Whether deferred interest deduction applies to Neg Am loans is of interest of many Option ARM holders. Opinions vary on this subject and it is best to consult your tax professional. Some will argue that deferred interest is unpaid interest, by definition, and as such cannot be deducted.

However, the prevalent case is that deferred interest is tax deductible - it will count towards both interest and principal and the taxpayer certainly needs professional help when filing their tax returns.

As with conventional loan, deferred interest tax deduction level depends on

• whether the mortgage was used for a purchase or refinance transaction of a primary or second home;
• the tax bracket applicable to your circumstances;
• the loan amount;
• whether you are filing separately or with a spouse.

Deferred interest tax deduction regulations might not be clear enough for a homeowner to be able to correctly calculate the IRS figures. It is not recommended that you attempt to file complicated tax returns on your own. Rather, it is suggested that you use a certified public accountant (CPA), or other professional tax services.