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Just got my 1098 (or whatever the form number is). It shows the total interest I paid on my mortgage during 2000, but then throws part of it away because the payment was not due until 2001. Why? I was prepaying my mortgage payments to get ahead, but I seem to be losing the "benefit" of deducting the interest. It also seems that I will not be able to deduct this interest at a later date either. Seems as though you can only deduct mortgage interest in the year it is paid and only for 12 payments. Is this right? I sure thought I read a Fool letter one time that said to make an extra house payment if you want to lower your taxes for the year. If I remember this correctly, it doesn't seem to agree with tax code. Can someone offer some input as to how this works and if the additional payment interest can be deducted? Thanks.
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Call your mortgage holder, point out that you paid your January interest in December, and you'd like credit for it. Ask them to send you a revised 1098.
Meanwhile your bank statement should show when the mortgage company cashed your check. If they cashed it in December, claim your deduction for the extra month's interest. If there is a question, you can support your claim with your records.
Best wishes, Chris
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Crosenfield wrote:
Call your mortgage holder, point out that you paid your January interest in December, and you'd like credit for it. Ask them to send you a revised 1098.

Done. Unfortunately, I will not know until tomorrow what their ruling is since the person who knows that is not in today. But I did discuss it with two people there, and they think you can only deduct 13 month's interest for a year. I made 14 payments last year, and the last on is missing on the 1098.

Meanwhile your bank statement should show when the mortgage company cashed your check. If they cashed it in December, claim your deduction for the extra month's interest. If there is a question, you can support your claim with your records.
Best wishes, Chris


Are there no IRS regulations on this? I saw in publication 936 (I think) where you can only deduct interest you actually paid during the year that was due during that year. That sounded to me as if I just lost being able to deduct it, period. I can't deduct it this year because it was not due this year, and I can not deduct it next year because it was not paid during next year. This whole thing seems a little confusing to me, but I would really like to get a final answer (meeting IRS rules). If the mortgage company is right, then I will skip paying the extra towards the house and put it towards investments.

Thanks for the help. I have already sent in my return for 2000, and used the 1098 Interest and not the total interest paid. Maybe I can submit a revised return if things work out for the better.
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Been reading this thread and now am curious. How does one pre-pay interest charges?
Have a mortgage and make extra payments each month. I know the loan papers state "the dollar amount the credit will cost me (finance charge)", but thought my extra payments were being applied to the principal amount, which in turn, reduces the total finance charge over the life of the loan. Can the mortgage company apply part of the extra payment to interest that has NOT yet accrued on the balance of principal owed??
Curious paws,
Rose
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srhydecats wrote:
Have a mortgage and make extra payments each month. I know the loan papers state "the dollar amount the credit will cost me (finance charge)", but thought my extra payments were being applied to the principal amount, which in turn, reduces the total finance charge over the life of the loan.

As far as I know, this is true. I pay an extra $250 per payment, which will shorten my mortgage from 30 years to 15 years. And, yes, it saves me tens of thousands in interest by doing so. I think the "the dollar amount the credit will cost me" line is if you make the plain monthly payment on time each month; pay nothing extra.

Can the mortgage company apply part of the extra payment to interest that has NOT yet accrued on the balance of principal owed??

I have a payment book for my mortgage. It states the payment due and the due date. Then it has lines for additional principal, additional interest, late charges, and maybe one or two other things. I am not sure what pre-paying interest (in terms of paying an additional amount with your mortgage payment and using it on future interest) would benefit. I do know what paying extra toward the principal will benefit.

Based on what I did (making 14 mortgage payments instead of 12 during the year), I would not consider this pre-paying interest. But I do believe I should be able to deduct all interest paid during 2000 on my mortgage. If I deceided to make a mortgage payment a week I should be able to deduct the interest. I should know the mortgage company's answer some time today.
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Here's the mortgage company's response:
The amount of interest reported to the IRS is the total interest paid that was due in the tax year. They reported January's interest because (technically) it was accrued during December. But they did not report February's interest because it was accrued in 2001.

Now for the best part... the February interest will be reported in 2001, even though it was paid in 2000. If I continue the current trend of paying 14 or so months each year, the only interest reportable each year is the interest that was due that year. In the end, the interest does not get pushed beyond the end of the mortgage... instead, all of the unreported interest gets reported in the year the mortgage is paid off.

At least I am not losing the deduction of interest solely because I pay my bills ahead of time.
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