Do you have to claim ALL of your interest on your mortgage?

Question

I have interest only loans and the amount would surpass the suggested amount claimed per year for my income level and I dont want to draw red flags

Answer 1

If you have a 1098 from the lending institution showing the amount that you paid, that is the amount that you can claim. As long as your Mortgage Balance meets the limitations per publication 936.http://www.irs.gov/publications/p936/index.html

If you have an income that makes you subject to the Limitation to Itemized deductions, you would still claim what you paid during the tax year,
All you need for proof is the 1098

If you used the worksheet for the limitations on the mortgage interest, you would only use that if The total of the mortgage balances for the entire year is within the limits discussed earlier under Home Acquisition Debt and Home Equity Debt.

Answer 2

If you paid the interest, take the deduction. You won't necessarily be flagged just because yours is above the average. But even if you are, who cares as long as you can prove that you liable for it and paid it?

If your return is flagged because of the amount of the interest claimed, the IRS will only seek proof of the amount claimed. They generally will NOT review your entire return based on that amount.

The dreaded "Taxpayer Compliace Audit" is the only audit you ever need to be concerned with. Those are virtually always selected via random sample and have nothing to do with what's on your return.

One or two flagged items on a return will just generate a request for proof of the item claimed. If you have the proof, you have NOTHING to fear from the IRS. Just send it along and they'll close your case. And frankly, if you have a Form 1098 for the interest and claim the amount on the form, the IRS will check your return against their copy of the 1098 and you'll never even know that you were audited as long as the numbers match.

Answer 3

Honestly, whether you claim it or not, the IRS has record of your mortgage interest paid on your Form 1098. In my experience, Ive seen cases where people forgot to put in their mortgage interest and the IRS made corrections with the actual interest amount per Form 1098, so they are aware of the total interest.