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How To File 1040x Electronically

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How To File 1040x Electronically

How to file 1040x electronically Publication 530 - Main Content Table of Contents What You Can and Cannot DeductHardest Hit Fund and Emergency Homeowners' Loan Programs Real Estate Taxes Sales Taxes Home Mortgage Interest Mortgage Insurance Premiums Mortgage Interest CreditFiguring the Credit BasisFiguring Your Basis Adjusted Basis Keeping Records How To Get Tax HelpLow Income Taxpayer Clinics What You Can and Cannot Deduct To deduct expenses of owning a home, you must file Form 1040, U. How to file 1040x electronically S. How to file 1040x electronically Individual Income Tax Return, and itemize your deductions on Schedule A (Form 1040). How to file 1040x electronically If you itemize, you cannot take the standard deduction. How to file 1040x electronically This section explains what expenses you can deduct as a homeowner. How to file 1040x electronically It also points out expenses that you cannot deduct. How to file 1040x electronically There are four primary discussions: real estate taxes, sales taxes, home mortgage interest, and mortgage insurance premiums. How to file 1040x electronically Generally, your real estate taxes, home mortgage interest, and mortgage insurance premiums are included in your house payment. How to file 1040x electronically Your house payment. How to file 1040x electronically   If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. How to file 1040x electronically Your house payment may include several costs of owning a home. How to file 1040x electronically The only costs you can deduct are real estate taxes actually paid to the taxing authority, interest that qualifies as home mortgage interest, and mortgage insurance premiums. How to file 1040x electronically These are discussed in more detail later. How to file 1040x electronically   Some nondeductible expenses that may be included in your house payment include: Fire or homeowner's insurance premiums, and The amount applied to reduce the principal of the mortgage. How to file 1040x electronically Minister's or military housing allowance. How to file 1040x electronically   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you still can deduct your real estate taxes and your home mortgage interest. How to file 1040x electronically You do not have to reduce your deductions by your nontaxable allowance. How to file 1040x electronically For more information see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers, and Publication 3, Armed Forces' Tax Guide. How to file 1040x electronically Nondeductible payments. How to file 1040x electronically   You cannot deduct any of the following items. How to file 1040x electronically Insurance (other than mortgage insurance premiums), including fire and comprehensive coverage, and title insurance. How to file 1040x electronically Wages you pay for domestic help. How to file 1040x electronically Depreciation. How to file 1040x electronically The cost of utilities, such as gas, electricity, or water. How to file 1040x electronically Most settlement costs. How to file 1040x electronically See Settlement or closing costs under Cost as Basis, later, for more information. How to file 1040x electronically Forfeited deposits, down payments, or earnest money. How to file 1040x electronically Hardest Hit Fund and Emergency Homeowners' Loan Programs You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. How to file 1040x electronically You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. How to file 1040x electronically You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. How to file 1040x electronically If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098-MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received), box 4 (mortgage insurance premiums) and box 5 (real property taxes). How to file 1040x electronically However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. How to file 1040x electronically Real Estate Taxes Most state and local governments charge an annual tax on the value of real property. How to file 1040x electronically This is called a real estate tax. How to file 1040x electronically You can deduct the tax if it is assessed uniformly at a like rate on all real property throughout the community. How to file 1040x electronically The proceeds must be for general community or governmental purposes and not be a payment for a special privilege granted or service rendered to you. How to file 1040x electronically Deductible Real Estate Taxes You can deduct real estate taxes imposed on you. How to file 1040x electronically You must have paid them either at settlement or closing, or to a taxing authority (either directly or through an escrow account) during the year. How to file 1040x electronically If you own a cooperative apartment, see Special Rules for Cooperatives , later. How to file 1040x electronically Where to deduct real estate taxes. How to file 1040x electronically   Enter the amount of your deductible real estate taxes on Schedule A (Form 1040), line 6. How to file 1040x electronically Real estate taxes paid at settlement or closing. How to file 1040x electronically   Real estate taxes are generally divided so that you and the seller each pay taxes for the part of the property tax year you owned the home. How to file 1040x electronically Your share of these taxes is fully deductible if you itemize your deductions. How to file 1040x electronically Division of real estate taxes. How to file 1040x electronically   For federal income tax purposes, the seller is treated as paying the property taxes up to, but not including, the date of sale. How to file 1040x electronically You (the buyer) are treated as paying the taxes beginning with the date of sale. How to file 1040x electronically This applies regardless of the lien dates under local law. How to file 1040x electronically Generally, this information is included on the settlement statement you get at closing. How to file 1040x electronically   You and the seller each are considered to have paid your own share of the taxes, even if one or the other paid the entire amount. How to file 1040x electronically You each can deduct your own share, if you itemize deductions, for the year the property is sold. How to file 1040x electronically Example. How to file 1040x electronically You bought your home on September 1. How to file 1040x electronically The property tax year (the period to which the tax relates) in your area is the calendar year. How to file 1040x electronically The tax for the year was $730 and was due and paid by the seller on August 15. How to file 1040x electronically You owned your new home during the property tax year for 122 days (September 1 to December 31, including your date of purchase). How to file 1040x electronically You figure your deduction for real estate taxes on your home as follows. How to file 1040x electronically 1. How to file 1040x electronically Enter the total real estate taxes for the real property tax year $730 2. How to file 1040x electronically Enter the number of days in the property tax year that you owned the property 122 3. How to file 1040x electronically Divide line 2 by 365 . How to file 1040x electronically 3342 4. How to file 1040x electronically Multiply line 1 by line 3. How to file 1040x electronically This is your deduction. How to file 1040x electronically Enter it on Schedule A (Form 1040), line 6 $244   You can deduct $244 on your return for the year if you itemize your deductions. How to file 1040x electronically You are considered to have paid this amount and can deduct it on your return even if, under the contract, you did not have to reimburse the seller. How to file 1040x electronically Delinquent taxes. How to file 1040x electronically   Delinquent taxes are unpaid taxes that were imposed on the seller for an earlier tax year. How to file 1040x electronically If you agree to pay delinquent taxes when you buy your home, you cannot deduct them. How to file 1040x electronically You treat them as part of the cost of your home. How to file 1040x electronically See Real estate taxes , later, under Basis. How to file 1040x electronically Escrow accounts. How to file 1040x electronically   Many monthly house payments include an amount placed in escrow (put in the care of a third party) for real estate taxes. How to file 1040x electronically You may not be able to deduct the total you pay into the escrow account. How to file 1040x electronically You can deduct only the real estate taxes that the lender actually paid from escrow to the taxing authority. How to file 1040x electronically Your real estate tax bill will show this amount. How to file 1040x electronically Refund or rebate of real estate taxes. How to file 1040x electronically   If you receive a refund or rebate of real estate taxes this year for amounts you paid this year, you must reduce your real estate tax deduction by the amount refunded to you. How to file 1040x electronically If the refund or rebate was for real estate taxes paid for a prior year, you may have to include some or all of the refund in your income. How to file 1040x electronically For more information, see Recoveries in Publication 525, Taxable and Nontaxable Income. How to file 1040x electronically Items You Cannot Deduct as Real Estate Taxes The following items are not deductible as real estate taxes. How to file 1040x electronically Charges for services. How to file 1040x electronically   An itemized charge for services to specific property or people is not a tax, even if the charge is paid to the taxing authority. How to file 1040x electronically You cannot deduct the charge as a real estate tax if it is: A unit fee for the delivery of a service (such as a $5 fee charged for every 1,000 gallons of water you use), A periodic charge for a residential service (such as a $20 per month or $240 annual fee charged for trash collection), or A flat fee charged for a single service provided by your local government (such as a $30 charge for mowing your lawn because it had grown higher than permitted under a local ordinance). How to file 1040x electronically    You must look at your real estate tax bill to decide if any nondeductible itemized charges, such as those listed above, are included in the bill. How to file 1040x electronically If your taxing authority (or lender) does not furnish you a copy of your real estate tax bill, ask for it. How to file 1040x electronically Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. How to file 1040x electronically Assessments for local benefits. How to file 1040x electronically   You cannot deduct amounts you pay for local benefits that tend to increase the value of your property. How to file 1040x electronically Local benefits include the construction of streets, sidewalks, or water and sewer systems. How to file 1040x electronically You must add these amounts to the basis of your property. How to file 1040x electronically   You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. How to file 1040x electronically An example is a charge to repair an existing sidewalk and any interest included in that charge. How to file 1040x electronically   If only a part of the assessment is for maintenance, repair, or interest charges, you must be able to show the amount of that part to claim the deduction. How to file 1040x electronically If you cannot show what part of the assessment is for maintenance, repair, or interest charges, you cannot deduct any of it. How to file 1040x electronically   An assessment for a local benefit may be listed as an item in your real estate tax bill. How to file 1040x electronically If so, use the rules in this section to find how much of it, if any, you can deduct. How to file 1040x electronically Transfer taxes (or stamp taxes). How to file 1040x electronically   You cannot deduct transfer taxes and similar taxes and charges on the sale of a personal home. How to file 1040x electronically If you are the buyer and you pay them, include them in the cost basis of the property. How to file 1040x electronically If you are the seller and you pay them, they are expenses of the sale and reduce the amount realized on the sale. How to file 1040x electronically Homeowners association assessments. How to file 1040x electronically   You cannot deduct these assessments because the homeowners association, rather than a state or local government, imposes them. How to file 1040x electronically Special Rules for Cooperatives If you own a cooperative apartment, some special rules apply to you, though you generally receive the same tax treatment as other homeowners. How to file 1040x electronically As an owner of a cooperative apartment, you own shares of stock in a corporation that owns or leases housing facilities. How to file 1040x electronically You can deduct your share of the corporation's deductible real estate taxes if the cooperative housing corporation meets the following conditions: The corporation has only one class of stock outstanding, Each stockholder, solely because of ownership of the stock, can live in a house, apartment, or house trailer owned or leased by the corporation, No stockholder can receive any distribution out of capital, except on a partial or complete liquidation of the corporation, and At least one of the following: At least 80% of the corporation's gross income for the tax year was paid by the tenant-stockholders. How to file 1040x electronically For this purpose, gross income means all income received during the entire tax year, including any received before the corporation changed to cooperative ownership. How to file 1040x electronically At least 80% of the total square footage of the corporation's property must be available for use by the tenant-stockholders during the entire tax year. How to file 1040x electronically At least 90% of the expenditures paid or incurred by the corporation were used for the acquisition, construction, management, maintenance, or care of the property for the benefit of the tenant-shareholders during the entire tax year. How to file 1040x electronically Tenant-stockholders. How to file 1040x electronically   A tenant-stockholder can be any entity (such as a corporation, trust, estate, partnership, or association) as well as an individual. How to file 1040x electronically The tenant-stockholder does not have to live in any of the cooperative's dwelling units. How to file 1040x electronically The units that the tenant-stockholder has the right to occupy can be rented to others. How to file 1040x electronically Deductible taxes. How to file 1040x electronically   You figure your share of real estate taxes in the following way. How to file 1040x electronically Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. How to file 1040x electronically Multiply the corporation's deductible real estate taxes by the number you figured in (1). How to file 1040x electronically This is your share of the real estate taxes. How to file 1040x electronically   Generally, the corporation will tell you your share of its real estate tax. How to file 1040x electronically This is the amount you can deduct if it reasonably reflects the cost of real estate taxes for your dwelling unit. How to file 1040x electronically Refund of real estate taxes. How to file 1040x electronically   If the corporation receives a refund of real estate taxes it paid in an earlier year, it must reduce the amount of real estate taxes paid this year when it allocates the tax expense to you. How to file 1040x electronically Your deduction for real estate taxes the corporation paid this year is reduced by your share of the refund the corporation received. How to file 1040x electronically Sales Taxes Generally, you can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). How to file 1040x electronically Deductible sales taxes may include sales taxes paid on your home (including mobile and prefabricated), or home building materials if the tax rate was the same as the general sales tax rate. How to file 1040x electronically For information on figuring your deduction, see the Instructions for Schedule A (Form 1040). How to file 1040x electronically If you elect to deduct the sales taxes paid on your home, or home building materials, you cannot include them as part of your cost basis in the home. How to file 1040x electronically Home Mortgage Interest This section of the publication gives you basic information about home mortgage interest, including information on interest paid at settlement, points, and Form 1098, Mortgage Interest Statement. How to file 1040x electronically Most home buyers take out a mortgage (loan) to buy their home. How to file 1040x electronically They then make monthly payments to either the mortgage holder or someone collecting the payments for the mortgage holder. How to file 1040x electronically Usually, you can deduct the entire part of your payment that is for mortgage interest, if you itemize your deductions on Schedule A (Form 1040). How to file 1040x electronically However, your deduction may be limited if: Your total mortgage balance is more than $1 million ($500,000 if married filing separately), or You took out a mortgage for reasons other than to buy, build, or improve your home. How to file 1040x electronically If either of these situations applies to you, see Publication 936 for more information. How to file 1040x electronically Also see Publication 936 if you later refinance your mortgage or buy a second home. How to file 1040x electronically Refund of home mortgage interest. How to file 1040x electronically   If you receive a refund of home mortgage interest that you deducted in an earlier year and that reduced your tax, you generally must include the refund in income in the year you receive it. How to file 1040x electronically For more information, see Recoveries in Publication 525. How to file 1040x electronically The amount of the refund will usually be shown on the mortgage interest statement you receive from your mortgage lender. How to file 1040x electronically See Mortgage Interest Statement , later. How to file 1040x electronically Deductible Mortgage Interest To be deductible, the interest you pay must be on a loan secured by your main home or a second home. How to file 1040x electronically The loan can be a first or second mortgage, a home improvement loan, or a home equity loan. How to file 1040x electronically Prepaid interest. How to file 1040x electronically   If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. How to file 1040x electronically Generally, you can deduct in each year only the interest that qualifies as home mortgage interest for that year. How to file 1040x electronically An exception (discussed later) applies to points. How to file 1040x electronically Late payment charge on mortgage payment. How to file 1040x electronically   You can deduct as home mortgage interest a late payment charge if it was not for a specific service in connection with your mortgage loan. How to file 1040x electronically Mortgage prepayment penalty. How to file 1040x electronically   If you pay off your home mortgage early, you may have to pay a penalty. How to file 1040x electronically You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. How to file 1040x electronically Ground rent. How to file 1040x electronically   In some states (such as Maryland), you may buy your home subject to a ground rent. How to file 1040x electronically A ground rent is an obligation you assume to pay a fixed amount per year on the property. How to file 1040x electronically Under this arrangement, you are leasing (rather than buying) the land on which your home is located. How to file 1040x electronically Redeemable ground rents. How to file 1040x electronically   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct the payments as mortgage interest. How to file 1040x electronically The ground rent is a redeemable ground rent only if all of the following are true. How to file 1040x electronically Your lease, including renewal periods, is for more than 15 years. How to file 1040x electronically You can freely assign the lease. How to file 1040x electronically You have a present or future right (under state or local law) to end the lease and buy the lessor's entire interest in the land by paying a specified amount. How to file 1040x electronically The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. How to file 1040x electronically   Payments made to end the lease and buy the lessor's entire interest in the land are not redeemable ground rents. How to file 1040x electronically You cannot deduct them. How to file 1040x electronically Nonredeemable ground rents. How to file 1040x electronically   Payments on a nonredeemable ground rent are not mortgage interest. How to file 1040x electronically You can deduct them as rent only if they are a business expense or if they are for rental property. How to file 1040x electronically Cooperative apartment. How to file 1040x electronically   You can usually treat the interest on a loan you took out to buy stock in a cooperative housing corporation as home mortgage interest if you own a cooperative apartment, and the cooperative housing corporation meets the conditions described earlier under Special Rules for Cooperatives . How to file 1040x electronically In addition, you can treat as home mortgage interest your share of the corporation's deductible mortgage interest. How to file 1040x electronically Figure your share of mortgage interest the same way that is shown for figuring your share of real estate taxes in the Example under Division of real estate taxes, earlier. How to file 1040x electronically For more information on cooperatives, see Special Rule for Tenant-Stockholders in Cooperative Housing Corporations in Publication 936. How to file 1040x electronically Refund of cooperative's mortgage interest. How to file 1040x electronically   You must reduce your mortgage interest deduction by your share of any cash portion of a patronage dividend that the cooperative receives. How to file 1040x electronically The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. How to file 1040x electronically   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. How to file 1040x electronically Mortgage Interest Paid at Settlement One item that normally appears on a settlement or closing statement is home mortgage interest. How to file 1040x electronically You can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). How to file 1040x electronically This amount should be included in the mortgage interest statement provided by your lender. How to file 1040x electronically See the discussion under Mortgage Interest Statement , later. How to file 1040x electronically Also, if you pay interest in advance, see Prepaid interest , earlier, and Points , next. How to file 1040x electronically Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. How to file 1040x electronically Points also may be called loan origination fees, maximum loan charges, loan discount, or discount points. How to file 1040x electronically A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. How to file 1040x electronically See Points paid by the seller , later. How to file 1040x electronically General rule. How to file 1040x electronically   You cannot deduct the full amount of points in the year paid. How to file 1040x electronically They are prepaid interest, so you generally must deduct them over the life (term) of the mortgage. How to file 1040x electronically Exception. How to file 1040x electronically   You can deduct the full amount of points in the year paid if you meet all the following tests. How to file 1040x electronically Your loan is secured by your main home. How to file 1040x electronically (Generally, your main home is the one you live in most of the time. How to file 1040x electronically ) Paying points is an established business practice in the area where the loan was made. How to file 1040x electronically The points paid were not more than the points generally charged in that area. How to file 1040x electronically You use the cash method of accounting. How to file 1040x electronically This means you report income in the year you receive it and deduct expenses in the year you pay them. How to file 1040x electronically Most individuals use this method. How to file 1040x electronically The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. How to file 1040x electronically The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. How to file 1040x electronically The funds you provided are not required to have been applied to the points. How to file 1040x electronically They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. How to file 1040x electronically You cannot have borrowed these funds. How to file 1040x electronically You use your loan to buy or build your main home. How to file 1040x electronically The points were computed as a percentage of the principal amount of the mortgage. How to file 1040x electronically The amount is clearly shown on the settlement statement (such as the Uniform Settlement Statement, Form HUD-1) as points charged for the mortgage. How to file 1040x electronically The points may be shown as paid from either your funds or the seller's. How to file 1040x electronically Note. How to file 1040x electronically If you meet all of the tests listed above and you itemize your deductions in the year you get the loan, you can either deduct the full amount of points in the year paid or deduct them over the life of the loan, beginning in the year you get the loan. How to file 1040x electronically If you do not itemize your deductions in the year you get the loan, you can spread the points over the life of the loan and deduct the appropriate amount in each future year, if any, when you do itemize your deductions. How to file 1040x electronically Home improvement loan. How to file 1040x electronically   You can also fully deduct in the year paid points paid on a loan to improve your main home, if you meet the first six tests listed earlier. How to file 1040x electronically Refinanced loan. How to file 1040x electronically   If you use part of the refinanced mortgage proceeds to improve your main home and you meet the first six tests listed earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. How to file 1040x electronically You can deduct the rest of the points over the life of the loan. How to file 1040x electronically Points not fully deductible in year paid. How to file 1040x electronically    If you do not qualify under the exception to deduct the full amount of points in the year paid (or choose not to do so), see Points in Publication 936 for the rules on when and how much you can deduct. How to file 1040x electronically Figure A. How to file 1040x electronically   You can use Figure A, next, as a quick guide to see whether your points are fully deductible in the year paid. How to file 1040x electronically    Please click here for the text description of the image. How to file 1040x electronically Figure A. How to file 1040x electronically Are my points fully deductible this year? Amounts charged for services. How to file 1040x electronically   Amounts charged by the lender for specific services connected to the loan are not interest. How to file 1040x electronically Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. How to file 1040x electronically You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. How to file 1040x electronically For information about the tax treatment of these amounts and other settlement fees and closing costs, see Basis , later. How to file 1040x electronically Points paid by the seller. How to file 1040x electronically   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. How to file 1040x electronically Treatment by seller. How to file 1040x electronically   The seller cannot deduct these fees as interest. How to file 1040x electronically However, they are a selling expense that reduces the seller's amount realized. How to file 1040x electronically See Publication 523 for more information. How to file 1040x electronically Treatment by buyer. How to file 1040x electronically   The buyer treats seller-paid points as if he or she had paid them. How to file 1040x electronically If all the tests listed earlier under Exception are met, the buyer can deduct the points in the year paid. How to file 1040x electronically If any of those tests are not met, the buyer must deduct the points over the life of the loan. How to file 1040x electronically   The buyer must also reduce the basis of the home by the amount of the seller-paid points. How to file 1040x electronically For more information about the basis of your home, see Basis , later. How to file 1040x electronically Funds provided are less than points. How to file 1040x electronically   If you meet all the tests listed earlier under Exception except that the funds you provided were less than the points charged to you (test 6), you can deduct the points in the year paid up to the amount of funds you provided. How to file 1040x electronically In addition, you can deduct any points paid by the seller. How to file 1040x electronically Example 1. How to file 1040x electronically When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). How to file 1040x electronically You meet all the tests for deducting points in the year paid (see Exception , earlier), except the only funds you provided were a $750 down payment. How to file 1040x electronically Of the $1,000 you were charged for points, you can deduct $750 in the year paid. How to file 1040x electronically You spread the remaining $250 over the life of the mortgage. How to file 1040x electronically Example 2. How to file 1040x electronically The facts are the same as in Example 1 , except that the person who sold you your home also paid one point ($1,000) to help you get your mortgage. How to file 1040x electronically In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). How to file 1040x electronically You spread the remaining $250 over the life of the mortgage. How to file 1040x electronically You must reduce the basis of your home by the $1,000 paid by the seller. How to file 1040x electronically Excess points. How to file 1040x electronically   If you meet all the tests under Exception , earlier, except that the points paid were more than are generally charged in your area (test 3), you can deduct in the year paid only the points that are generally charged. How to file 1040x electronically You must spread any additional points over the life of the mortgage. How to file 1040x electronically Mortgage ending early. How to file 1040x electronically   If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. How to file 1040x electronically A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. How to file 1040x electronically Example. How to file 1040x electronically Dan paid $3,000 in points in 2006 that he had to spread out over the 15-year life of the mortgage. How to file 1040x electronically He had deducted $1,400 of these points through 2012. How to file 1040x electronically Dan prepaid his mortgage in full in 2013. How to file 1040x electronically He can deduct the remaining $1,600 of points in 2013. How to file 1040x electronically Exception. How to file 1040x electronically   If you refinance the mortgage with the same lender, you cannot deduct any remaining points for the year. How to file 1040x electronically Instead, deduct them over the term of the new loan. How to file 1040x electronically Form 1098. How to file 1040x electronically   The mortgage interest statement you receive should show not only the total interest paid during the year, but also your deductible points paid during the year. How to file 1040x electronically See Mortgage Interest Statement , later. How to file 1040x electronically Where To Deduct Home Mortgage Interest Enter on Schedule A (Form 1040), line 10, the home mortgage interest and points reported to you on Form 1098 (discussed next). How to file 1040x electronically If you did not receive a Form 1098, enter your deductible interest on line 11, and any deductible points on line 12. How to file 1040x electronically See Table 1 below for a summary of where to deduct home mortgage interest and real estate taxes. How to file 1040x electronically If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and social security number (SSN) or employer identification number (EIN) on the dotted lines next to line 11. How to file 1040x electronically The seller must give you this number and you must give the seller your SSN. How to file 1040x electronically Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. How to file 1040x electronically Failure to meet either of these requirements may result in a $50 penalty for each failure. How to file 1040x electronically Table 1. How to file 1040x electronically Where To Deduct Interest and Taxes Paid on Your Home See the text for information on what expenses are eligible. How to file 1040x electronically IF you are eligible to deduct . How to file 1040x electronically . How to file 1040x electronically . How to file 1040x electronically THEN report the amount  on Schedule A (Form 1040) . How to file 1040x electronically . How to file 1040x electronically . How to file 1040x electronically real estate taxes line 6. How to file 1040x electronically home mortgage interest and points reported on Form 1098 line 10. How to file 1040x electronically home mortgage interest not reported on  Form 1098 line 11. How to file 1040x electronically points not reported on Form 1098 line 12. How to file 1040x electronically qualified mortgage insurance premiums line 13. How to file 1040x electronically Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage to a mortgage holder in the course of that holder's trade or business, you should receive a Form 1098 or similar statement from the mortgage holder. How to file 1040x electronically The statement will show the total interest paid on your mortgage during the year. How to file 1040x electronically If you bought a main home during the year, it also will show the deductible points you paid and any points you can deduct that were paid by the person who sold you your home. How to file 1040x electronically See Points , earlier. How to file 1040x electronically The interest you paid at settlement should be included on the statement. How to file 1040x electronically If it is not, add the interest from the settlement sheet that qualifies as home mortgage interest to the total shown on Form 1098 or similar statement. How to file 1040x electronically Put the total on Schedule A (Form 1040), line 10, and attach a statement to your return explaining the difference. How to file 1040x electronically Write “See attached” to the right of line 10. How to file 1040x electronically A mortgage holder can be a financial institution, a governmental unit, or a cooperative housing corporation. How to file 1040x electronically If a statement comes from a cooperative housing corporation, it generally will show your share of interest. How to file 1040x electronically Your mortgage interest statement for 2013 should be provided or sent to you by January 31, 2014. How to file 1040x electronically If it is mailed, you should allow adequate time to receive it before contacting the mortgage holder. How to file 1040x electronically A copy of this form will be sent to the IRS also. How to file 1040x electronically Example. How to file 1040x electronically You bought a new home on May 3. How to file 1040x electronically You paid no points on the purchase. How to file 1040x electronically During the year, you made mortgage payments which included $4,480 deductible interest on your new home. How to file 1040x electronically The settlement sheet for the purchase of the home included interest of $620 for 29 days in May. How to file 1040x electronically The mortgage statement you receive from the lender includes total interest of $5,100 ($4,480 + $620). How to file 1040x electronically You can deduct the $5,100 if you itemize your deductions. How to file 1040x electronically Refund of overpaid interest. How to file 1040x electronically   If you receive a refund of mortgage interest you overpaid in a prior year, you generally will receive a Form 1098 showing the refund in box 3. How to file 1040x electronically Generally, you must include the refund in income in the year you receive it. How to file 1040x electronically See Refund of home mortgage interest , earlier, under Home Mortgage Interest. How to file 1040x electronically More than one borrower. How to file 1040x electronically   If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. How to file 1040x electronically Show how much of the interest each of you paid, and give the name and address of the person who received the form. How to file 1040x electronically Deduct your share of the interest on Schedule A (Form 1040), line 11, and write “See attached” to the right of that line. How to file 1040x electronically Mortgage Insurance Premiums You may be able to take an itemized deduction on Schedule A (Form 1040), line 13, for premiums you pay or accrue during 2013 for qualified mortgage insurance in connection with home acquisition debt on your qualified home. How to file 1040x electronically Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as an itemized deduction. How to file 1040x electronically Qualified Mortgage Insurance Qualified mortgage insurance is mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, or the Rural Housing Administration, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). How to file 1040x electronically Prepaid mortgage insurance premiums. How to file 1040x electronically   If you paid premiums that are allocable to periods after 2013, you must allocate them over the shorter of: The stated term of the mortgage, or 84 months, beginning with the month the insurance was obtained. How to file 1040x electronically The premiums are treated as paid in the year to which they were allocated. How to file 1040x electronically If the mortgage is satisfied before its term, no deduction is allowed for the unamortized balance. How to file 1040x electronically See Publication 936 for details. How to file 1040x electronically Exception for certain mortgage insurance. How to file 1040x electronically   The allocation rules, explained above, do not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or Rural Housing Service. How to file 1040x electronically Home Acquisition Debt Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home. How to file 1040x electronically It also must be secured by that home. How to file 1040x electronically If the amount of your mortgage is more than the cost of the home plus the cost of any substantial improvements, only the debt that is not more than the cost of the home plus improvements qualifies as home acquisition debt. How to file 1040x electronically Home acquisition debt limit. How to file 1040x electronically   The total amount you can treat as home acquisition debt at any time on your home cannot be more than $1 million ($500,000 if married filing separately). How to file 1040x electronically Discharges of qualified principal residence indebtedness. How to file 1040x electronically   You can exclude from gross income any discharges of qualified principal residence indebtedness made after 2006 and before 2014. How to file 1040x electronically You must reduce the basis of your principal residence (but not below zero) by the amount you exclude. How to file 1040x electronically Principal residence. How to file 1040x electronically   Your principal residence is the home where you ordinarily live most of the time. How to file 1040x electronically You can have only one principal residence at any one time. How to file 1040x electronically Qualified principal residence indebtedness. How to file 1040x electronically   This is a mortgage that you took out to buy, build, or substantially improve your principal residence and that is secured by that residence. How to file 1040x electronically If the amount of your original mortgage is more than the cost of your principal residence plus the cost of substantial improvements, qualified principal residence indebtedness cannot be more than the cost of your principal residence plus improvements. How to file 1040x electronically   Any debt secured by your principal residence that you use to refinance qualified principal residence indebtedness is qualified principal residence indebtedness up to the amount of your old mortgage principal just before the refinancing. How to file 1040x electronically Additional debt incurred to substantially improve your principal residence is also qualified principal residence indebtedness. How to file 1040x electronically Amount you can exclude. How to file 1040x electronically   You can only exclude debt discharged after 2006 and before 2014. How to file 1040x electronically The most you can exclude is $2 million ($1 million if married filing separately). How to file 1040x electronically You cannot exclude any amount that was discharged because of services performed for the lender or on account of any other factor not directly related either to a decline in the value of your residence or to your financial condition. How to file 1040x electronically Ordering rule. How to file 1040x electronically   If only a part of a loan is qualified principal residence indebtedness, you can exclude only the amount of the discharge that is more than the amount of the loan (immediately before the discharge) that is not qualified principal residence indebtedness. How to file 1040x electronically Qualified Home This means your main home or your second home. How to file 1040x electronically A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. How to file 1040x electronically Main home. How to file 1040x electronically   You can have only one main home at any one time. How to file 1040x electronically This is the home where you ordinarily live most of the time. How to file 1040x electronically Second home and other special situations. How to file 1040x electronically   If you have a second home, use part of your home for other than residential living (such as a home office), rent out part of your home, or are having your home constructed, see Qualified Home in Publication 936. How to file 1040x electronically Limit on Deduction If your adjusted gross income (AGI) on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are deductible is reduced and may be eliminated. How to file 1040x electronically See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. How to file 1040x electronically If your AGI is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. How to file 1040x electronically Form 1098. How to file 1040x electronically   The amount of mortgage insurance premiums you paid during 2013 should be reported in box 4. How to file 1040x electronically See Form 1098, Mortgage Interest Statement in Publication 936. How to file 1040x electronically Mortgage Interest Credit The mortgage interest credit is intended to help lower-income individuals afford home ownership. How to file 1040x electronically If you qualify, you can claim the credit on Form 8396 each year for part of the home mortgage interest you pay. How to file 1040x electronically Who qualifies. How to file 1040x electronically   You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate (MCC) from your state or local government. How to file 1040x electronically Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. How to file 1040x electronically The MCC will show the certificate credit rate you will use to figure your credit. How to file 1040x electronically It also will show the certified indebtedness amount. How to file 1040x electronically Only the interest on that amount qualifies for the credit. How to file 1040x electronically See Figuring the Credit , later. How to file 1040x electronically You must contact the appropriate government agency about getting an MCC before you get a mortgage and buy your home. How to file 1040x electronically Contact your state or local housing finance agency for information about the availability of MCCs in your area. How to file 1040x electronically How to claim the credit. How to file 1040x electronically   To claim the credit, complete Form 8396 and attach it to your Form 1040 or Form 1040NR, U. How to file 1040x electronically S. How to file 1040x electronically Nonresident Alien Income Tax Return. How to file 1040x electronically Include the credit in your total for Form 1040, line 53, or Form 1040NR, line 50; be sure to check box c and write “Form 8396” on that line. How to file 1040x electronically Reducing your home mortgage interest deduction. How to file 1040x electronically   If you itemize your deductions on Schedule A (Form 1040), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on Form 8396, line 3. How to file 1040x electronically You must do this even if part of that amount is to be carried forward to 2014. How to file 1040x electronically Selling your home. How to file 1040x electronically   If you purchase a home after 1990 using an MCC, and you sell that home within 9 years, you may have to recapture (repay) all or part of the benefit you received from the MCC program. How to file 1040x electronically For additional information, see Recapturing (Paying Back) a Federal Mortgage Subsidy, in Publication 523. How to file 1040x electronically Figuring the Credit Figure your credit on Form 8396. How to file 1040x electronically Mortgage not more than certified indebtedness. How to file 1040x electronically   If your mortgage loan amount is equal to (or smaller than) the certified indebtedness amount shown on your MCC, enter on Form 8396, line 1, all the interest you paid on your mortgage during the year. How to file 1040x electronically Mortgage more than certified indebtedness. How to file 1040x electronically   If your mortgage loan amount is larger than the certified indebtedness amount shown on your MCC, you can figure the credit on only part of the interest you paid. How to file 1040x electronically To find the amount to enter on line 1, multiply the total interest you paid during the year on your mortgage by the following fraction. How to file 1040x electronically Certified indebtedness amount on your MCC Original amount of your mortgage   The fraction will not change as long as you are entitled to take the mortgage interest credit. How to file 1040x electronically Example. How to file 1040x electronically Emily bought a home this year. How to file 1040x electronically Her mortgage loan is $125,000. How to file 1040x electronically The certified indebtedness amount on her MCC is $100,000. How to file 1040x electronically She paid $7,500 interest this year. How to file 1040x electronically Emily figures the interest to enter on Form 8396, line 1, as follows:   $100,000 = 80% (. How to file 1040x electronically 80)       $125,000       $7,500 x . How to file 1040x electronically 80 = $6,000   Emily enters $6,000 on Form 8396, line 1. How to file 1040x electronically In each later year, she will figure her credit using only 80% of the interest she pays for that year. How to file 1040x electronically Limits Two limits may apply to your credit. How to file 1040x electronically A limit based on the credit rate, and A limit based on your tax. How to file 1040x electronically Limit based on credit rate. How to file 1040x electronically   If the certificate credit rate is higher than 20%, the credit you are allowed cannot be more than $2,000. How to file 1040x electronically Limit based on tax. How to file 1040x electronically   After applying the limit based on the credit rate, your credit generally cannot be more than your tax liability. How to file 1040x electronically See the Credit Limit Worksheet in the Form 8396 instructions to calculate the limit based on tax. How to file 1040x electronically Dividing the Credit If two or more persons (other than a married couple filing a joint return) hold an interest in the home to which the MCC relates, the credit must be divided based on the interest held by each person. How to file 1040x electronically Example. How to file 1040x electronically John and his brother, George, were issued an MCC. How to file 1040x electronically They used it to get a mortgage on their main home. How to file 1040x electronically John has a 60% ownership interest in the home, and George has a 40% ownership interest in the home. How to file 1040x electronically John paid $5,400 mortgage interest this year and George paid $3,600. How to file 1040x electronically The MCC shows a credit rate of 25% and a certified indebtedness amount of $130,000. How to file 1040x electronically The loan amount (mortgage) on their home is $120,000. How to file 1040x electronically The credit is limited to $2,000 because the credit rate is more than 20%. How to file 1040x electronically John figures the credit by multiplying the mortgage interest he paid this year ($5,400) by the certificate credit rate (25%) for a total of $1,350. How to file 1040x electronically His credit is limited to $1,200 ($2,000 × 60%). How to file 1040x electronically George figures the credit by multiplying the mortgage interest he paid this year ($3,600) by the certificate credit rate (25%) for a total of $900. How to file 1040x electronically His credit is limited to $800 ($2,000 × 40%). How to file 1040x electronically Carryforward If your allowable credit is reduced because of the limit based on your tax, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first. How to file 1040x electronically Example. How to file 1040x electronically You receive a mortgage credit certificate from State X. How to file 1040x electronically This year, your regular tax liability is $1,100, you owe no alternative minimum tax, and your mortgage interest credit is $1,700. How to file 1040x electronically You claim no other credits. How to file 1040x electronically Your unused mortgage interest credit for this year is $600 ($1,700 − $1,100). How to file 1040x electronically You can carry forward this amount to the next 3 years or until used, whichever comes first. How to file 1040x electronically Credit rate more than 20%. How to file 1040x electronically   If you are subject to the $2,000 limit because your certificate credit rate is more than 20%, you cannot carry forward any amount more than $2,000 (or your share of the $2,000 if you must divide the credit). How to file 1040x electronically Example. How to file 1040x electronically In the earlier example under Dividing the Credit , John and George used the entire $2,000 credit. How to file 1040x electronically The excess   John $1,350 − $1,200 = $150     George $900 − $800 = $100   $150 for John ($1,350 − $1,200) and $100 for George ($900 − $800) cannot be carried forward to future years, despite the respective tax liabilities for John and George. How to file 1040x electronically Refinancing If you refinance your original mortgage loan on which you had been given an MCC, you must get a new MCC to be able to claim the credit on the new loan. How to file 1040x electronically The amount of credit you can claim on the new loan may change. How to file 1040x electronically Table 2 below summarizes how to figure your credit if you refinance your original mortgage loan. How to file 1040x electronically Table 2. How to file 1040x electronically Effect of Refinancing on Your Credit IF you get a new (reissued) MCC and the amount of your new mortgage is . How to file 1040x electronically . How to file 1040x electronically . How to file 1040x electronically THEN the interest you claim on Form 8396, line 1, is* . How to file 1040x electronically . How to file 1040x electronically . How to file 1040x electronically smaller than or equal to the certified indebtedness amount on the new MCC all the interest paid during the year on your new mortgage. How to file 1040x electronically larger than the certified indebtedness amount on the new MCC interest paid during the year on your new mortgage multiplied by the following fraction. How to file 1040x electronically         certified indebtedness  amount on your new MCC       original amount of your  mortgage   *The credit using the new MCC cannot be more than the credit using the old MCC. How to file 1040x electronically  See New MCC cannot increase your credit above. How to file 1040x electronically An issuer may reissue an MCC after you refinance your mortgage. How to file 1040x electronically If you did not get a new MCC, you may want to contact the state or local housing finance agency that issued your original MCC for information about whether you can get a reissued MCC. How to file 1040x electronically Year of refinancing. How to file 1040x electronically   In the year of refinancing, add the applicable amount of interest paid on the old mortgage and the applicable amount of interest paid on the new mortgage, and enter the total on Form 8396, line 1. How to file 1040x electronically   If your new MCC has a credit rate different from the rate on the old MCC, you must attach a statement to Form 8396. How to file 1040x electronically The statement must show the calculation for lines 1, 2, and 3 for the part of the year when the old MCC was in effect. How to file 1040x electronically It must show a separate calculation for the part of the year when the new MCC was in effect. How to file 1040x electronically Combine the amounts from both calculations for line 3, enter the total on line 3 of the form, and write “See attached” on the dotted line next to line 2. How to file 1040x electronically New MCC cannot increase your credit. How to file 1040x electronically   The credit that you claim with your new MCC cannot be more than the credit that you could have claimed with your old MCC. How to file 1040x electronically   In most cases, the agency that issues your new MCC will make sure that it does not increase your credit. How to file 1040x electronically However, if either your old loan or your new loan has a variable (adjustable) interest rate, you will need to check this yourself. How to file 1040x electronically In that case, you will need to know the amount of the credit you could have claimed using the old MCC. How to file 1040x electronically   There are two methods for figuring the credit you could have claimed. How to file 1040x electronically Under one method, you figure the actual credit that would have been allowed. How to file 1040x electronically This means you use the credit rate on the old MCC and the interest you would have paid on the old loan. How to file 1040x electronically   If your old loan was a variable rate mortgage, you can use another method to determine the credit that you could have claimed. How to file 1040x electronically Under this method, you figure the credit using a payment schedule of a hypothetical self-amortizing mortgage with level payments projected to the final maturity date of the old mortgage. How to file 1040x electronically The interest rate of the hypothetical mortgage is the annual percentage rate (APR) of the new mortgage for purposes of the Federal Truth in Lending Act. How to file 1040x electronically The principal of the hypothetical mortgage is the remaining outstanding balance of the certified mortgage indebtedness shown on the old MCC. How to file 1040x electronically    You must choose one method and use it consistently beginning with the first tax year for which you claim the credit based on the new MCC. How to file 1040x electronically    As part of your tax records, you should keep your old MCC and the schedule of payments for your old mortgage. How to file 1040x electronically Basis Basis is your starting point for figuring a gain or loss if you later sell your home, or for figuring depreciation if you later use part of your home for business purposes or for rent. How to file 1040x electronically While you own your home, you may add certain items to your basis. How to file 1040x electronically You may subtract certain other items from your basis. How to file 1040x electronically These items are called adjustments to basis and are explained later under Adjusted Basis . How to file 1040x electronically It is important that you understand these terms when you first acquire your home because you must keep track of your basis and adjusted basis during the period you own your home. How to file 1040x electronically You also must keep records of the events that affect basis or adjusted basis. How to file 1040x electronically See Keeping Records , below. How to file 1040x electronically Figuring Your Basis How you figure your basis depends on how you acquire your home. How to file 1040x electronically If you buy or build your home, your cost is your basis. How to file 1040x electronically If you receive your home as a gift, your basis is usually the same as the adjusted basis of the person who gave you the property. How to file 1040x electronically If you inherit your home from a decedent, different rules apply depending on the date of the decedent's death. How to file 1040x electronically Each of these topics is discussed later. How to file 1040x electronically Property transferred from a spouse. How to file 1040x electronically   If your home is transferred to you from your spouse, or from your former spouse as a result of a divorce, your basis is the same as your spouse's (or former spouse's) adjusted basis just before the transfer. How to file 1040x electronically Publication 504, Divorced or Separated Individuals, fully discusses transfers between spouses. How to file 1040x electronically Cost as Basis The cost of your home, whether you purchased it or constructed it, is the amount you paid for it, including any debt you assumed. How to file 1040x electronically The cost of your home includes most settlement or closing costs you paid when you bought the home. How to file 1040x electronically If you built your home, your cost includes most closing costs paid when you bought the land or settled on your mortgage. How to file 1040x electronically See Settlement or closing costs , later. How to file 1040x electronically If you elect to deduct the sales taxes on the purchase or construction of your home as an itemized deduction on Schedule A (Form 1040), you cannot include the sales taxes as part of your cost basis in the home. How to file 1040x electronically Purchase. How to file 1040x electronically   The basis of a home you bought is the amount you paid for it. How to file 1040x electronically This usually includes your down payment and any debt you assumed. How to file 1040x electronically The basis of a cooperative apartment is the amount you paid for your shares in the corporation that owns or controls the property. How to file 1040x electronically This amount includes any purchase commissions or other costs of acquiring the shares. How to file 1040x electronically Construction. How to file 1040x electronically   If you contracted to have your home built on land that you own, your basis in the home is your basis in the land plus the amount you paid to have the home built. How to file 1040x electronically This includes the cost of labor and materials, the amount you paid the contractor, any architect's fees, building permit charges, utility meter and connection charges, and legal fees that are directly connected with building your home. How to file 1040x electronically If you built all or part of your home yourself, your basis is the total amount it cost you to build it. How to file 1040x electronically You cannot include in basis the value of your own labor or any other labor for which you did not pay. How to file 1040x electronically Real estate taxes. How to file 1040x electronically   Real estate taxes are usually divided so that you and the seller each pay taxes for the part of the property tax year that each owned the home. How to file 1040x electronically See the earlier discussion of Real estate taxes paid at settlement or closing , under Real Estate Taxes, earlier, to figure the real estate taxes you paid or are considered to have paid. How to file 1040x electronically   If you pay any part of the seller's share of the real estate taxes (the taxes up to the date of sale), and the seller did not reimburse you, add those taxes to your basis in the home. How to file 1040x electronically You cannot deduct them as taxes paid. How to file 1040x electronically   If the seller paid any of your share of the real estate taxes (the taxes beginning with the date of sale), you can still deduct those taxes. How to file 1040x electronically Do not include those taxes in your basis. How to file 1040x electronically If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. How to file 1040x electronically Example 1. How to file 1040x electronically You bought your home on September 1. How to file 1040x electronically The property tax year in your area is the calendar year, and the tax is due on August 15. How to file 1040x electronically The real estate taxes on the home you bought were $1,275 for the year and had been paid by the seller on August 15. How to file 1040x electronically You did not reimburse the seller for your share of the real estate taxes from September 1 through December 31. How to file 1040x electronically You must reduce the basis of your home by the $426 [(122 ÷ 365) × $1,275] the seller paid for you. How to file 1040x electronically You can deduct your $426 share of real estate taxes on your return for the year you purchased your home. How to file 1040x electronically Example 2. How to file 1040x electronically You bought your home on May 3, 2013. How to file 1040x electronically The property tax year in your area is the calendar year. How to file 1040x electronically The taxes for the previous year are assessed on January 2 and are due on May 31 and November 30. How to file 1040x electronically Under state law, the taxes become a lien on May 31. How to file 1040x electronically You agreed to pay all taxes due after the date of sale. How to file 1040x electronically The taxes due in 2013 for 2012 were $1,375. How to file 1040x electronically The taxes due in 2014 for 2013 will be $1,425. How to file 1040x electronically You cannot deduct any of the taxes paid in 2013 because they relate to the 2012 property tax year and you did not own the home until 2013. How to file 1040x electronically Instead, you add the $1,375 to the cost (basis) of your home. How to file 1040x electronically You owned the home in 2013 for 243 days (May 3 to December 31), so you can take a tax deduction on your 2014 return of $949 [(243 ÷ 365) × $1,425] paid in 2014 for 2013. How to file 1040x electronically You add the remaining $476 ($1,425 − $949) of taxes paid in 2014 to the cost (basis) of your home. How to file 1040x electronically Settlement or closing costs. How to file 1040x electronically   If you bought your home, you probably paid settlement or closing costs in addition to the contract price. How to file 1040x electronically These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. How to file 1040x electronically If you built your home, you probably paid these costs when you bought the land or settled on your mortgage. How to file 1040x electronically   The only settlement or closing costs you can deduct are home mortgage interest and certain real estate taxes. How to file 1040x electronically You deduct them in the year you buy your home if you itemize your deductions. How to file 1040x electronically You can add certain other settlement or closing costs to the basis of your home. How to file 1040x electronically Items added to basis. How to file 1040x electronically   You can include in your basis the settlement fees and closing costs you paid for buying your home. How to file 1040x electronically A fee is for buying the home if you would have had to pay it even if you paid cash for the home. How to file 1040x electronically   The following are some of the settlement fees and closing costs that you can include in the original basis of your home. How to file 1040x electronically Abstract fees (abstract of title fees). How to file 1040x electronically Charges for installing utility services. How to file 1040x electronically Legal fees (including fees for the title search and preparation of the sales contract and deed). How to file 1040x electronically Recording fees. How to file 1040x electronically Surveys. How to file 1040x electronically Transfer or stamp taxes. How to file 1040x electronically Owner's title insurance. How to file 1040x electronically Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions. How to file 1040x electronically   If the seller actually paid for any item for which you are liable and for which you can take a deduction (such as your share of the real estate taxes for the year of sale), you must reduce your basis by that amount unless you are charged for it in the settlement. How to file 1040x electronically Items not added to basis and not deductible. How to file 1040x electronically   Here are some settlement and closing costs that you cannot deduct or add to your basis. How to file 1040x electronically Fire insurance premiums. How to file 1040x electronically Charges for using utilities or other services related to occupancy of the home before closing. How to file 1040x electronically Rent for occupying the home before closing. How to file 1040x electronically Charges connected with getting or refinancing a mortgage loan, such as: Loan assumption fees, Cost of a credit report, and Fee for an appraisal required by a lender. How to file 1040x electronically Points paid by seller. How to file 1040x electronically   If you bought your home after April 3, 1994, you must reduce your basis by any points paid for your mortgage by the person who sold you your home. How to file 1040x electronically   If you bought your home after 1990 but before April 4, 1994, you must reduce your basis by seller-paid points only if you deducted them. How to file 1040x electronically See Points , earlier, for the rules on deducting points. How to file 1040x electronically Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined later) to the donor just before it was given to you, its fair market value (FMV) at the time it was given to you, and any gift tax paid on it. How to file 1040x electronically Fair market value. How to file 1040x electronically   Fair market value (FMV) is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and who both have a reasonable knowledge of all the necessary facts. How to file 1040x electronically Donor's adjusted basis is more than FMV. How to file 1040x electronically   If someone gave you your home and the donor's adjusted basis, when it was given to you, was more than the FMV, your basis at the time of receipt is the same as the donor's adjusted basis. How to file 1040x electronically Disposition basis. How to file 1040x electronically   If the donor's adjusted basis at the time of the gift is more than the FMV, your basis (plus or minus any required adjustments, see Adjusted Basis , later) when you dispose of the property will depend on whether you have a gain or a loss. How to file 1040x electronically Your basis for figuring a gain is the same as the donor's adjusted basis. How to file 1040x electronically Your basis for figuring a loss is the FMV when you received the gift. How to file 1040x electronically If you use the donor's adjusted basis to figure a gain and it results in a loss, then you must use the FMV (at the time of the gift) to refigure the loss. How to file 1040x electronically However, if using the FMV results in a gain, then you neither have a gain nor a loss. How to file 1040x electronically Example 1. How to file 1040x electronically Andrew received a house as a gift from Ishmael (the donor). How to file 1040x electronically At the time of the gift, the home had an FMV of $80,000. How to file 1040x electronically Ishmael's adjusted basis was $100,000. How to file 1040x electronically After he received the house, no events occurred to increase or decrease the basis. How to file 1040x electronically If Andrew sells the house for $120,000, he will have a $20,000 gain because he must use the donor's adjusted basis ($100,000) at the time of the gift as his basis to figure the gain. How to file 1040x electronically Example 2. How to file 1040x electronically Same facts as Example 1 , except this time Andrew sells the house for $70,000. How to file 1040x electronically He will have a loss of $10,000 because he must use the FMV ($80,000) at the time of the gift as his basis to figure the loss. How to file 1040x electronically Example 3. How to file 1040x electronically Same facts as Example 1 , except this time Andrew sells the house for $90,000. How to file 1040x electronically Initially, he figures the gain using Ishmael's adjusted basis ($100,000), which results in a loss of $10,000. How to file 1040x electronically Since it is a loss, Andrew must now recalculate the loss using the FMV ($80,000), which results in a gain of $10,000. How to file 1040x electronically So in this situation, Andrew will neither have a gain nor a loss. How to file 1040x electronically Donor's adjusted basis equal to or less than the FMV. How to file 1040x electronically   If someone gave you your home after 1976 and the donor's adjusted basis, when it was given to you, was equal to or less than the FMV, your basis at the time of receipt is the same as the donor's adjusted basis, plus the part of any federal gift tax paid that is due to the net increase in value of the home. How to file 1040x electronically Part of federal gift tax due to net increase in value. How to file 1040x electronically   Figure the part of the federal gift tax paid that is due to the net increase in value of the home by multiplying the total federal gift tax paid by a fraction. How to file 1040x electronically The numerator (top part) of the fraction is the net increase in the value of the home, and the denominator (bottom part) is the value of the home for gift tax purposes after reduction for any annual exclusion and marital or charitable deduction that applies to the gift. How to file 1040x electronically The net increase in the value of the home is its FMV minus the adjusted basis of the donor. How to file 1040x electronically Publication 551 gives more information, including examples, on figuring your basis when you receive property as a gift. How to file 1040x electronically Inheritance Your basis in a home you inherited is generally the fair market value of the home on the date of the decedent's death or on the alternative valuation date if the personal representative for the estate chooses to use alternative valuation. How to file 1040x electronically If an estate tax return was filed, your basis is generally the value of the home listed on the estate tax return. How to file 1040x electronically If an estate tax return was not filed, your basis is the appraised value of the home at the decedent's date of death for state inheritance or transmission taxes. How to file 1040x electronically Publication 551 and Publication 559, Survivors, Executors, and Administrators, have more information on the basis of inherited property. How to file 1040x electronically If you inherited your home from someone who died in 2010, and the executor of the decedent's estate made the election to file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. How to file 1040x electronically Adjusted Basis While you own your home, various events may take place that can change the original basis of your home. How to file 1040x electronically These events can increase or decrease your original basis. How to file 1040x electronically The result is called adjusted basis. How to file 1040x electronically See Table 3, on this page, for a list of some of the items that can adjust your basis. How to file 1040x electronically Table 3. How to file 1040x electronically Adjusted Basis This table lists examples of some items that generally will increase or decrease your basis in your home. How to file 1040x electronically It is not intended to be all-inclusive. How to file 1040x electronically Increases to Basis Decreases to Basis Improvements: Putting an addition on your home Replacing an entire roof Paving your driveway Installing central air conditioning Rewiring your home Assessments for local improvements (see Assessments for local benefits , under What You Can and Cannot Deduct, earlier) Amounts spent to restore damaged property Insurance or other reimbursement for casualty losses Deductible casualty loss not covered by insurance Payments received for easement or right-of-way granted Depreciation allowed or allowable if home is used for business or rental purposes Value of subsidy for energy conservation measure excluded from income Improvements. How to file 1040x electronically   An improvement materially adds to the value of your home, considerably prolongs its useful life, or adapts it to new uses. How to file 1040x electronically You must add the cost of any improvements to the basis of your home. How to file 1040x electronically You cannot deduct these costs. How to file 1040x electronically   Improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, and paving your driveway. How to file 1040x electronically Amount added to basis. How to file 1040x electronically   The amount you add to your basis for improvements is your actual cost. How to file 1040x electronically This includes all costs for material and labor, except your own labor, and all expenses related to the improvement. How to file 1040x electronically For example, if you had your lot surveyed to put up a fence, the cost of the survey is a part of the cost of the fence. How to file 1040x electronically   You also must add to your basis state and local assessments for improvements such as streets and sidewalks if they increase the value of the property. How to file 1040x electronically These assessments are discussed earlier under Real Estate Taxes . How to file 1040x electronically Improvements no longer part of home. How to file 1040x electronically    Your home's adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home. How to file 1040x electronically Example. How to file 1040x electronically You put wall-to-wall carpeting in your home 15 years ago. How to file 1040x electronically Later, you replaced that carpeting with new wall-to-wall carpeting. How to file 1040x electronically The cost of the old carpeting you replaced is no longer part of your home's adjusted basis. How to file 1040x electronically Repairs versus improvements. How to file 1040x electronically   A repair keeps your home in an ordinary, efficient operating condition. How to file 1040x electronically It does not add to the value of your home or prolong its life. How to file 1040x electronically Repairs include repainting your home inside or outside, fixing your gutters or floors, fixing leaks or plastering, and replacing broken window panes. How to file 1040x electronically You cannot deduct repair costs and generally cannot add them to the basis of your home. How to file 1040x electronically   However, repairs that are done as part of an extensive remodeling or restoration of your home are considered improvements. How to file 1040x electronically You add them to the basis of your home. How to file 1040x electronically Records to keep. How to file 1040x electronically   You can use Table 4 (at the end of the publication) as a guide to help you keep track of improvements to your home. How to file 1040x electronically Also see Keeping Records , below. How to file 1040x electronically Energy conservation subsidy. How to file 1040x electronically   If a public utility gives you (directly or indirectly) a subsidy for the purchase or installation of an energy conservation measure for your home, do not include the value of that subsidy in your income. How to file 1040x electronically You must reduce the basis of your home by that value. How to file 1040x electronically   An energy conservation measure is an installation or modification primarily designed to reduce consumption of electricity or natural gas or to improve the management of energy demand. How to file 1040x electronically Keeping Records Keeping full and accurate records is vital to properly report your income and expenses, to support your deductions and credits, and to know the basis or adjusted basis of your home. How to file 1040x electronically These records include your purchase contract and settlement papers if you bought the property, or other objective evidence if you acquired it by gift, inheritance, or similar means. How to file 1040x electronically You should keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis. How to file 1040x electronically In addition, you should keep track of any decreases to the basis such as those listed in Table 3, earlier. How to file 1040x electronically How to keep records. How to file 1040x electronically   How you keep records is up to you, but they must be clear and accurate and must be available to the IRS. How to file 1040x electronically How long to keep records. How to file 1040x electronically   You must keep your records for as long as they are important for meeting any provision of the federal tax law. How to file 1040x electronically   Keep records that support an item of income, a deduction, or a credit appearing on a return until the period of limitations for the return runs out. How to file 1040x electronically (A period of limitations is the period of time after which no legal action can be brought. How to file 1040x electronically ) For assessment of tax you owe, this is generally 3 years from the date you filed the return. How to file 1040x electronically For filing a claim for credit or refund, this is generally 3 years from the date you filed the original return, or 2 years from the date you paid the tax, whichever is later. How to file 1040x electronically Returns filed before the due date are treated as filed on the due date. How to file 1040x electronically   You may need to keep records relating to the basis of property (discussed earlier) for longer than the period of limitations. How to file 1040x electronically Keep those records as long as they are important in figuring the basis of the original or replacement property. How to file 1040x electronically Generally, this means for as long as you own the property and, after you dispose of it, for the period of limitations that applies to you. How to file 1040x electronically Table 4. How to file 1040x electronically Record of Home Improvements Keep this for your records. How to file 1040x electronically Also, keep receipts or other proof of improvements. How to file 1040x electronically Remove from this record any improvements that are no longer part of your main home. How to file 1040x electronically For example, if you put wall-to-wall carpeting in your home and later replace it with new wall-to-wall carpeting, remove the cost of the first carpeting. How to file 1040x electronically (a) Type of Improvement (b) Date (c) Amount   (a) Type of Improvement (b) Date (c) Amount Additions:       Heating & Air  Conditioning:     Bedroom       Heating system     Bathroom       Central air conditioning     Deck       Furnace     Garage       Duct work     Porch       Central humidifier     Patio       Filtration system     Storage shed       Other     Fireplace       Electrical:     Other           Lawn & Grounds:       Lighting fixtures           Wiring upgrades     Landscaping       Other     Driveway       Plumbing:     Walkway           Fences       Water heater     Retaining wall       Soft water system     Sprinkler system       Filtration system     Swimming pool       Other     Exterior lighting       Insulation:     Other           Communications:       Attic           Walls     Satellite dish       Floors     Intercom       Pipes and duct work     Security system       Other     Other             Miscellaneous:       Interior  Improvements:     Storm windows and doors       Built-in appliances     Roof       Kitchen modernization     Central vacuum       Bathroom modernization     Other       Flooring             Wall-to-wall carpeting             Other     How To
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Top 10 Tax Time Tips from the IRS

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IRS Tax Tip 2014-40, March 25, 2014                                                  

The tax filing season is almost over. You can make tax time easier if you don’t wait until the last minute. Here are 10 important tax time tips:

  1. Gather your records.  Collect all tax records you need to file your taxes. This includes receipts, canceled checks and records that support income, deductions or tax credits that you claim on your tax return. Store them in a safe place.

  2. Report all your income.  You will need to report your income from all of your Forms W-2, Wage and Tax Statements, and Form 1099 income statements when you file your tax return.

  3. Get answers.  Use the Interactive Tax Assistant tool on the IRS website to get answers to many of your questions about tax credits, deductions and many more topics.

  4. Use Free File.  You can prepare and e-file a tax return for free using IRS Free File, available exclusively on IRS.gov. If your income was $58,000 or less, you qualify to use free tax software. If your income was higher, or if you’re comfortable doing your own tax return, you can use Free File Fillable Forms, the electronic version of IRS paper forms. Visit IRS.gov/freefile to check your options.

  5. Try IRS e-file.  Electronic filing is the best way to file a tax return. It’s accurate, safe and easy. Last year, more than 122 million taxpayers used IRS e-file. If you owe taxes, you have the option to file early and pay by April 15.

  6. Weigh your filing options.  You have several options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free, face-to-face help at a Volunteer Income Tax Assistance or Tax Counseling for the Elderly site. Weigh your options and choose the one that works best for you.

  7. Use direct deposit.  Combining e-file with direct deposit is the fastest and safest way to get your tax refund.

  8. Visit the IRS website 24/7.  IRS.gov is a great place to get everything you need to file your tax return. Visit ‘1040 Central’ for online tools, filing tips, answers to frequently asked questions and IRS forms and publications. Get them all anytime, day or night.

  9. Check out number 17.  IRS Publication 17, Your Federal Income Tax, is a complete tax resource. It contains helpful information such as whether you need to file a tax return and how to choose your filing status.

  10. Review your return.  Mistakes slow down the receipt of your tax refund. Be sure to check all Social Security numbers and math calculations on your return, as these are the most common errors. If you run into a problem, remember the IRS is here to help. Start with IRS.gov.

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Page Last Reviewed or Updated: 27-Mar-2014

The How To File 1040x Electronically

How to file 1040x electronically 10. How to file 1040x electronically   Indoor Tanning Services Tax Table of Contents The tax on indoor tanning service is 10% of the amount paid for that service. How to file 1040x electronically The tax is paid by the person paying for the services and is collected by the person receiving payment for the indoor tanning services. How to file 1040x electronically Definition of indoor tanning services. How to file 1040x electronically   Indoor tanning service means a service employing any electronic product designed to incorporate one or more ultraviolet lamps and intended for the irradiation of an individual by ultraviolet radiation, with wavelengths in air between 200 and 400 nanometers, to induce skin tanning. How to file 1040x electronically The term does not include phototherapy service performed by, and on the premises of, a licensed medical professional (such as a dermatologist, psychologist, or registered nurse). How to file 1040x electronically See regulations section 49. How to file 1040x electronically 5000B-1 for more information, and special rules for qualified physical fitness facilities, undesignated payment cards, and bundled payments. How to file 1040x electronically File Form 720. How to file 1040x electronically   The person receiving the payment for indoor tanning services (collector) must collect and remit the tax and file the return. How to file 1040x electronically If the tax is not collected for any reason, the collector is liable for the tax. How to file 1040x electronically The collector is not required to make semimonthly deposits of the tax. How to file 1040x electronically Prev  Up  Next   Home   More Online Publications