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I have a Mortgage that I make monthly payments on. In December 2018, I made a payment toward that mortgage part way through the month (let's say December 15th for simplicity). The interest is compounded daily. Is the interest that accrues from the 16th until the end of the month tax deductible for 2018 even though I won't actually be paying that interest until 2019?

In short, is the interest calculation required for Federal USA taxes based on payments in 2018 or based on interest accrued in 2018?

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In short, is the interest calculation required for Federal USA taxes based on payments in 2018 or based on interest accrued in 2018?

Interest paid. The IRS cares about actual amounts paid for individual tax returns. This is the same reason your W-2 reflects the sum of your paychecks for the tax year without factoring in any partial pay-periods in Jan/Dec.

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    You may not be able to claim that ~15 days interest for December of 2018, but next year, you'll be able to recoup that with claiming the whole of the interest on your January 15, 2019 mortgage payment, rather than just claiming the last 15 days of accrual that accrued only in 2019. – Milwrdfan Mar 14 at 20:13
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    Also, the 1099 issued by your mortgage company will specify how much mortgage interest you paid in the year. – Xalorous Mar 15 at 12:59
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If you want to maximize the payment of mortgage interest in a particular year (for example you might be bundling deductible expenses in odd years and taking the standard deduction in even years), it might be useful to make an extra payment on the last business day of the month, or to prepay interest.

If you haven't intentionally done that, accrued interest is not deductible.

  • Makes me wonder. If I were to pay ahead, and was careful not to have the payments credited as principal, if a large number of December payments (or a large check of payment X 12) would have prepaid interest all be deductible in that year? This would make a great “grouping” strategy for those who border on the std deduction. – JoeTaxpayer Mar 15 at 16:39
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    @JoeTaxpayer I think you can, I wonder how long before that avenue also gets closed, but for now it seems to meet the letter of the law. – Nathan L Mar 15 at 17:13
  • (tangent from main Q/A, sorry) - I pay my annual ($18K+) health insurance in advance every other year, and use a charitable acct to do the same for donations. Adding mortgage to this would get me an nice every other year large itemized Sch A, and a $24K std deduction, in odd years. That will partially even the game on capped SALT. – JoeTaxpayer Mar 15 at 17:40
  • Yeah, bundling won't work for me, but it works great for my dad. I gave him a loan at the end of the year to double up his deductions and we got him a nice Roth conversion tax free. If he can hang on until he's 90, we can probably get all of his money moved without incurring any extra taxes. – Nathan L Mar 15 at 18:05

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