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Per IRS Publication 936 Home Mortgage Interest Deduction, page 4:

Mortgage prepayment penalty. If you pay off your home mortgage early, you may have to pay a penalty. You can deduct that penalty as home mortgage interest provided the penalty isn't for a specific service performed or cost incurred in connection with your mortgage loan.


To deduct the prepayment penalty as home mortgage interest in the TaxAct® program, go to our Mortgage Interest - Not on Form 1098 FAQ.  Enter the prepayment penalty amount in the Deductible mortgage interest data entry field.


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