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Irs E File

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Irs E File

Irs e file Publication 850 (EN/SP) - Introductory Material Table of Contents Introduction Introduction This glossary is developed by the Tax Forms and Publications Division of the Internal Revenue Service, in consultation with the Translation Commission of the North American Academy of the Spanish Language (Comisión de Traducciones de la Academia Norteamericana de la Lengua Española) and with the Graduate Program in Translation of the University of Puerto Rico (Programa Graduado en Traducción de la Universidad de Puerto Rico). Irs e file Its purpose is to establish high standards for the quality of language usage, to promote uniformity in language usage, and to minimize the risk of misinterpretation of Spanish-language materials issued by the Service. Irs e file To meet the needs of the largest segment of taxpayers whose primary language is Spanish, the Service has issued certain Spanish-language materials. Irs e file Problems arise, however, because there is some variation in tax terminology used in Spanish-speaking countries. Irs e file Also, invention and compromise are involved in selecting words and phrases to describe certain tax concepts that have no precise equivalent in the Spanish language or legal tradition. Irs e file To help resolve these problems, a group of United States, Spanish, and Spanish-American academicians, professors, lawyers, accountants, translators, and tax law specialists developed this glossary. Irs e file Their long and varied experience with the tax systems in their own, and other countries, gives assurance of reliability. Irs e file The criteria used for words in this glossary are: consistency of usage with other governmental agencies, Spanish writing style for the tax forms and publications, and words relating to Accounting, Economics, Finance, Law, Technology and its related fields. Irs e file Any issuance containing language consistent with this glossary should be reasonably satisfactory for purposes of general guidance regarding the rights and obligations of taxpayers. Irs e file It is not intended, however, that any term in this glossary should be understood to change the meaning of any provisions of law, regulations, or any other authoritative precedent. Irs e file A periodic review is made to determine whether any additions, deletions, or revisions are needed. Irs e file Some of the terms listed are identified by the abbreviation “P. Irs e file R. Irs e file ” These terms are for use in tax forms and publications intended for circulation exclusively in Puerto Rico. Irs e file Users are invited to send their comments to: Internal Revenue Service Virtual Translation Office SE:W:CAR:MP:T:LS:VTO 1111 Constitution Ave. Irs e file , N. Irs e file W. Irs e file , IR-6102 Washington, DC 20224 or electronically to: vto@irs. Irs e file gov Prev  Up  Next   Home   More Online Publications
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Hurricane Telephone Hot Lines

Phone numbers for services to help you recover from a hurricane.

Don't Know Whom to Call?

Health and Safety Hot Lines

  • Food Safety
    Call 1-888-MPHotline (1-888-674-6854) with food safety questions. Available in English and Spanish.
  • Health and Safety
    Call 1-800-CDC-INFO (1-800-232-4636), TTY 1-888-232-6348, for information on hazards, safe clean up, and preventing illness and injury. Available in English and Spanish, 24 hours a day, 7 days a week.
  • Mental Health Crisis Counseling
    Call 1-800-273-TALK (1-800-273-8255), TTY 1-800-799-4889, if you or a loved one are in emotional distress or suicidal in the aftermath of the disaster. You will be connected to a trained counselor at a suicide crisis center nearest you. Available 24 hours a day, 7 days a week. Spanish counseling available at 1-888-628-9454.
  • North Carolina Emergency Management Division
    North Carolina residents can call for updated weather information, highway closings, shelter information, and feeding sites. Available in English and Spanish 1-888-835-9966, TTY 1-877-877-1765 or 711 (Relay N.C.).
  • Report Chemical and Oil Spills
    Call 1-800-424-8802, TDD 202-267-4477 to report a chemical or oil spill to the U.S. Coast Guard.

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Survivor Assistance Hot Lines

  • American Red Cross
    Call 1-800-RED-CROSS (1-800-733-2767) for information on evacuation, shelter, and assistance.
  • Business Disaster Loans
    Call 1-800-659-2955 TTY 1-800-877-8339 for business disaster loan program information.
  • Consumer Help Line and Fraud Complaints
    Call 1-877-FTC-HELP (1-877-382-4357) to report consumer fraud to the Federal Trade Commission.
  • Employee Benefits
    If you have questions about your health or retirement benefits from your employer's plan, contact the Employee Benefits Security Administration calling toll free 1-866-444-3272 with any questions.
  • FEMA Assistance
    Call 1-800-621-FEMA (1-800-621-3362) TTY 1-800-462-7585 or register online for assistance. You can request FEMA assistance or review your previous request. Available in English and Spanish.
  • Lost Bank Records, ATM Cards, Reach Your Bank and More
    Call 1-877-ASK-FDIC (1-877-275-3342) TDD 1-800-925-4618.
  • National Flood Insurance Program
    Call 1-888-379-9531 TTY 1-800-427-5593 to file a claim or for program information. Available in English and Spanish.
  • Social Security Benefits
    Call 1-800-772-1213 TTY 1-800-325-0778 if you currently receive benefits from the Social Security Administration and are unable to get your payment. Available in English and Spanish.
  • Tax Matters (Federal)
    Call 1-800-829-1040 TDD 1-800-829-4059 to find out about tax relief, get a copy of your tax return transcript and receive a disaster tax loss kit.
  • Unemployment Assistance for Disaster Survivors
    Call 1-866-4-USA-DOL, 1-866-487-2365 for more information on registering for unemployment insurance and disaster unemployment assistance. Available in English and Spanish 24 hours a day. (U.S. Department of Labor)

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Federal Employees, Military and Veterans Hot Lines

International Evacuees and Foreign Nationals

If you are a tourist or other foreign national affected by a disaster in the U.S., contact your embassy or consulate.

The Irs E File

Irs e file 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. Irs e file S. Irs e file Individual Income Tax Return, and itemize your deductions on Schedule A (Form 1040). Irs e file If you itemize, you cannot take the standard deduction. Irs e file This section explains what expenses you can deduct as a homeowner. Irs e file It also points out expenses that you cannot deduct. Irs e file There are four primary discussions: real estate taxes, sales taxes, home mortgage interest, and mortgage insurance premiums. Irs e file Generally, your real estate taxes, home mortgage interest, and mortgage insurance premiums are included in your house payment. Irs e file Your house payment. Irs e file   If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. Irs e file Your house payment may include several costs of owning a home. Irs e file 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. Irs e file These are discussed in more detail later. Irs e file   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. Irs e file Minister's or military housing allowance. Irs e file   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. Irs e file You do not have to reduce your deductions by your nontaxable allowance. Irs e file 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. Irs e file Nondeductible payments. Irs e file   You cannot deduct any of the following items. Irs e file Insurance (other than mortgage insurance premiums), including fire and comprehensive coverage, and title insurance. Irs e file Wages you pay for domestic help. Irs e file Depreciation. Irs e file The cost of utilities, such as gas, electricity, or water. Irs e file Most settlement costs. Irs e file See Settlement or closing costs under Cost as Basis, later, for more information. Irs e file Forfeited deposits, down payments, or earnest money. Irs e file 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. Irs e file 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. Irs e file 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. Irs e file 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). Irs e file 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. Irs e file Real Estate Taxes Most state and local governments charge an annual tax on the value of real property. Irs e file This is called a real estate tax. Irs e file You can deduct the tax if it is assessed uniformly at a like rate on all real property throughout the community. Irs e file 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. Irs e file Deductible Real Estate Taxes You can deduct real estate taxes imposed on you. Irs e file 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. Irs e file If you own a cooperative apartment, see Special Rules for Cooperatives , later. Irs e file Where to deduct real estate taxes. Irs e file   Enter the amount of your deductible real estate taxes on Schedule A (Form 1040), line 6. Irs e file Real estate taxes paid at settlement or closing. Irs e file   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. Irs e file Your share of these taxes is fully deductible if you itemize your deductions. Irs e file Division of real estate taxes. Irs e file   For federal income tax purposes, the seller is treated as paying the property taxes up to, but not including, the date of sale. Irs e file You (the buyer) are treated as paying the taxes beginning with the date of sale. Irs e file This applies regardless of the lien dates under local law. Irs e file Generally, this information is included on the settlement statement you get at closing. Irs e file   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. Irs e file You each can deduct your own share, if you itemize deductions, for the year the property is sold. Irs e file Example. Irs e file You bought your home on September 1. Irs e file The property tax year (the period to which the tax relates) in your area is the calendar year. Irs e file The tax for the year was $730 and was due and paid by the seller on August 15. Irs e file You owned your new home during the property tax year for 122 days (September 1 to December 31, including your date of purchase). Irs e file You figure your deduction for real estate taxes on your home as follows. Irs e file 1. Irs e file Enter the total real estate taxes for the real property tax year $730 2. Irs e file Enter the number of days in the property tax year that you owned the property 122 3. Irs e file Divide line 2 by 365 . Irs e file 3342 4. Irs e file Multiply line 1 by line 3. Irs e file This is your deduction. Irs e file 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. Irs e file 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. Irs e file Delinquent taxes. Irs e file   Delinquent taxes are unpaid taxes that were imposed on the seller for an earlier tax year. Irs e file If you agree to pay delinquent taxes when you buy your home, you cannot deduct them. Irs e file You treat them as part of the cost of your home. Irs e file See Real estate taxes , later, under Basis. Irs e file Escrow accounts. Irs e file   Many monthly house payments include an amount placed in escrow (put in the care of a third party) for real estate taxes. Irs e file You may not be able to deduct the total you pay into the escrow account. Irs e file You can deduct only the real estate taxes that the lender actually paid from escrow to the taxing authority. Irs e file Your real estate tax bill will show this amount. Irs e file Refund or rebate of real estate taxes. Irs e file   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. Irs e file 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. Irs e file For more information, see Recoveries in Publication 525, Taxable and Nontaxable Income. Irs e file Items You Cannot Deduct as Real Estate Taxes The following items are not deductible as real estate taxes. Irs e file Charges for services. Irs e file   An itemized charge for services to specific property or people is not a tax, even if the charge is paid to the taxing authority. Irs e file 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). Irs e file    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. Irs e file If your taxing authority (or lender) does not furnish you a copy of your real estate tax bill, ask for it. Irs e file Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. Irs e file Assessments for local benefits. Irs e file   You cannot deduct amounts you pay for local benefits that tend to increase the value of your property. Irs e file Local benefits include the construction of streets, sidewalks, or water and sewer systems. Irs e file You must add these amounts to the basis of your property. Irs e file   You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. Irs e file An example is a charge to repair an existing sidewalk and any interest included in that charge. Irs e file   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. Irs e file If you cannot show what part of the assessment is for maintenance, repair, or interest charges, you cannot deduct any of it. Irs e file   An assessment for a local benefit may be listed as an item in your real estate tax bill. Irs e file If so, use the rules in this section to find how much of it, if any, you can deduct. Irs e file Transfer taxes (or stamp taxes). Irs e file   You cannot deduct transfer taxes and similar taxes and charges on the sale of a personal home. Irs e file If you are the buyer and you pay them, include them in the cost basis of the property. Irs e file If you are the seller and you pay them, they are expenses of the sale and reduce the amount realized on the sale. Irs e file Homeowners association assessments. Irs e file   You cannot deduct these assessments because the homeowners association, rather than a state or local government, imposes them. Irs e file 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. Irs e file As an owner of a cooperative apartment, you own shares of stock in a corporation that owns or leases housing facilities. Irs e file 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. Irs e file For this purpose, gross income means all income received during the entire tax year, including any received before the corporation changed to cooperative ownership. Irs e file 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. Irs e file 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. Irs e file Tenant-stockholders. Irs e file   A tenant-stockholder can be any entity (such as a corporation, trust, estate, partnership, or association) as well as an individual. Irs e file The tenant-stockholder does not have to live in any of the cooperative's dwelling units. Irs e file The units that the tenant-stockholder has the right to occupy can be rented to others. Irs e file Deductible taxes. Irs e file   You figure your share of real estate taxes in the following way. Irs e file Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Irs e file Multiply the corporation's deductible real estate taxes by the number you figured in (1). Irs e file This is your share of the real estate taxes. Irs e file   Generally, the corporation will tell you your share of its real estate tax. Irs e file This is the amount you can deduct if it reasonably reflects the cost of real estate taxes for your dwelling unit. Irs e file Refund of real estate taxes. Irs e file   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. Irs e file Your deduction for real estate taxes the corporation paid this year is reduced by your share of the refund the corporation received. Irs e file 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). Irs e file 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. Irs e file For information on figuring your deduction, see the Instructions for Schedule A (Form 1040). Irs e file 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. Irs e file 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. Irs e file Most home buyers take out a mortgage (loan) to buy their home. Irs e file They then make monthly payments to either the mortgage holder or someone collecting the payments for the mortgage holder. Irs e file 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). Irs e file 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. Irs e file If either of these situations applies to you, see Publication 936 for more information. Irs e file Also see Publication 936 if you later refinance your mortgage or buy a second home. Irs e file Refund of home mortgage interest. Irs e file   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. Irs e file For more information, see Recoveries in Publication 525. Irs e file The amount of the refund will usually be shown on the mortgage interest statement you receive from your mortgage lender. Irs e file See Mortgage Interest Statement , later. Irs e file Deductible Mortgage Interest To be deductible, the interest you pay must be on a loan secured by your main home or a second home. Irs e file The loan can be a first or second mortgage, a home improvement loan, or a home equity loan. Irs e file Prepaid interest. Irs e file   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. Irs e file Generally, you can deduct in each year only the interest that qualifies as home mortgage interest for that year. Irs e file An exception (discussed later) applies to points. Irs e file Late payment charge on mortgage payment. Irs e file   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. Irs e file Mortgage prepayment penalty. Irs e file   If you pay off your home mortgage early, you may have to pay a penalty. Irs e file 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. Irs e file Ground rent. Irs e file   In some states (such as Maryland), you may buy your home subject to a ground rent. Irs e file A ground rent is an obligation you assume to pay a fixed amount per year on the property. Irs e file Under this arrangement, you are leasing (rather than buying) the land on which your home is located. Irs e file Redeemable ground rents. Irs e file   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct the payments as mortgage interest. Irs e file The ground rent is a redeemable ground rent only if all of the following are true. Irs e file Your lease, including renewal periods, is for more than 15 years. Irs e file You can freely assign the lease. Irs e file 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. Irs e file The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. Irs e file   Payments made to end the lease and buy the lessor's entire interest in the land are not redeemable ground rents. Irs e file You cannot deduct them. Irs e file Nonredeemable ground rents. Irs e file   Payments on a nonredeemable ground rent are not mortgage interest. Irs e file You can deduct them as rent only if they are a business expense or if they are for rental property. Irs e file Cooperative apartment. Irs e file   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 . Irs e file In addition, you can treat as home mortgage interest your share of the corporation's deductible mortgage interest. Irs e file 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. Irs e file For more information on cooperatives, see Special Rule for Tenant-Stockholders in Cooperative Housing Corporations in Publication 936. Irs e file Refund of cooperative's mortgage interest. Irs e file   You must reduce your mortgage interest deduction by your share of any cash portion of a patronage dividend that the cooperative receives. Irs e file The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. Irs e file   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. Irs e file Mortgage Interest Paid at Settlement One item that normally appears on a settlement or closing statement is home mortgage interest. Irs e file You can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). Irs e file This amount should be included in the mortgage interest statement provided by your lender. Irs e file See the discussion under Mortgage Interest Statement , later. Irs e file Also, if you pay interest in advance, see Prepaid interest , earlier, and Points , next. Irs e file Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Irs e file Points also may be called loan origination fees, maximum loan charges, loan discount, or discount points. Irs e file A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. Irs e file See Points paid by the seller , later. Irs e file General rule. Irs e file   You cannot deduct the full amount of points in the year paid. Irs e file They are prepaid interest, so you generally must deduct them over the life (term) of the mortgage. Irs e file Exception. Irs e file   You can deduct the full amount of points in the year paid if you meet all the following tests. Irs e file Your loan is secured by your main home. Irs e file (Generally, your main home is the one you live in most of the time. Irs e file ) Paying points is an established business practice in the area where the loan was made. Irs e file The points paid were not more than the points generally charged in that area. Irs e file You use the cash method of accounting. Irs e file This means you report income in the year you receive it and deduct expenses in the year you pay them. Irs e file Most individuals use this method. Irs e file 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. Irs e file The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. Irs e file The funds you provided are not required to have been applied to the points. Irs e file They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. Irs e file You cannot have borrowed these funds. Irs e file You use your loan to buy or build your main home. Irs e file The points were computed as a percentage of the principal amount of the mortgage. Irs e file The amount is clearly shown on the settlement statement (such as the Uniform Settlement Statement, Form HUD-1) as points charged for the mortgage. Irs e file The points may be shown as paid from either your funds or the seller's. Irs e file Note. Irs e file 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. Irs e file 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. Irs e file Home improvement loan. Irs e file   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. Irs e file Refinanced loan. Irs e file   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. Irs e file You can deduct the rest of the points over the life of the loan. Irs e file Points not fully deductible in year paid. Irs e file    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. Irs e file Figure A. Irs e file   You can use Figure A, next, as a quick guide to see whether your points are fully deductible in the year paid. Irs e file    Please click here for the text description of the image. Irs e file Figure A. Irs e file Are my points fully deductible this year? Amounts charged for services. Irs e file   Amounts charged by the lender for specific services connected to the loan are not interest. Irs e file Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. Irs e file You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. Irs e file For information about the tax treatment of these amounts and other settlement fees and closing costs, see Basis , later. Irs e file Points paid by the seller. Irs e file   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Irs e file Treatment by seller. Irs e file   The seller cannot deduct these fees as interest. Irs e file However, they are a selling expense that reduces the seller's amount realized. Irs e file See Publication 523 for more information. Irs e file Treatment by buyer. Irs e file   The buyer treats seller-paid points as if he or she had paid them. Irs e file If all the tests listed earlier under Exception are met, the buyer can deduct the points in the year paid. Irs e file If any of those tests are not met, the buyer must deduct the points over the life of the loan. Irs e file   The buyer must also reduce the basis of the home by the amount of the seller-paid points. Irs e file For more information about the basis of your home, see Basis , later. Irs e file Funds provided are less than points. Irs e file   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. Irs e file In addition, you can deduct any points paid by the seller. Irs e file Example 1. Irs e file When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). Irs e file 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. Irs e file Of the $1,000 you were charged for points, you can deduct $750 in the year paid. Irs e file You spread the remaining $250 over the life of the mortgage. Irs e file Example 2. Irs e file 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. Irs e file In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). Irs e file You spread the remaining $250 over the life of the mortgage. Irs e file You must reduce the basis of your home by the $1,000 paid by the seller. Irs e file Excess points. Irs e file   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. Irs e file You must spread any additional points over the life of the mortgage. Irs e file Mortgage ending early. Irs e file   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. Irs e file A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Irs e file Example. Irs e file Dan paid $3,000 in points in 2006 that he had to spread out over the 15-year life of the mortgage. Irs e file He had deducted $1,400 of these points through 2012. Irs e file Dan prepaid his mortgage in full in 2013. Irs e file He can deduct the remaining $1,600 of points in 2013. Irs e file Exception. Irs e file   If you refinance the mortgage with the same lender, you cannot deduct any remaining points for the year. Irs e file Instead, deduct them over the term of the new loan. Irs e file Form 1098. Irs e file   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. Irs e file See Mortgage Interest Statement , later. Irs e file 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). Irs e file If you did not receive a Form 1098, enter your deductible interest on line 11, and any deductible points on line 12. Irs e file See Table 1 below for a summary of where to deduct home mortgage interest and real estate taxes. Irs e file 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. Irs e file The seller must give you this number and you must give the seller your SSN. Irs e file Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Irs e file Failure to meet either of these requirements may result in a $50 penalty for each failure. Irs e file Table 1. Irs e file Where To Deduct Interest and Taxes Paid on Your Home See the text for information on what expenses are eligible. Irs e file IF you are eligible to deduct . Irs e file . Irs e file . Irs e file THEN report the amount  on Schedule A (Form 1040) . Irs e file . Irs e file . Irs e file real estate taxes line 6. Irs e file home mortgage interest and points reported on Form 1098 line 10. Irs e file home mortgage interest not reported on  Form 1098 line 11. Irs e file points not reported on Form 1098 line 12. Irs e file qualified mortgage insurance premiums line 13. Irs e file 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. Irs e file The statement will show the total interest paid on your mortgage during the year. Irs e file 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. Irs e file See Points , earlier. Irs e file The interest you paid at settlement should be included on the statement. Irs e file 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. Irs e file Put the total on Schedule A (Form 1040), line 10, and attach a statement to your return explaining the difference. Irs e file Write “See attached” to the right of line 10. Irs e file A mortgage holder can be a financial institution, a governmental unit, or a cooperative housing corporation. Irs e file If a statement comes from a cooperative housing corporation, it generally will show your share of interest. Irs e file Your mortgage interest statement for 2013 should be provided or sent to you by January 31, 2014. Irs e file If it is mailed, you should allow adequate time to receive it before contacting the mortgage holder. Irs e file A copy of this form will be sent to the IRS also. Irs e file Example. Irs e file You bought a new home on May 3. Irs e file You paid no points on the purchase. Irs e file During the year, you made mortgage payments which included $4,480 deductible interest on your new home. Irs e file The settlement sheet for the purchase of the home included interest of $620 for 29 days in May. Irs e file The mortgage statement you receive from the lender includes total interest of $5,100 ($4,480 + $620). Irs e file You can deduct the $5,100 if you itemize your deductions. Irs e file Refund of overpaid interest. Irs e file   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. Irs e file Generally, you must include the refund in income in the year you receive it. Irs e file See Refund of home mortgage interest , earlier, under Home Mortgage Interest. Irs e file More than one borrower. Irs e file   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. Irs e file Show how much of the interest each of you paid, and give the name and address of the person who received the form. Irs e file Deduct your share of the interest on Schedule A (Form 1040), line 11, and write “See attached” to the right of that line. Irs e file 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. Irs e file Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as an itemized deduction. Irs e file 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). Irs e file Prepaid mortgage insurance premiums. Irs e file   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. Irs e file The premiums are treated as paid in the year to which they were allocated. Irs e file If the mortgage is satisfied before its term, no deduction is allowed for the unamortized balance. Irs e file See Publication 936 for details. Irs e file Exception for certain mortgage insurance. Irs e file   The allocation rules, explained above, do not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or Rural Housing Service. Irs e file 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. Irs e file It also must be secured by that home. Irs e file 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. Irs e file Home acquisition debt limit. Irs e file   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). Irs e file Discharges of qualified principal residence indebtedness. Irs e file   You can exclude from gross income any discharges of qualified principal residence indebtedness made after 2006 and before 2014. Irs e file You must reduce the basis of your principal residence (but not below zero) by the amount you exclude. Irs e file Principal residence. Irs e file   Your principal residence is the home where you ordinarily live most of the time. Irs e file You can have only one principal residence at any one time. Irs e file Qualified principal residence indebtedness. Irs e file   This is a mortgage that you took out to buy, build, or substantially improve your principal residence and that is secured by that residence. Irs e file 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. Irs e file   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. Irs e file Additional debt incurred to substantially improve your principal residence is also qualified principal residence indebtedness. Irs e file Amount you can exclude. Irs e file   You can only exclude debt discharged after 2006 and before 2014. Irs e file The most you can exclude is $2 million ($1 million if married filing separately). Irs e file 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. Irs e file Ordering rule. Irs e file   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. Irs e file Qualified Home This means your main home or your second home. Irs e file A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. Irs e file Main home. Irs e file   You can have only one main home at any one time. Irs e file This is the home where you ordinarily live most of the time. Irs e file Second home and other special situations. Irs e file   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. Irs e file 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. Irs e file 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. Irs e file If your AGI is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. Irs e file Form 1098. Irs e file   The amount of mortgage insurance premiums you paid during 2013 should be reported in box 4. Irs e file See Form 1098, Mortgage Interest Statement in Publication 936. Irs e file Mortgage Interest Credit The mortgage interest credit is intended to help lower-income individuals afford home ownership. Irs e file If you qualify, you can claim the credit on Form 8396 each year for part of the home mortgage interest you pay. Irs e file Who qualifies. Irs e file   You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate (MCC) from your state or local government. Irs e file Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. Irs e file The MCC will show the certificate credit rate you will use to figure your credit. Irs e file It also will show the certified indebtedness amount. Irs e file Only the interest on that amount qualifies for the credit. Irs e file See Figuring the Credit , later. Irs e file You must contact the appropriate government agency about getting an MCC before you get a mortgage and buy your home. Irs e file Contact your state or local housing finance agency for information about the availability of MCCs in your area. Irs e file How to claim the credit. Irs e file   To claim the credit, complete Form 8396 and attach it to your Form 1040 or Form 1040NR, U. Irs e file S. Irs e file Nonresident Alien Income Tax Return. Irs e file 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. Irs e file Reducing your home mortgage interest deduction. Irs e file   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. Irs e file You must do this even if part of that amount is to be carried forward to 2014. Irs e file Selling your home. Irs e file   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. Irs e file For additional information, see Recapturing (Paying Back) a Federal Mortgage Subsidy, in Publication 523. Irs e file Figuring the Credit Figure your credit on Form 8396. Irs e file Mortgage not more than certified indebtedness. Irs e file   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. Irs e file Mortgage more than certified indebtedness. Irs e file   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. Irs e file 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. Irs e file 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. Irs e file Example. Irs e file Emily bought a home this year. Irs e file Her mortgage loan is $125,000. Irs e file The certified indebtedness amount on her MCC is $100,000. Irs e file She paid $7,500 interest this year. Irs e file Emily figures the interest to enter on Form 8396, line 1, as follows:   $100,000 = 80% (. Irs e file 80)       $125,000       $7,500 x . Irs e file 80 = $6,000   Emily enters $6,000 on Form 8396, line 1. Irs e file In each later year, she will figure her credit using only 80% of the interest she pays for that year. Irs e file Limits Two limits may apply to your credit. Irs e file A limit based on the credit rate, and A limit based on your tax. Irs e file Limit based on credit rate. Irs e file   If the certificate credit rate is higher than 20%, the credit you are allowed cannot be more than $2,000. Irs e file Limit based on tax. Irs e file   After applying the limit based on the credit rate, your credit generally cannot be more than your tax liability. Irs e file See the Credit Limit Worksheet in the Form 8396 instructions to calculate the limit based on tax. Irs e file 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. Irs e file Example. Irs e file John and his brother, George, were issued an MCC. Irs e file They used it to get a mortgage on their main home. Irs e file John has a 60% ownership interest in the home, and George has a 40% ownership interest in the home. Irs e file John paid $5,400 mortgage interest this year and George paid $3,600. Irs e file The MCC shows a credit rate of 25% and a certified indebtedness amount of $130,000. Irs e file The loan amount (mortgage) on their home is $120,000. Irs e file The credit is limited to $2,000 because the credit rate is more than 20%. Irs e file 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. Irs e file His credit is limited to $1,200 ($2,000 × 60%). Irs e file 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. Irs e file His credit is limited to $800 ($2,000 × 40%). Irs e file 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. Irs e file Example. Irs e file You receive a mortgage credit certificate from State X. Irs e file This year, your regular tax liability is $1,100, you owe no alternative minimum tax, and your mortgage interest credit is $1,700. Irs e file You claim no other credits. Irs e file Your unused mortgage interest credit for this year is $600 ($1,700 − $1,100). Irs e file You can carry forward this amount to the next 3 years or until used, whichever comes first. Irs e file Credit rate more than 20%. Irs e file   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). Irs e file Example. Irs e file In the earlier example under Dividing the Credit , John and George used the entire $2,000 credit. Irs e file 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. Irs e file 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. Irs e file The amount of credit you can claim on the new loan may change. Irs e file Table 2 below summarizes how to figure your credit if you refinance your original mortgage loan. Irs e file Table 2. Irs e file Effect of Refinancing on Your Credit IF you get a new (reissued) MCC and the amount of your new mortgage is . Irs e file . Irs e file . Irs e file THEN the interest you claim on Form 8396, line 1, is* . Irs e file . Irs e file . Irs e file smaller than or equal to the certified indebtedness amount on the new MCC all the interest paid during the year on your new mortgage. Irs e file larger than the certified indebtedness amount on the new MCC interest paid during the year on your new mortgage multiplied by the following fraction. Irs e file         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. Irs e file  See New MCC cannot increase your credit above. Irs e file An issuer may reissue an MCC after you refinance your mortgage. Irs e file 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. Irs e file Year of refinancing. Irs e file   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. Irs e file   If your new MCC has a credit rate different from the rate on the old MCC, you must attach a statement to Form 8396. Irs e file 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. Irs e file It must show a separate calculation for the part of the year when the new MCC was in effect. Irs e file 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. Irs e file New MCC cannot increase your credit. Irs e file   The credit that you claim with your new MCC cannot be more than the credit that you could have claimed with your old MCC. Irs e file   In most cases, the agency that issues your new MCC will make sure that it does not increase your credit. Irs e file However, if either your old loan or your new loan has a variable (adjustable) interest rate, you will need to check this yourself. Irs e file In that case, you will need to know the amount of the credit you could have claimed using the old MCC. Irs e file   There are two methods for figuring the credit you could have claimed. Irs e file Under one method, you figure the actual credit that would have been allowed. Irs e file This means you use the credit rate on the old MCC and the interest you would have paid on the old loan. Irs e file   If your old loan was a variable rate mortgage, you can use another method to determine the credit that you could have claimed. Irs e file 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. Irs e file 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. Irs e file The principal of the hypothetical mortgage is the remaining outstanding balance of the certified mortgage indebtedness shown on the old MCC. Irs e file    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. Irs e file    As part of your tax records, you should keep your old MCC and the schedule of payments for your old mortgage. Irs e file 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. Irs e file While you own your home, you may add certain items to your basis. Irs e file You may subtract certain other items from your basis. Irs e file These items are called adjustments to basis and are explained later under Adjusted Basis . Irs e file 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. Irs e file You also must keep records of the events that affect basis or adjusted basis. Irs e file See Keeping Records , below. Irs e file Figuring Your Basis How you figure your basis depends on how you acquire your home. Irs e file If you buy or build your home, your cost is your basis. Irs e file 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. Irs e file If you inherit your home from a decedent, different rules apply depending on the date of the decedent's death. Irs e file Each of these topics is discussed later. Irs e file Property transferred from a spouse. Irs e file   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. Irs e file Publication 504, Divorced or Separated Individuals, fully discusses transfers between spouses. Irs e file 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. Irs e file The cost of your home includes most settlement or closing costs you paid when you bought the home. Irs e file If you built your home, your cost includes most closing costs paid when you bought the land or settled on your mortgage. Irs e file See Settlement or closing costs , later. Irs e file 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. Irs e file Purchase. Irs e file   The basis of a home you bought is the amount you paid for it. Irs e file This usually includes your down payment and any debt you assumed. Irs e file The basis of a cooperative apartment is the amount you paid for your shares in the corporation that owns or controls the property. Irs e file This amount includes any purchase commissions or other costs of acquiring the shares. Irs e file Construction. Irs e file   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. Irs e file 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. Irs e file If you built all or part of your home yourself, your basis is the total amount it cost you to build it. Irs e file You cannot include in basis the value of your own labor or any other labor for which you did not pay. Irs e file Real estate taxes. Irs e file   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. Irs e file 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. Irs e file   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. Irs e file You cannot deduct them as taxes paid. Irs e file   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. Irs e file Do not include those taxes in your basis. Irs e file If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Irs e file Example 1. Irs e file You bought your home on September 1. Irs e file The property tax year in your area is the calendar year, and the tax is due on August 15. Irs e file 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. Irs e file You did not reimburse the seller for your share of the real estate taxes from September 1 through December 31. Irs e file You must reduce the basis of your home by the $426 [(122 ÷ 365) × $1,275] the seller paid for you. Irs e file You can deduct your $426 share of real estate taxes on your return for the year you purchased your home. Irs e file Example 2. Irs e file You bought your home on May 3, 2013. Irs e file The property tax year in your area is the calendar year. Irs e file The taxes for the previous year are assessed on January 2 and are due on May 31 and November 30. Irs e file Under state law, the taxes become a lien on May 31. Irs e file You agreed to pay all taxes due after the date of sale. Irs e file The taxes due in 2013 for 2012 were $1,375. Irs e file The taxes due in 2014 for 2013 will be $1,425. Irs e file 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. Irs e file Instead, you add the $1,375 to the cost (basis) of your home. Irs e file 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. Irs e file You add the remaining $476 ($1,425 − $949) of taxes paid in 2014 to the cost (basis) of your home. Irs e file Settlement or closing costs. Irs e file   If you bought your home, you probably paid settlement or closing costs in addition to the contract price. Irs e file These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. Irs e file If you built your home, you probably paid these costs when you bought the land or settled on your mortgage. Irs e file   The only settlement or closing costs you can deduct are home mortgage interest and certain real estate taxes. Irs e file You deduct them in the year you buy your home if you itemize your deductions. Irs e file You can add certain other settlement or closing costs to the basis of your home. Irs e file Items added to basis. Irs e file   You can include in your basis the settlement fees and closing costs you paid for buying your home. Irs e file A fee is for buying the home if you would have had to pay it even if you paid cash for the home. Irs e file   The following are some of the settlement fees and closing costs that you can include in the original basis of your home. Irs e file Abstract fees (abstract of title fees). Irs e file Charges for installing utility services. Irs e file Legal fees (including fees for the title search and preparation of the sales contract and deed). Irs e file Recording fees. Irs e file Surveys. Irs e file Transfer or stamp taxes. Irs e file Owner's title insurance. Irs e file 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. Irs e file   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. Irs e file Items not added to basis and not deductible. Irs e file   Here are some settlement and closing costs that you cannot deduct or add to your basis. Irs e file Fire insurance premiums. Irs e file Charges for using utilities or other services related to occupancy of the home before closing. Irs e file Rent for occupying the home before closing. Irs e file 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. Irs e file Points paid by seller. Irs e file   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. Irs e file   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. Irs e file See Points , earlier, for the rules on deducting points. Irs e file 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. Irs e file Fair market value. Irs e file   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. Irs e file Donor's adjusted basis is more than FMV. Irs e file   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. Irs e file Disposition basis. Irs e file   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. Irs e file Your basis for figuring a gain is the same as the donor's adjusted basis. Irs e file Your basis for figuring a loss is the FMV when you received the gift. Irs e file 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. Irs e file However, if using the FMV results in a gain, then you neither have a gain nor a loss. Irs e file Example 1. Irs e file Andrew received a house as a gift from Ishmael (the donor). Irs e file At the time of the gift, the home had an FMV of $80,000. Irs e file Ishmael's adjusted basis was $100,000. Irs e file After he received the house, no events occurred to increase or decrease the basis. Irs e file 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. Irs e file Example 2. Irs e file Same facts as Example 1 , except this time Andrew sells the house for $70,000. Irs e file 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. Irs e file Example 3. Irs e file Same facts as Example 1 , except this time Andrew sells the house for $90,000. Irs e file Initially, he figures the gain using Ishmael's adjusted basis ($100,000), which results in a loss of $10,000. Irs e file Since it is a loss, Andrew must now recalculate the loss using the FMV ($80,000), which results in a gain of $10,000. Irs e file So in this situation, Andrew will neither have a gain nor a loss. Irs e file Donor's adjusted basis equal to or less than the FMV. Irs e file   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. Irs e file Part of federal gift tax due to net increase in value. Irs e file   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. Irs e file 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. Irs e file The net increase in the value of the home is its FMV minus the adjusted basis of the donor. Irs e file Publication 551 gives more information, including examples, on figuring your basis when you receive property as a gift. Irs e file 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. Irs e file If an estate tax return was filed, your basis is generally the value of the home listed on the estate tax return. Irs e file 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. Irs e file Publication 551 and Publication 559, Survivors, Executors, and Administrators, have more information on the basis of inherited property. Irs e file 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. Irs e file Adjusted Basis While you own your home, various events may take place that can change the original basis of your home. Irs e file These events can increase or decrease your original basis. Irs e file The result is called adjusted basis. Irs e file See Table 3, on this page, for a list of some of the items that can adjust your basis. Irs e file Table 3. Irs e file Adjusted Basis This table lists examples of some items that generally will increase or decrease your basis in your home. Irs e file It is not intended to be all-inclusive. Irs e file 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. Irs e file   An improvement materially adds to the value of your home, considerably prolongs its useful life, or adapts it to new uses. Irs e file You must add the cost of any improvements to the basis of your home. Irs e file You cannot deduct these costs. Irs e file   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. Irs e file Amount added to basis. Irs e file   The amount you add to your basis for improvements is your actual cost. Irs e file This includes all costs for material and labor, except your own labor, and all expenses related to the improvement. Irs e file 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. Irs e file   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. Irs e file These assessments are discussed earlier under Real Estate Taxes . Irs e file Improvements no longer part of home. Irs e file    Your home's adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home. Irs e file Example. Irs e file You put wall-to-wall carpeting in your home 15 years ago. Irs e file Later, you replaced that carpeting with new wall-to-wall carpeting. Irs e file The cost of the old carpeting you replaced is no longer part of your home's adjusted basis. Irs e file Repairs versus improvements. Irs e file   A repair keeps your home in an ordinary, efficient operating condition. Irs e file It does not add to the value of your home or prolong its life. Irs e file Repairs include repainting your home inside or outside, fixing your gutters or floors, fixing leaks or plastering, and replacing broken window panes. Irs e file You cannot deduct repair costs and generally cannot add them to the basis of your home. Irs e file   However, repairs that are done as part of an extensive remodeling or restoration of your home are considered improvements. Irs e file You add them to the basis of your home. Irs e file Records to keep. Irs e file   You can use Table 4 (at the end of the publication) as a guide to help you keep track of improvements to your home. Irs e file Also see Keeping Records , below. Irs e file Energy conservation subsidy. Irs e file   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. Irs e file You must reduce the basis of your home by that value. Irs e file   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. Irs e file 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. Irs e file 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. Irs e file You should keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis. Irs e file In addition, you should keep track of any decreases to the basis such as those listed in Table 3, earlier. Irs e file How to keep records. Irs e file   How you keep records is up to you, but they must be clear and accurate and must be available to the IRS. Irs e file How long to keep records. Irs e file   You must keep your records for as long as they are important for meeting any provision of the federal tax law. Irs e file   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. Irs e file (A period of limitations is the period of time after which no legal action can be brought. Irs e file ) For assessment of tax you owe, this is generally 3 years from the date you filed the return. Irs e file 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. Irs e file Returns filed before the due date are treated as filed on the due date. Irs e file   You may need to keep records relating to the basis of property (discussed earlier) for longer than the period of limitations. Irs e file Keep those records as long as they are important in figuring the basis of the original or replacement property. Irs e file 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. Irs e file Table 4. Irs e file Record of Home Improvements Keep this for your records. Irs e file Also, keep receipts or other proof of improvements. Irs e file Remove from this record any improvements that are no longer part of your main home. Irs e file 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. Irs e file (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