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I posted this somewhere in the depths of the TMF boards. This is a good summary of the interest deduction rules tied to a home.

Mortgage interest deductions fall under itemized deductions: you must itemize deductions and have enough to exceed the standard deduction to benefit in the form of reduced tax liability.

(a) Mortgage interest is deductible on only the primary and one secondary home (the combined total of the debt).

(b) The deduction is limited to the first $1,000,000 of qualified acquisition debt.

(c) The deduction for home equity debt is limited to the lesser of the interest on: (1) the FMV of the home minus total acquisition indebtedness, or (2) $100,000 for the main and second homes combined.

(d) Rules for a second home:
(1) If a second home is rented, the taxpayer must use it more than 14 days or 10% of the number of days the home is rented (at FMV), whichever is longer.
(2) More than one second home: You can only treat one as a qualified second home for the year, and you can choose a different one each year if neither of the second homes is rented out.

(e) If a home is used for business and personal use, only the portion used for residential living counts as a qualified residence.

(f) Loan origination fees, maximum loan charge, loan discount, and discount points may be tax deductible in the year paid if secured by the principal residence. Loan origination fees (or points) paid in connection with home mortgage for purchase or improvement of, and secured by, principal residence, deductible in year paid to extent it is an established practice in area and amount does not exceed that generally charged in the area. Points paid on the refinance of a mortgage on a personal residence may be amortized over the life of the new mortgage, or until the loan is paid off. When loan refinanced or paid off, may deduct any unamortized points from a previously refinanced loan.

(g) If a seller pays points, they are deductible by the buyer in the year paid, but the buyer must reduce the basis in the home by the amount paid by the seller.

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