. So yeah you get to deduct an itemized deduction of the 17,000 but how much actual benefit has that given you given the fact that you could have taken the standard deduction. How much difference between the standard deduction and itemized deduction is there. So the only way to really determine that with accuracy is to actually do some tax preparation. Now the law and look at the difference. So you actually have run the tax return a few different ways run the scenario and see what the actual savings are. And so that's something that's useful to be pointing out to clients and it might have an opportunity in some cases for some work with some projection type of type of analysis from time to time. Now the other thing just to keep in mind with the interest that is paid. It's kind of an unusual circumstance because remember when we're talking about something that's deductible for income taxes. You would expect that the things that you had to expend to generate the income would be the natural deductible items as you can see like on a schedule C where we have an income statement and the expenses that you needed to consume to generate the income are business deductions. That makes sense because you wouldn't want to tax people on gross income but on the net income. However when we're dealing with individuals who are W2 filers that means that their employer is the one that is assumed to have taken on those expenses. So we don't have those kind of of deductions which kind of leads us to have a weird idea of the kinds of things that should be deductible in an income tax type of system. Because then the things that start to get deducted are things that are trying to influence our behavior or there's some other kind of rationale for the tax code deducting them like the medical expenses. That's just people just wanted to add the medical expenses because that might help people that have higher medical costs would possibly be the argument. It's possibly also beneficial for the medical industry taxes that are paid. It's kind of weird that we deduct personal taxes that are paid. That's kind of a straight like why I don't really know because it's not there. We didn't need to pay the taxes to generate the income and now we're talking about the interest. So if you paid interest for a loan that you then used for the business then the interest might be deductible on the schedule C which would kind of make sense because you needed to take up the loan. You needed to rent the purchasing power of the money in order to purchase equipment or something or whatever to get the business going. So that would be a natural type of business expense. However interest paid for the home doesn't seem like it would be a natural business expense because that's a personal item. So this is another kind of weird area of the tax code. Why is it deductible possibly because the arguments would be that they want to incentivize home purchases. And so that's kind of the argument to put that on there. Obviously the real estate industry probably has some influence over wanting that to be a deductible component as well. So it kind of confuses things in terms of what kind of interest is deductible because credit card interest is not a deductible item for itemized deductions. Generally we talked about student loan. Well the first 10 million went to pay off student loan. Interest which might be like an above the line deduction which has a different incentive to incentivize or people educating. And obviously again from a pessimistic standpoint that the public schools the education industry the colleges obviously have a have a political influence on wanting the loans to be to be given because they're the ones that are getting the revenue from the loans and so on and so forth. So we've got this weird dynamic of what kind of interest is deductible and it doesn't follow the normal rule that you would expect which would be you would just have a deduction when it was applicable to the generation of the income. These are deductions for interest that are related to personal kind of items. So that also leads to some worry in terms of the tax code going forward. You can imagine as they did before they increased the standard deduction which actually lowers a little bit of the benefit for the interest payment deduction and obviously the tax code could change more favorably or less favorably going forward. It would be kind of unusual that they would just whip out and pull the rug out from under you by not allowing mortgage interest deductions at all going forward because people are doing long term planning on it. So even if it wasn't a good idea to add it at the beginning now that it's entrenched and it's such a long term planning thing. It would be unlikely I would think that the tax code would just wipe it out completely all of a sudden although you never know what happens with the tax codes funny things happen. So in any case these are the standard deductions that need to be cleared and they were increased a few years ago. So even with the mortgage interest and property taxes it might not be like so easy to kind of clear these and therefore the benefit is not quite a stark for many home purchasers as it as it was before that. Alright so interest you pay the rules for deducting entries vary depending on whether the loan proceeds are used for business personal or investment activities see publication 535 for more information about deducting business interest expenses. So if you had a schedule C then the interest that you paid would basically be business related or something like that and then you would go there publication 535 for more information about the possibility of deducting it. See publication 550 for more information about deducting investment interest expenses. Now the investment interest expenses is kind of interesting and usually you think that might come into play more for more well off individuals. But it makes sense from a normal kind of deduction standpoint because if you borrowed money in order to make an investment then the interest that you're paying on the borrowed money is the cost of that's the rent on the borrowed money. So you would expect that would be kind of a deductible item. You can deduct qualified mortgage interest on your schedule A and interest on certain student loans on schedule one. We talked about the student loans before that's an above the line deduction. So even if you're not able to itemize you might be able to take that this we're talking about the itemized deductions which means you have to clear the standard deductions to take them. Generally that's the home loan interest and then there's qualifications in terms of how much of that you can you can deduct. So so there's that if you use the proceeds of a loan for more than one purpose for example personal and business you must allocate the interest on the loan to each use. So here's where it gets of course messy because when you take out a loan you may have to specify what you're using it on and so on but you might use it for multiple different things. And so when you're getting the loan might be easy to get one loan that you're then allocating to multiple things and when you're talking to the bank in order to get better rates. It's often useful to secure the loan in some way with something as collateral so that if you don't pay the loan the bank has a recourse and the most valuable and stable thing that most people have is a home. Right. So now you've got this situation where where if I take a loan out I might have used the proceeds for different types of things and collateralized it with a personal asset versus or a business asset or what not. And that's where it gets kind of messy and you have to allocate the proceeds to the proper place. So you allocate interest on a loan in the same way as the loan is allocated. So you do this by tracing just disbursements of the debt proceeds to specific uses. So how would you allocate the interest you could you could the general idea you would think conceptually would be well I took out $100,000 loan. I paid 40% of it for this use business use and 60% of it for personal use and therefore you would think you would use those same kind of ratios on the interest payments of the loan would be one way that you might conceptualize. How you do that kind of allocation. But if you're in that situation for more information you can go to allocating interest C publication 535. In general if you paid interest in 2022 that applies to any period after 2022 you can deduct only amounts that apply to 2022. So we have the same problem here in that if we're in a cash based system you might say well I'm just going to prepay all the interest. You could people come up with schemes like this they're going to say I'm going to just prepay the interest so I get more deductions up front sooner at this point in time. And the IRS is going to limit that by saying no you can't you know we're going to limit the amount of prepayment that you can make. And so anytime you get that idea I'm going to make a big prepayment and lower my taxes now then you know make sure that you check if you can do that. So you schedule A to deduct qualified home mortgage interest and investment interest. So line eight home mortgage interest a home mortgage is any loan that is secured by your main home or second home regardless of how the loan is labeled. So it includes first and second mortgages home equity loans and refinance mortgages. So that's the general concept when you purchase the home usually people can't pay just cash for the home. They take out a loan on the home and the loan is going to use the home as collateral. Therefore if you default on the home then the bank could have recourse to it. Some people kind of confuse that whole term and say the bank owns the home by the way which is kind of annoys me sometimes because it's not exactly right. You own the home and the home is on as collateral because the bank the bank can't come to your home and decide to paint your home gray or something like that because they don't own your home. Even if you even if you financed 80% of it right they can't decide what to do with the home. But if you default on the loan then they have limited recourse of recall in the home for closing I should say. So a home can be a house condominium corporative mobile home boat or smaller property. It must provide basic living accommodations including sleeping space toilet and cooking facilities. So you can get into this issue what qualifies for a home. It's a pretty broad qualification as you can see here for a home actually you know but you have to have the general amenities that would be necessary for a home. So check the box online eight if you had one or more home mortgages in 2022 with an outstanding balance you didn't use all of your home mortgage proceeds from those loans to buy build or substantially improve your home. Interest paid on home mortgage proceeds used for other purposes isn't deductible on lines 8A and 8B. So now we get into this kind of messy situation where obviously if you purchase the home and you got the loan for the purchase of the home it's pretty straightforward. If you if you refinanced the home or something like that and then and you use the proceeds for rebuild or adding to the home or something like that. It's still like you're investing in the home but that's different than taking a loan out using the home as collateral because the bank would still like to use the home as collateral. Even if you took the money and bought a bought a hundred thousand dollar car or something like that which you would assume isn't something that the IRS would want to be incentivizing typically. So now you've got this weird situation where it looks kind of like a loan that might be deductible because they use the home as collateral. But they didn't actually use the money for the purchase of the home. They used it to buy a car which isn't something you think would be. So see limitations on home mortgage interest later for more information about what interest you can include on lines 8A and 8B. Tip if you are a homeowner who received assistance under a state housing finance agency hardest hit fund program or an emergency homeowner's loan program. You can see publication 530 for the amount you can deduct online 8A or B. Tip if you used any home mortgage proceeds for a business or investment purpose interest you paid that is allocable to those proceeds may still be deductible as a business or investment expense elsewhere on your return. Meaning you use the home as kind of collateral for for proceeds that might have gone somewhere else but they were business related. And if they're business related even even though you use the home a personal asset as collateral you would think you might be able to deduct the interest as a business deduction in that in that case because you took the loan out for the business. So schedule C or something like that limits on home mortgage interest your deduction for home mortgage interest is subject to a number of limits. If one or more of the following limits applies see publication 936 to figure your deduction. So limit for loan proceeds not used to buy build or substantially improve your home. So that's generally what you would think you're doing with the loans right when you first buy the home you get a loan so you can buy the home. When you when you refinance the loan you're refinancing usually to get a better rate but you might be pulling out money. And if you refinance and pull out money from the loan if you're using that to build or improve the home it's still kind of going into the home. But if you use it for other reasons that's when it gets messy because now now that's a different situation. So you can only deduct home mortgage interest to the extent that the loan proceeds from your home mortgage are used to buy build or substantially improve the home securing the loan qualifying debt. So that's the term qualifying debt. So make sure to check the box on line eight if you had one or more home mortgages in 2022 with an outstanding balance and you didn't use all the loan proceeds to buy build or substantially improve the home. So the only exception to this limit is for loans taken out on or before October 13 1987 the loan proceeds for these loans are treated as having been used to buy build or substantially improve the home. See publication 936 for more information about loans taken out on or before October 13 1987. So they changed the laws and they had to have a cut off dates in terms of what loan qualifications were and so on. We have this similar thing that we've seen in the past. Whereas if people planned on the law being the same before on this long term kind of planning thing because we're talking about these long term loans a 30 year loan oftentimes. And you want to change the rule because the last rule was stupid. Then you can't really change it retroactively for deals that have already been made. So we end up with these cutoffs to try to fix things going forward without hurting the people that made decisions based on the stupid law that what happened before or whatever. But you know that was the law and that's what they made the decision on. So that's they're not stupid. The law is stupid. But then they made the decision on the law that was any case. See publication 936 to figure your deduction. If you must check the box online 8 limit on loans taken out on or before December 15 2017 for qualifying debt taken out on or before December 15 2017. You can only deduct home mortgage interest on up to $1 million or 500,000 if you are married filing separate of that debt. So when you first look at that $1 million number, you might think that's the home purchase price. But no, we're talking about the amount related to the debt. So normally when you purchase the home, you have the amount of the purchase price possibly putting 20% down or something like that. And then the financed amount, the financed amount is what we are talking about here. So for most people, that's a fairly high number. However, if you're in a high cost of living area and or dealing with more wealthy individuals, they can hit basically that number. They can hit that cap. And then the question is if that happens, how are you going to be allocating the interest because you're going to get a 1098. And then the question is how much of that interest is going to be deductible if you're dealing with a loan that is over the cap. So the only exception is for loans taken out on or before October 13, 1987. You can see publication 936 for more information about loans taken out on or before October 13, 1987. So we've got some kind of some key points or dates when laws have changed. And this is common when you're dealing with tax law that's going to have a significant impact in planning over time. Such as we have here, because the mortgage interest is going to affect people's long term planning as they're taking out loans that might be taken out for like fit for like 30 years. So now when they put in a law, oftentimes they're going to say, okay, you majored 30 year long decision or whatever based on the prior law. So we're going to try to put the new law in so it doesn't mess up your decision making in the past. And it's going to be applicable for this point going forward. That adds more confusion to the code, but you could see why they might do that. And also just note there's no requirement that they will do that. It's possible that the law could be put in place and just change the rule altogether at this point in time. But oftentimes to try to make everybody happy, they're going to put the law in place to kind of change things from one point going forward. So see publication 936 to figure your deduction if you have loans taken out on or before December 15, 2017 that exceed $1 million, $500,000 if you are married filing separately. So if you hit that situation where you're over that $1 million and you have the loan taken out before December 15 to figure out the interest allocation, you can go to publication 936 for more detail. Limit on loans taken out after December 15, 2017. So now we've got the cutoff date and we're after that point in time for qualifying debt taken out after December 15, 2017. You can only deduct home mortgage interest on up to $750,000. This also being the rule that we want to kind of keep in mind at this point in time when people are thinking about renting or purchasing a home and so on. How much of the interest might be deductible and whatnot. So it's $375,000 if you are married filing separately of that debt. So same kind of thing applies here. If you also have qualifying debt subject to $1 million limitation discussed under limit on loans taken out on or before December 15, 2017. Earlier, the $750,000 limit for debt taken out after December 15, 2017 is reduced by the amount of your qualifying debt subject to the limit on the $1 million limit. And then an exception exists for certain loans taken out after December 15, 2017. But before April 1, 2018, if the exception applies, your loan may be treated in the same manner as a loan taken out on or before December 15, 2017. If that case applies, you can see publication 936 for more information about this exception. And then you can see publication 936 to figure your deduction if you have loans taken out after October 13, 1987 that exceed $750,000, $375,000 if you are married filing separately. So if you have more wealthy individuals or you're dealing with someone that's in a high cost of living area that has a high loan amount, you can go into that publication to try to figure out the amount of the interest that is deductible in that situation. Then we have the limit when loans exceed the fair market value of the home. Now, this shouldn't happen normally because normally the bank obviously doesn't want to have a situation where they're giving out a loan and the loan amount is higher than the value of the home because the whole point of having the home as collateral is to try to make sure that the person that's borrowing doesn't default on the home. So you would expect something unusual happened if the loan balance is greater than the balance of the home. But if that unusual situation comes up, you could take a look at publication 936, you would think under normal conditions they would want to have like 20% down unless things get weird like they did in the mortgage crisis and the great recession or whatever. And then the value of the home would have to go down fairly substantially in a normal condition for the loan balance to be higher than the value of the home. But if the total amount of all mortgages is more than the fair market value of the home, you can see publication 936. And then we have line 8A, enter online 8A mortgage interest and points reported to you on form 1098. That's the form you'll typically get from the financial institution unless one or more of the limits on the home mortgage interest apply to you. For more information about these limits, you can see limits for the home mortgage interest we saw earlier, home mortgage interest limited. If your home mortgage interest deduction is limited, see publication 936 to figure the amount of mortgage interest and points reported to you on form 1098. So that's where you're going to go if you hit those limits again. That are deductible only enter online 8A the deductible mortgage interest and points that were reported to you on form 1098. Now remember that the IRS is going to have that form 1098 just like they do with the 1099s and the W-2s and so on. And the 1098 is reporting something that possibly could be deductible to you. So you would expect then that the IRS would want you to report the amount on the 1099, 1098 or something lower, right? Because if you put something lower than the amount on the 1098, the IRS is fine with that because then you're going to pay, they're not going to come after you for reporting less interest than possibly you could have. But if you report something higher than the amount that's given to you on the 1098, you're getting a deduction higher than the amount of the form that would indicate you get the deduction. That's when you would think the IRS would be more likely to question that position, right? So refund or overpaid interest. If your form 1098 shows any refund or overpaid interest, don't reduce your deduction by refund. Instead, see the instructions for schedule one form 1040 line 8Z. So same situation with like the state sales tax, for example, where we said if you got to deduct the state sales tax, I mean, sorry, the state sales tax and the oftentimes the state income tax, if you got to deduct the state income tax in the prior year and then you got a refund, do you have to go back and amend the prior year tax return or do you just record it as income in the current year? Similar situation here, although far less common. If you deducted interest in the prior year and then they refunded that interest in the current year, do I have to go back and fix the prior year or more easily? It would be just to include it as income in the current year. Then we got more than more than one borrower. So if you and at least one other person other than your spouse, if filing a joint return because your thought of as one taxable entity, if you're married for the most part, we're liable for and pay interest on a mortgage that was your home. You can only deduct your share of the interest. So obviously you might get a 1098 for an amount that really isn't applied to you because you have multiple people that are purchasing the home. You can only deduct the amount applicable to you. Shared interest reported on your form 1098. If the shared interest was reported on the form 1098, you receive deduct only your share of the interest online 8a. Let each other borrowers know what their share is. You got to tell the people the other borrowers their share so that they possibly could deduct it. If it's an deductible component possibly as like a business expense or whatever their interest is to them. So shared interest reported on someone else's form 1098. So now someone else got the form 1098 and we think that part of that interest is reportable to us. Now this is where it gets messy because remember that we're talking about a benefit here in the deduction. So the IRS is going to be skeptical if we deduct something more than a 1099 1098 that we received. And now someone else received the 1098 and we're trying to report the deduction. That would be an unusual situation. Typically you would want the 1099 1098 to be assigned to the person that's going to be taking the deduction if at all possible. But some loan structures get get messy. So if the shared interest was reported on the other person's form 1098, report your share of the interest online 8b as explained in line 8b later. So form 1098 doesn't show all interest paid. So if you paid more interest to the recipient than is showing on form 1098 include the larger deductible amount online 8a and explain the difference. So now you're going to have to tell the IRS because the IRS is going to say hey look you reported more than it's on the 1098 and you're going to have to tell them why. So if you are filling out a paper return you can explain the difference by attaching a statement to your paper return and printing C attached to the right of line 8a. So you would hopefully not want to have to do that but if you had to do that then you could do that. If you are claiming the mortgage interest credit for holders of qualified mortgage credit certificates issued by state or local government units or agencies subtract the amount shown on form 8396 line 3 from the total deductible interest you paid on your home mortgage each other result online 8a. Line 8b if you paid home mortgage interest to a recipient you didn't provide you a form 1098 report your deductible mortgage interest online 8b. Again a bit of a more messy situation if you got a mortgage from a financial institution a bank it's likely you'll get the 1098 but if you financed it in some other way possibly with an individual or something then they might not be following other rules because they're not as highly regulated as the bank and if they don't issue the 1098 you should still get a deduction. So your deductible mortgage interest may be less than what you paid if one or more of the limits of home mortgage interest applies to you. So for more information about these limits you can see limits on home mortgage interest that we talked about earlier. And then you got the seller financed mortgage. If you paid home mortgage interest to the person from whom you bought the home and that person didn't provide you a form 1098 write that person's name, identifying number and address on the dotted lines next to line 8b. So normally when you buy a home you're gonna put the down payment on you're gonna take a loan for the rest in order to pay off the sales price of the home the person selling the home is gonna take your money and then pay off whatever mortgage they had with it and then keep the rest of it that's the general idea but you could have a situation where the seller is financing the mortgage which means you're not going through a traditional situation with the financial institution and they might not give you a 1098 and if that was the case hopefully they do but if they don't then you're in the situation again where you're gonna have to report the interest even though you didn't get a 1098 and like with normal business situations the IRS wants the name and number of the person that was the receiving end most likely so they can go to their side and make sure that they recorded income from that side if there's an income situation because you got the deduction so they got paid possibly income so if the recipient of your home mortgage payments is an individual the identifying number is their social security number otherwise it is the employer identification number the EIN you must also let the recipient know your social security number caution if you don't show the required information about the recipient or let the recipient know your social security number you may have to pay a $50 penalty take that so interest reported on someone else's form 1098 if you and at least one other person other than your spouse is filing jointly were liable for and paid interest on the mortgage and the home mortgage interest paid was reported on the other person's form 1098 identify the name and address of the person or persons who received a form 1098 reporting the interest to you so now for whatever reason the other person got the 1098 we don't want that normally to happen but if that happens then we'd have to do this kind of situation we've got to then deduct the amount that we should be able to deduct and then possibly tell the IRS who the other person is so that they can check and see that no one's like double dipping on the deduction so if you are filing a paper return identify the person by attaching a statement to your paper return and printing quote C attached to the right of line A B line 8C points not reported on form 1098 points are shown on your settlement statement points you paid only to borrow money are generally deductible over the life of the loan so points are another kind of messy situation because sometimes the definition of points can be different meaning they try to call points something other than interest but usually they're kind of like a prepayment of interest so you may be able to deduct the points but if it's a prepayment of interest then you can run into the situation of do I have to how am I going to I can't really I may not be able to deduct it in the time frame that you paid the points you might have to allocate the points over the life of the loan for example amortizing the points and they may or may not be reported on the form 1098 then and so they're getting kind of better at reporting the points but they may not be on there so once again points are shown on your settlement statement so points you paid only to borrow money are generally deductible over the life of the loan so when and so also note that when the loan when the first purchase takes place you might have to look at the closing documentation to try to determine you know what the points are so that you can take the appropriate action of accounting for the points which might include putting them on the books and amortizing them over say the life of the loan so for that you can see publication 936 to figure the amount you can deduct points paid for other purposes such as for a lender service aren't deductible so sometimes they try to claim things that aren't really interest related as points so and those aren't deductible as interest then refinancing so now you've you've have the loan already and you need to refinance the loan possibly because of lower interest rates or something like that and so generally you must deduct points you paid to refinance a mortgage over the life of the loan similar type of situation because you're kind of prepaying the points and what not and therefore you get to deduct them over you know the life of the loan trying to apply them out to the loan so this is true even if the new mortgage is secured by your main home so if you use part of the proceeds to improve your main home you may be able to deduct the part of the points related to the improvement in the year paid so note important point what are you using the proceeds of of the refinancing for once again if you use part of the proceeds to improve your main home you may be able to deduct the part of the points related to the improvement in the year paid you can see publication 936 if you paid off a mortgage early deduct any remaining points in the year you paid off the mortgage so now you have a situation where you had these points and you had to put them and allocate the value of the points over the life of the loan but now you paid off the loan early so it wouldn't make any sense to keep on deducting the points over the life of the loan you'd be able to take the value of the points you would think at that point in time when you paid off the loan however if you refinanced your mortgage with the same lender see mortgage ending early in publication 936 for an exception so now you've refinanced the mortgage so now you've got these points that were related to the prior loan but you refinanced it so now you've got basically a new loan so it's not like you just paid off the loan in that situation you kind of have a loan prior loan which gets a little bit messy and the question is what do you do with those points so if you refinanced your mortgage with the same lender see mortgage ending early in publication 936 for an exception so line 9 investment interest investment interest is interest paid on money you borrowed that is allocable to property held for investment so now you're talking about just possibly not for your principal residence but for property that you're holding for other purposes and just simply possibly investment purposes in this case now notice you might be holding property that would be for rental property or something like that that's different that would be on like a schedule E type of situation often times or possibly a schedule C if you're in the business in a different business but we're talking if it's not deductible there and you're holding on to the property or something for just investment purposes so it doesn't include any interest allocable to passive activities or to securities that generate tax exempt income so complete and attach form 4952 to figure your deduction so notice this is the other one that kind of makes sense for interest purposes because now you're it's not your home which is the one that doesn't exactly make sense from a pure income tax kind of purposes and then we have the interest related to your business which kind of makes sense that you might be able to deduct interest related to that because that's kind of like a business cost and now we have interest related to an investment and with investments you're thinking that that you had to finance the investment so you're trying to generate income which would be something you would think could be deductible but you got so that's where we are so complete and attach form 4952 to figure your deduction exception you don't have to file form 4952 if all three of the following apply one your investment interest expense is less than your investment income from interest and ordinary dividends minus qualified dividends and then number two you have no other deductible investment expenses and three you have no disallowed investment interest expense from 2021 the prior year