Prepaid interest paid at closing from buying home
If you bought a home in 2024 and have prepaid mortgage interest at closing as shown on the HUD closing statement, where do you enter that in FreeTaxUSA Itemized deduction mortgage section? Besides the Morgage 1098 form question, I only see these other two related questions (1) Did you pay mortgage interest on a Form 1098 issued in the name of another person? (2) Did you pay mortgage interest on a seller-financed loan?
Prepaid mortgage interest from closing is deductible according to the IRS Pub 936 - Home Mortgage Interest Deduction which says: Prepaid interest. If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. You can deduct in each year only the interest that qualifies as home mortgage interest for that year.
The Schedule A form line 8b is where interest paid not reported on a 1098 should go but I don't see the question for that unless I am overlooking it. Am I missing anything?
Answers
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Hello kem23,
Prepaid mortgage interest paid at the closing of a new home is often called Points or loan origination fees. Prepaid interest (Points) are typically reported in Box 6 of the 1098 you received. If this applies to your situation enter it on the Mortgage 1098 page in Box 6 - Points Paid on Purchase of Principal Residence.
If you prepaid interest (not points) at closing, you can only deduct the interest that applies to the period the home was your primary residence and only for the tax year you paid it. For example, if you paid interest covering the period from your closing date to the end of the month. If this applies, the interest would be added to the amount in Box 1.
You can view more about this here: Topic no. 504, Home mortgage points | Internal Revenue Service
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