This publication discusses the rules for deducting home mortgage interest and contains general information on home mortgage interest, including points. It also explains how to report deductible interest adn explains how your deduction for home mortgage interest may be limited.

Personal interest. Personal interest is not deductible.Examples of personal interest include interest on a loan to purchase an automobile for personal use and credit card and installment interest incurred for personal expenses.
But you may be able to deduct interest you pay on a qualified student loan.

This part explains what you can deduct as home mortgage interest. It includes discussions on points and on how to report deductible interest on your tax return. Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan.
You can deduct home mortgage interest only if you meet all the following conditions.

• You must file Form 1040 and itemize deductions on Schedule A (Form 1040).
• You must be legally liable for the loan. You cannot deduct payments you make for someone else if you are not legally liable to make them. Both you and the lender must intend that the loan be repaid. In addition, there must be a true debtor-creditor relationship between you and the lender.
• The mortgage must be a secured debt on a qualified home.

In most cases, you will be able to deduct all of your home mortgage interest. Whether it is all deductible depends on the date you took out the mortgage, the amount of the mortgage, and your use of its proceeds.
If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category.) If one or more of your mortgages does not fit into any of these categories, read Limits on Home Mortgage Interest Deduction of this publication to figure the amount of interest you can deduct.

The three categories are as follows:

• Mortgages you took out on or before October 13, 1987 (called grandfathered debt).
• Mortgages you took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2006 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately).
• Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2006 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2). The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home.

You can deduct your home mortgage interest only if your mortgage is a secured debt. A secured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract)

For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home. A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.

If you paid $600 or more of mortgage interest (including certain points) during the year on any one mortgage, you generally will receive a Form 1098, Mortgage Interest Statement, or a similar statement from the mortgage holder. You will receive the statement if you pay interest to a person (including a financial institution or cooperative housing corporation) in the course of that person’s trade or business. A governmental unit is a person for purposes of furnishing the statement.

This part of the publication discusses the limits on deductible home mortgage interest. These limits apply to your home mortgage interest expense if you have a home mortgage that doesnot fit into any of the three categories listed atthe beginning