Is a prepayment penalty on a home loan tax deductible?

Answer 1

Yes. Here's what IRS Pub 936 says on the issue:

"Mortgage prepayment penalty. If you pay off your home mortgage early, you may have to pay a penalty. You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan."

Answer 2

in maximum cases, particular. Prepayment outcomes are seen an activity cost decrease than case regulation. consequently, the guideline is that it includes a similar nature because of the fact the activity cost would have on a similar debt. activity cost is deductible based upon it incredibly is nature. For person income taxes, you have surely six styles of activity cost: very own activity - mutually with credit card activity, which isn't deductible. homestead loan activity - it incredibly is activity consistent with aquisition debt of decrease than $a million,000,000 and nonaquisition debt decrease than $one hundred,000. it fairly is an itemized deduction, so is basically deductible in case you itemize. investment activity - mutually with margin activity or debt on investment assets. it fairly is deductible as an itemized deduction constrained via your investment income. condo assets activity - activity on assets held out as attainable for hire. it fairly is deductible, yet could be constrained in accordance to passive loss regulations. organisation activity - activity on debt used to finance a commerce or organisation, and activity paid on a house workplace. those are many times deductible except constrained via barriers on the homestead workplace deduction or via activity loss regulations. student loan activity - it fairly is deductible as an adjustment on your income taxes. So the 1st step is to be certain the character that the activity cost replaced into, or would have been. This determines the character of the prepayment penalty. next, be certain based on your very own tax situation, no count if or no longer a deduction is attainable for you this 3 hundred and sixty 5 days.