Bill has a mortgage loan on his personal residence. He decides to pay 18 months of interest in advance on October 1, 2016. The total advanced interest payment is $36,000. How much of the advance interest payment can he deduct in 2016?

Question

Quizplus · Accepted Answer

According to the IRS, a taxpayer can only deduct prepaid interest that applies to the period ending on the earlier of: (1) the date of the taxpayer’s last payment or (2) the end of the tax year (December 31, 2016 in this case). As such, Bill can only deduct the interest that applies to the period from October 1, 2016 to December 31, 2016, which is 3 months of interest ($36,000/18 months x 3 months = $6,000).

Bill Has a Mortgage Loan on His Personal Residence