Deduct mortgage interest paid even if your home is in foreclosure.
If you currently own a home and make payments on a mortgage, then the lender is required to send you Form 1098, Mortgage Interest Statement, by Jan. 31 following the end of the tax year. This form states how much interest you paid during the tax year. In addition, if you made escrow payments to your lender, the statement includes how much you paid in real estate taxes. Form 1098 shows the amounts you actually paid, not amounts that should have been paid per an amortization schedule.
You can itemize and deduct the full amount shown on Form 1098 on Schedule A of your personal tax return, even if the mortgage is in the foreclosure process.
You may not have made all of your mortgage payments for the year, but the amount you paid in interest prior to entering a prolonged default status is fully tax-deductible as are any interest payments made, and accepted, during the period of default. Check your Form 1098 to ensure your lender properly credited any payments you made while you were in default.
If you paid points when you obtained your mortgage loan, you may be deducting those points -- in dollar terms -- over the life of your mortgage. If your mortgage ends early due to foreclosure, you can deduct the entire remaining balance in the year the foreclosure finalizes and the mortgage officially ends. Refer to your settlement statement and past tax returns to determine this amount.
Itemized vs. Standard Deduction