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Can I include interest payments as an itemized deduction?

There are various types of interest expenses that may be deductible as an itemized deduction for individual taxpayers. This would include home mortgage interest, investment interest, and prepaid interest.

1) Home Mortgage Interest – The home mortgage interest deduction for new loans originated in 2018 has been limited to a principal amount of $750,000.  Interest on home equity loans up to $100,000 is no longer deductible unless it is used specifically for primary residence improvement or business purposes. 

2) Investment Interest The main point to consider regarding investment interest expense is that this deduction for individuals is limited to net taxable investment income. This includes portfolio income (interest, dividends etc.), rents, royalties and net long-term or short-term capital gains. Please note, that interest used to purchase tax-free bonds is not deductible.

3) Prepaid Interest – Prepaid interest can be treated as if it applies to the full-accrual method of accounting. In other words, prepaid interest is deductible when it is both incurred and paid. This amount must be allocated to the correct period, even if the individual taxpayer is on the cash basis method of accounting.


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