Tax Facts

7692 / How is the monthly payment on a Ginnie Mae mortgage backed pass-through certificate taxed?

Updated: October 20, 2026 at 03:22 PM
Payments on pass-through certificates to certificate holders are made monthly. Each payment represents part interest and part principal (i.e., payments on the underlying portfolio of mortgages passed through to certificate holders). The issuer provides each certificate holder with a monthly statement indicating which part of the distribution represents scheduled principal amortization, which part is interest, and which part represents unscheduled collection of principal. Interest and other items of income, including prepayment penalties, assumption fees, and late payment charges, must be included in gross income in the year received. Principal payments are tax-free to the extent they represent recovery of capital.1 To the extent they represent discount on purchase of the mortgages, they must be included as ordinary income. As owners of undivided interests in the entire pool, pass-through certificate owners must include as ordinary income their ratable shares of any discount income realized on purchase of each of the mortgages in the pool. Discount on mortgages that are taxable obligations of corporations or governments or their political subdivisions, is included in income as original issue discount under the rules discussed in Q 7650 to Q 7653.2


Income from Ginnie Mae certificates is not exempt from state taxation despite the pledging of the full faith and credit of the United States on all amounts guaranteed by the GNMA because the government is a guarantor, not an obligor, of the instruments.3

Amounts withheld by the issuer of the certificate to pay servicing, custodian, and guarantee fees are expenses incurred for the production of income. (See Q 8049 for an explanation of the rules governing deduction of such expenses by pass-through entities.) Certificate holders may amortize their proportionate share of any premium paid to acquire mortgages under rules applicable to corporate interest-bearing bonds (see Q 7654).4





1.   Rev. Rul. 84-10, 1984-1 CB 155; Rev. Rul. 70-545, 1970-2 CB 7.

2.   Rev. Rul. 84-10, 1984-1 CB 155; Rev. Rul. 74-169, 1974-1 CB 147; Rev. Rul. 70-544, 1970-2 CB 6.

3.   Rockford Life Ins. v. Illinois Dept. of Rev., 482 U.S. 182 (1987).

4.   Rev. Rul. 84-10, 1984-1 CB 155.


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