My university required each incoming freshman to come to school with their own computer. Is there any way to deduct the cost of the computer from my tax liability?
The cost of a personal computer is generally a personal expense that is not deductible.
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How do I claim an educational expense on my return?
If you are an employee, you generally must complete Form 2106 or Form 2106-EZ. Educational expenses are deducted as miscellaneous itemized deductions on Schedule A of Form 1040. Self-employed individuals include educational expenses on Schedule C, C-EZ, or F of the Form 1040.
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Where can I get more information on educational expenses?
For more information on educational expenses, refer to Publication 508, Tax Benefits for Work-Related Education.
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I have a child attending a private Catholic grade school. Is any or all of the tuition I pay deductible or a tax credit?
The tuition is neither deductible as an educational expense nor as a charitable contribution, and there are no tax credits for the tuition. You cannot deduct as a charitable contribution tuition, or amounts you pay instead of tuition, even if you pay them for children to attend parochial schools or qualifying nonprofit day-care centers. Refer to Publication 526, Charitable Contributions. You also cannot deduct any fixed amount you may be required to pay in addition to the tuition fee to enroll in a private school, even if it is designated as a "donation."
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I will be homeschooling my child next year and would like to know if school related expenses, such as curriculum, school supplies, field trip activities, etc., are deductible?
There is no deduction for your child's home schooling expenses. These are nondeductible personal, living, or family expenses. Please refer to Publication 529, Miscellaneous Deductions.
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If your child is diagnosed as ADD and cannot function in a public school setting and must be sent to a private school, can the cost of the private school be deducted from your taxes?
The expense would not be deductible as an education expense. The facts and circumstances will determine if the cost of the private school qualifies as a medical expense.
Per Publication 502, Medical and Dental Expenses, you can include in medical expenses tuition fees you pay to a special school for a child who has severe learning disabilities caused by mental or physical impairments, including nervous system disorders. Refer to Publication 502, Medical and Dental Expenses. Your doctor must recommend that the child attend the school, and the main reason for using the school must be its resources for relieving the disability.
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Is there a deduction for the costs of a child's music or swimming lessons? The child attends public school and these lessons are not related to any school program.
The costs of a child's music or swimming lessons are normally not deductible. These are nondeductible personal, living, or family expenses. Please refer to Publication 529, Miscellaneous Deductions.
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Can I file Form 1040EZ if I have interest to deduct from student loans?
No, you cannot claim the student loan interest deduction if you file Form 1040EZ. To claim student loan interest, you must file a Form 1040 or Form 1040A.
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Can I take a deduction for the interest I paid on my student loan?
Beginning January 1, 1998, taxpayers who have taken loans to pay the cost of attending an eligible educational institution for themselves, their spouse, or their dependent in some circumstances may be able to subtract from gross income the interest they pay on these student loans. For information, refer to Publication 970, Tax Benefits for Higher Education and Tax Topic 456, Student Loan Interest Deduction.
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What are the limits for deducting interest paid on a student loan?
If you are otherwise qualified to deduct interest paid on a student loan, you can deduct the full interest paid (in 2000, up to $2,000 per return) if you are single and make less than $40,000, or Married Filing Jointly (MFJ) and make less than $60,000. If you make more than $40,000 but less than $55,000 if single, or more than $60,000 but less than $75,000 if MFJ, then your interest deduction is limited. If you make more than $55,000 and single, or more than $75,000 and MFJ, there is no student loan interest deduction. For more information, refer to Publication 970, Tax Benefits for Higher Education.
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Does consolidating my student loans impact how is the 60-month period for student loan interest calculated?
No, refinancing or consolidating an education loan does not extend the 60-month period. The 60-month period is based upon the original loan.
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What educational expenses are deductible?
You may be able to deduct work-related educational expenses as an itemized deduction on Schedule A of Form 1040. To be deductible, your expenses must be for education that:
- Maintains or improves skills required in your present job; or
- Serves a business purpose and is required by your employer, or by law or regulations, to keep your present salary, status, or job.
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Is the $2,000 maximum deduction (credit) for student loan interest per PERSON, or per RETURN? I am married filing jointly, and have paid over $3,000 between my husband and I of qualified interest payments. Are we allowed to deduct $4,000 ($2,000/person) or only $2,000 total on our return?
The deduction is limited to $2,000 per return for tax year 2000. The maximum deduction for 2001 and thereafter is $2,500. For married people filing separate returns, the deduction is limited to $0 per return.
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If I file married filing separately can I claim the new student loan interest deduction?
No, you cannot claim the deduction in any tax year in which your filing status is married filing a separate return. For more information, refer to Publication 970, Tax Benefits for Higher Education.
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I am a parent repaying a loan for my daughter's college education. The loan is a parent's loan taken out in my name. Is the interest deductible from my tax return?
Yes, provided she was a dependent when you received the loan, the interest paid on the loan is deductible provided it meets all of the other requirements. For more information, refer to Publication 970, Tax Benefits for Higher Education.
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My mother borrowed money for my college education. Now that I'm out of school, I make the monthly payments, but the loan is under her name. Can take the student loan deduction since I'm actually making the payments?
Neither the parent nor the child qualify for the student loan interest deduction in this cases as you must:
- be legally obligated to repay the loan (the parents are),
- have made the payments on the loan yourself (the child did), and
- not be claimed as a dependent to qualify for the deduction.
There are additional qualifications in Publication 970, Tax Benefits for Higher Education.
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Last year, my parents took out a student loan for me in their name and I also took out a student loan. My parents received Form 1098-E for their loan and I also received Form 1098-E for my loan. Can we both claim the interest from the loans on our tax returns? Last year, I was not their dependent.
No, only one person may claim the student loan interest deduction on qualifying loans received in one year. One of the qualifications for claiming the student loan interest is that the expenses must have been for you, your spouse, or a person who was your dependent when you took out the loan. Since you were not your parents' dependent when they received the student loan, the interest they pay on the loan does not qualify. However, the student loan interest payments you made on your student loan are deductible (provided that the student loan payments are required).
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I am an employee. What form do I use to claim business expenses for local transportation?
Generally, you must use Form 2106, Employee Business Expense, or Form 2106-EZ, Unreimbursed Employee Business Expenses, to give your deduction for employee business expenses, and attach if to your Form 1040. Your deductible expense is then taken to Form 1040, SCHEDULE A as a miscellaneous itemized deduction subject to the 2% of adjusted gross income limit. Special rules may apply, depending of your employee's reimbursement arrangement. For additional information, refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses, and Tax Topic 514, Employee Business Expense.
References:
- Publication 463, Travel, Entertainment, Gift, and Car Expenses
- Form 1040, U.S. Individual Income Tax Return
- Form 1040, SCHEDULE A, Itemized Deductions
- Form 2106, Employee Business Expense
- Form 2106-EZ, Unreimbursed Employee Business Expenses
- Tax Topic 514, Employee Business Expense
I moved to a different state to accept a new job. Will I be able to deduct all of my moving expenses?
If you moved because of a change in your job location or because you started a new job, you may be able to deduct your moving expenses. To qualify for the moving expense deduction, you must meet two tests. The first test is distance. The second test concerns time. You can only deduct certain moving expenses that occur within the 1st year and were not reimbursed by your employer. For additional information, refer to Tax Topic 455, Moving Expenses, or Publication 521, Moving Expenses.
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What are types of educational expenses?
Educational expenses include amounts spent for tuition, books, supplies, laboratory fees, and similar items. They also include the cost of correspondence courses, as well as formal training and research you do as part of an educational program. Transportation and travel expenses to attend qualified educational activities may also be deductible.
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Can I deduct the cost of classes I need for work?
Your expenses are not deductible if the education is required to meet the minimum educational requirements of your job, or is part of a program that will lead to qualifying you in a new trade or business.
Although the education must relate to your present work, educational expenses incurred during vacation or other temporary absence from your job may be deductible. However, after your temporary absence you must return to the same kind of work. Usually, absence from work for one year or less is considered temporary.
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Am I eligible to claim both my job education expenses (minus 2% of AGI) and the Lifetime Learning Credit on my taxes?
You can not deduct educational expenses and claim a credit for those same expenses. You must choose one or the other.
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I am employed as a Registered Nurse and am currently taking classes to be an Advanced Practitioner of Nursing (which is a master's Degree in Nursing). My classes are not required by my employer but they do increase my knowledge to do my job well. I will probably continue working for the same employer when I graduate. Can I claim the cost of tuition, books, travel to the university, etc., as an unreimbursed business expense?
Yes, you can. However, you may want to consider claiming the Lifetime Learning Credit which may result in more of a tax break than taking a miscellaneous itemized deduction. For information on the education credits, including the Lifetime Learning credit, refer to Publication 970, Tax Benefits for Higher Education.
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I took an accounting course in order to keep my salary on my current job. My employer did not reimburse me for the expenses. Can I take a deduction on my tax return for the cost of the course?
You may be able to deduct work-related educational expenses as a miscellaneous itemized deduction subject to the 2% adjusted gross income limitation on Form 1040, SCHEDULE A. To be deductible, your expenses must be for education that:
- Maintains or improves skills required in your present job, or
- Serves a business purpose and is required by your employer, or by law or regulations, to keep your salary, status, or job.
Your expenses are not deductible if the education is required to meet the minimum educational requirements of your job or is part of a program that will lead to qualifying you in a new trade or business. For additional information on deductible educational expenses, refer to Tax Topic 513, or Publication 508, Educational Expenses.
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My employer is including my graduate school tuition reimbursements on my W-2. Where do I claim these education expenses on my Form 1040?
They are miscellaneous itemized deductions that would go on Form 1040, SCHEDULE A, Itemized Deductions.
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Is the exclusion from income of up to $5,250 of employer-provided educational assistance under a qualified program still available?
Yes. However, it applies only to benefits you receive for courses that begin before December 31, 2001. The exclusion does not apply to graduate-level courses that began after June 30, 1996. For more information, refer to Publication 508, Educational Expenses.
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I donated a used car to a qualified charity. Do I need to attach any special forms to my return to take a deduction for a charitable contribution?
You must fill out Section A of Form 8283, Noncash Charitable Contributions, if your total deduction for all noncash contributions is more than $500. If you make a contribution of noncash property worth more than $5,000, generally an appraisal must be done. In that case, you also fill out Section B of Form 8283. Attach Form 8283 to your return. For a contribution of $250 or more, you can claim a deduction only if you obtain written acknowledgement from the qualified organization. For more information on this requirement, refer to Publication 526, Charitable Contributions. For general information on charitable contributions, refer to Tax Topic 506, Contributions.
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Is the interest amount that we paid to the IRS deductible?
No, only mortgage or investment interest is deductible on Schedule A. Interest paid to the IRS is considered personal interest and nondeductible. It would be the same as interest on a credit card or automobile loan. Refer to Items You Cannot Deduct in Chapter 25 of Publication 17, Your Federal Income Tax.
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Can you tell me where on the Internet I can find the AFR, Applicable Federal Rate, for the months in 2000?
The Applicable Federal Rates for each month can be found in the first Internal Revenue Bulletin (IRB) published for that month. Internal Revenue Bulletins are located under Tax Information for You.
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A family member has offered a low interest loan to me for purchasing a home. Where can I find information on rates for private loans?
To calculate the lowest rate of interest for federal tax law, you must use the Applicable Federal Rates (AFR) that applies to the terms and time of your loan. The applicable federal rates are published monthly in the Internal Revenue Bulletin.
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I made a personal loan of $3,500 to a friend. She declared bankruptcy after only paying me back $500.00. Does the IRS allow any provision for my loss?
If someone owes you money you cannot collect, you have a bad debt. There are two kinds of bad debts - business and nonbusiness.
Bad debts are deductible only if the amount owed has been lent or previously included in your income. A business bad debt, generally, is one that comes from operating your trade or business.
All other bad debts are nonbusiness. Nonbusiness bad debts must be totally worthless to be deductible. You cannot deduct a partially worthless nonbusiness bad debt. You must establish you have taken reasonable steps to collect the debt and that the debt is worthless. You may take the deduction only in the year the debt becomes worthless. A debt becomes worthless when there is no longer any chance the amount owed will be paid. You do not have to wait until the debt comes due.
For more information on bad debts, refer to Publication 550, Investment Income and Expenses, and Publication 535, Business Expenses.
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Are legal fees incurred for collection of Social Security Benefits deductible? If so, does the actual amount of the legal fee have to be reduced to 85% since Social Security benefits are only 85% taxable?
Yes, any expense incurred in the production of income is a miscellaneous itemized deduction but subject to the 2% limit. You would not need to reduce the legal bill by 15% because just 85% of benefits were taxable.
I went through a divorce last year and paid a lot of legal fees. Are these deductible on my tax return?
Legal fees for the divorce itself and for property settlement are not deductible. However, legal fees to collect taxable income, such as alimony, are deductible as miscellaneous itemized deductions on Form 1040, SCHEDULE A. Most miscellaneous itemized deductions are subject to the 2% limit. This means you can deduct the amount left after you subtract 2% of your adjusted gross income from their total. For additional information, refer to Tax Topic 508, Miscellaneous Expenses, and Publication 529, Miscellaneous Deductions.
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Can I deduct alimony paid to my former spouse?
If you are divorced or separated, you may be able to deduct the alimony or separate maintenance payments that you are required to make to your spouse or former spouse, or on behalf of that spouse. For additional information, refer to Tax Topic 452, Alimony Paid (this topic covers alimony under decrees or agreements after 1984), or Publication 504, Divorced or Separated Individuals.
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Where are fees and commissions for investments deducted?
If they are deductible, investment expenses are deductible as itemized deductions on Form 1040, SCHEDULE A, Itemized Deductions. The taxpayer has to itemize their deductions to deduct these expenses and that may not be as beneficial for the taxpayer as taking the standard deduction. They are deductible only to the extent that the total exceeds 2% of the taxpayer's adjusted gross income.
Commissions and fees for the acquisition or sale of an asset are added to the basis of that asset and are not deductible. For example, acquisition fees, sales commissions, and load charges paid in connection with the purchase or selling of mutual fund shares are not deductible. They can usually be added to the basis of the shares.
Fees for managing investments, such as custodial fees and management fees are deductible. Fees you pay a broker to collect taxable bond interest or stock dividends are deductible. Fees that pass through to you from nonpublicly offered mutual funds, partnerships, or trusts are deductible. All of these fees are subject to the 2% limit.
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Is a real estate investment considered investment property? Is the interest deductible as Investment Interest if you cannot deduct it as mortgage interest?
If you borrow money and use it to buy property you hold for investment, the interest you pay is investment interest. You can deduct investment interest subject to certain limits. However, you cannot deduct interest you incurred to produce tax-exempt income. Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity.
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We took a margin loan from our investment money market account. Can the interest we paid be deducted?
If you are a cash method taxpayer, you can deduct interest on margin accounts to buy taxable securities as investment interest in the year you paid it. You are considered to have paid interest on these accounts only when you actually pay the broker or when payment becomes available to the broker through your account. Payment may become available to the broker through your account when the broker collects dividends or interest for your account, or sells securities held for you or received from you. You cannot deduct any interest on money borrowed for personal reasons.
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If I don't itemize my deductions can I still deduct my investment expenses such as margin interest?
Investment expenses (other than interest expenses) are deducted on Form 1040, SCHEDULE A, Itemized Deductions, as miscellaneous deductions subject to the 2% of your Adjusted Gross Income (AGI) limit.
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How do I deduct and substantiate my gambling losses?
You can deduct gambling losses only if you itemize deductions. Claim your gambling losses as a miscellaneous deduction on Form 1040, SCHEDULE A. However, the amount of losses you deduct cannot total more than the amount of gambling income you have reported on your return. It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.
The Service provides the following guidelines for proving gambling winnings and losses:
1. An accurate diary or similar record regularly maintained by the taxpayer, supplemented by verifiable documentation usually is acceptable evidence for substantiation of wagering winnings, and losses. In general, the diary should contain at least the following information
- a) date and type of specific wager or wagering activity;
- b) name of gambling establishment;
- c) address or location of gambling establishment; and
- d) name(s) of other person(s) present with you at gambling establishment.
- e) amount(s) won or lost.
2. Verifiable documentation includes, but is not limited to, wagering tickets, canceled checks, credit records, bank withdrawals, and statements of actual winnings or payment slips provided by the gambling establishment. When possible, the diary and available documentation by the placement and settlement of a wager should be supported by such documentation as hotel bills, airline tickets, gasoline credit cards, or affidavits or testimony from responsible gambling officials regarding the wagering activity.
Refer to Publication 529, Miscellaneous Deductions for information on record keeping. For additional information, refer to Publication 525, Taxable and Nontaxable Income.
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My father is in a nursing home and I pay for the entire cost. Can I deduct this on my tax return?
You may deduct qualified medical expenses you pay for yourself, your spouse, and your dependents, including a person you claim as a dependent under a Multiple Support Agreement. You can also deduct medical expenses you paid for someone who would have qualified as your dependent except that the person did not meet the gross income or joint return test.
Nursing home expenses are allowable as medical expenses in certain instances. If you, your spouse, or your dependent is in a nursing home or home for the aged, and the primary reason for being there is for medical care, the entire cost, including meals and lodging, is a medical expense. If the individual is in the home mainly for personal reasons, then only the cost of the actual medical care is a medical expense, and the cost of the meals and lodging is not deductible.
You deduct medical expenses on Form 1040, SCHEDULE A, Itemized Deductions. For more information, refer to Publication 502, Medical and Dental Expenses.
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Are there any deductions that can be taken for helping my elderly mother? She lives on social security and I paid almost $7,600 in her expenses and bills. She collects approximately $9,600 from social security a year. These expenses are not often medical or such but rather living expenses.
There are no special deductions for providing money to assist your aging parent. However, you may want to review the tests in Publication 501, Exemptions, Standard Deduction, and Filing Information, for claiming your mother as a dependent.
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Can social security tax and Medicare tax be deducted on Schedule A, as medical insurance or anywhere else?
If you itemize your deductions on Form 1040, SCHEDULE A, Itemized Deductions, you may be able to deduct the monthly premiums paid from your social security check as medical expense.
If you have voluntarily enrolled in Medicare A because you were not otherwise covered, you can deduct your Medicare A premiums. If you get the Medicare B supplemental insurance medical insurance, the premiums you pay can be deducted as a medical expense.
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I just bought a home. What can I deduct from the settlement statement?
If you bought your home, you probably paid settlement or closing costs in addition to the contract price. These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. If you built your home, you probably paid these costs when you bought the land or settled on your mortgage.
The only settlement or closing costs you can deduct are home mortgage interest, certain points and certain real estate taxes. You deduct them in the year you buy your home if you itemize your deductions. You can add certain other settlement or closing costs to the basis of your home. There are some settlement or closing costs that you cannot deduct or add to the basis.
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.
You can include in your basis the settlement fees and closing costs that are for buying your home. You cannot include in your basis the fees and costs that are for getting a mortgage loan. A fee is for buying the home if you would have had to pay it even if you paid cash for the home.
Refer to Publication 530, Tax Information for first Time-Homeowners, for more information about settlement or closing costs and determining the basis of your home.
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I have a mortgage for my primary residence and a second mortgage for land that I intend to build a home on. Can the interest be deducted for the second mortgage?
No. Until you have started a home or have one built, the land would be considered an investment. The interest does not qualify as deductible mortgage interest. Refer to Publication 550, Investment Income and Expenses, for further information.
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I paid my mother's mortgage and real estate taxes last year. The house is in her name. Can I deduct the mortgage interest and property tax on my tax return?
Generally, you can deduct only taxes that are imposed on you. You cannot deduct the property taxes unless you are the legal owner of the property, nor the mortgage interest unless you are legally liable for the loan. Your mother cannot deduct these either because she did not make the payments.
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My daughter and I own a house together. Her name is on the mortgage, but both our names are on the deed. Can we each claim half the yearly interest and property tax on our income tax returns?
In order for both of you to claim one-half of the interest deduction, both of you must be legally liable for the loan. Since only your daughter is legally liable for the loan, only she can deduct the interest. Since both of you are legal owners of the property, both of you may deduct one-half of the real estate taxes paid during the year.
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Is interest on a home equity line of credit deductible as a second mortgage?
Normally, yes. To deduct interest you paid on a debt you must be legally liable for the debt. Additionally, you must be able to itemize your deductions.
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I refinanced my home last year and paid points. Are they all deductible this year?
No. Points paid solely to refinance your home mortgage cannot be deducted in the year paid. Instead, they must be deducted over the life of the loan. For more details, refer to Tax Topic 504, Home Mortgage Points, or Publication 936, Home Mortgage Interest Deduction.
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Is the interest paid on the loan for a lot (with no home on it) deductible as mortgage interest?
Generally the interest on a lot is not deductible as mortgage interest.
If you are planning to build a house, you can start deducting mortgage interest once construction begins. The following is from Publication 936, Home Mortgage Interest Deduction:
You can treat a home under construction as a qualified home for a period of up to 24 months, but only if it becomes your qualified home at the time it is ready for occupancy. The 24-month period can start any time on or after the day construction begins.
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We purchased land to build a home on. Is the interest on the mortgage secured by the land deductible?
In order for interest to be deductible as home mortgage interest, the loan needs to be secured by a qualified residence. A qualified residence is your principle residence or one other residence selected by you that you use as a residence. If you place a dwelling unit on the land and use it as a vacation home, it may qualify as your second residence. The rules defining a dwelling unit and the use of a dwelling unit as a residence are found in Publication 527, Residential Rental Property (Including Rental of Vacation Homes) in the section, Personal Use of Vacation Home or Dwelling Unit.
Once you start construction of your home, you may treat the home under construction as a qualified residence for a period of up to 24 months, but only if the home becomes a qualified residence at the time it is ready for occupancy.
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Is interest paid on a construction loan for a new home considered deductible mortgage interest?
You can treat a home under construction as a home qualifying for the home interest deduction for a period of up to 24 months, but only if it becomes your qualified home at the time it is ready for occupancy.
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I got a loan to buy some land. Later I got another loan for the construction of the house. After the house was built I got a third loan which paid off the first two loans. Is the interest on any of these loans deductible?
All three loans may qualify as home mortgage interest. Generally the interest on a lot is not deductible as mortgage interest. However, if you build a house on the lot you can start deducting mortgage interest once construction begins. For more information refer to Publication 936, Home Mortgage Interest Deduction.
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I pay interest on money borrowed to purchase land. I built a home on that land, but have no mortgage. Is the interest I pay for the land deductible? Where is it deductible on the return?
Generally the interest on a lot is not deductible as mortgage interest. However, since you built a home on the property, it would be deductible as home mortgage interest provided that the loan is secured by the house or the property.
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I took out a home equity loan to pay off personal debts. Is this interest deductible? Where do I enter this amount on my tax return?
If you took out a loan for reasons other than to buy, build, or substantially improve your home, it may qualify as home equity debt. In addition, debt you incurred to buy, build, or substantially improve your home, to the extent it is more than the home acquisition debt limit, may qualify as home equity debt. Refer to Publication 936, Home Mortgage Interest Deduction, for more information.
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If I borrow money from my 401(k) to purchase a home, is the interest I pay back to my 401(k) deductible as mortgage interest on my 1040?
The mortgage must be a secured debt on a qualified home. Generally, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. The term "qualified home" means your main home or second home. For details, refer to Publication 936, Home Mortgage Interest Deduction.
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May I deduct my home improvements and repairs to my home?
Home improvements add to the value of your home, prolong its useful life, or adapt it to new uses. You add the cost of improvements to the basis of your property.
Examples of 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, putting on a new roof, or paving your driveway.
For a list of some other examples of improvements, refer to Publication 523, Selling Your Home.
Repairs maintain your home in good condition. They do not add to its value or prolong its life, and you do not add their cost to the basis of your property.
Some examples of repairs include repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering and replacing broken window panes.
Exception: The entire job is considered an improvement, however, if items that would otherwise be considered repairs are done as part of an extensive remodeling or restoration of your home.
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Our home was seriously damaged by flooding last year. Are there special provisions for claiming a loss since our home is located in a declared disaster area?
Casualty losses are generally deductible only in the year the casualty occurred. However, if you have a deductible loss from a disaster in an area that is officially designated by the President of the United States as eligible for federal disaster assistance, you can choose to deduct that loss on your return for the year immediately preceding the loss year. In other words, you may treat the loss as having occurred in either the current year or the previous year, whichever provides the best tax results for you. If you have already filed your return for the preceding year the loss may be claimed by filing an amended return, Form 1040X. For additional information on disaster area losses (including flood losses), refer to Tax Topic 515, or Publication 547, Casualties, Disasters and Thefts (Business and Non-Business). Publication 584, Non-Business Disaster, Casualty, and Theft Loss Workbook, can be used to help you catalog your property.
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Our garage caught fire this last July. Can we claim a loss on our income tax return?
If you lose property through casualty or theft, you may be entitled to a tax deduction. A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual in nature. Some examples of casualties include car accidents, fires, and vandalism. If your property is covered by insurance, you cannot deduct a loss unless you file a timely insurance claim for reimbursement. To claim a casualty or theft loss, you must complete Form 4684, Casualties and Thefts, and attach it to your return. A nonbusiness casualty or theft loss may be claimed only if you itemize deductions on Form 1040, SCHEDULE A. If your loss took place in a declared disaster area, please refer to Tax Topic 515, Disaster Area Losses (Including Flood Losses). For additional information, refer to Form 4684, or Tax Topic 507, Casualty Losses, or Publication 547, Casualties, Disasters, and Thefts (Business and Non-business). If many items are involved, also refer to Publication 584, Non-business Disaster, Casualty, and Theft Workbook.
References:
- Publication 547, Casualties, Disasters, and Thefts (Business and Non-business)
- Publication 584, Non-business Disaster, Casualty, and Theft Workbook
- Form 1040, SCHEDULE A, Itemized Deductions
- Form 4684, Casualties and Thefts
- Tax Topic 507, Casualty Losses
- Tax Topic 515, Disaster Area Losses (Including Flood Losses)
Is personal credit card interest tax deductible?
No, personal credit card interest is not tax deductible.
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Is the mortgage interest and property tax on a second residence deductible?
Real estate taxes paid on your primary and second residence are usually deductible. Deductible real estate taxes include any state, local, or foreign taxes on real property levied for the general public welfare. Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property.
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I bought a 5th wheel for vacationing. Can I deduct the interest on the loan for this 5th wheel? Where would it be listed?
If the loan is secured by the fifth wheel you can claim interest on this loan only if the fifth wheel meets the requirements of a qualified home and is considered your second home. A qualified home includes a house, condominium, cooperative, mobile home, boat or similar property that has sleeping, cooking and toilet facilities. You can only have one principal residence and only one qualified second home. The interest is deducted on Form 1040, SCHEDULE A, Itemized Deductions, as mortgage interest on line 10 or 11.
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What are the rules for mortgage interest on a manufactured Home? Can I deduct the interest on the mortgage for the manufactured home if it is on a rented lot? Can I deduct the interest for the manufactured home and for the lot if I buy a lot for the home?
For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home. A home includes a house, condominium, cooperative, mobile home, boat, or similar property that has sleeping, cooking, and toilet facilities.
If you buy a lot and place the manufactured home on it, the interest paid for the lot would be qualifying home mortgage interest, provided that it was secured by the house.
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I refinanced my home and paid closing costs. Are the loan origination fee, appraisal fee, document prep fee, closing fee, and title insurance or any of the other expenses deductible? Are any of the fees I paid to the bank for the loan deductible?
The loan origination fee (points) may be deductible. The term "points" is used to describe certain charges paid by a borrower to obtain a home mortgage. Points may be deductible as home mortgage interest.
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I refinanced my home mortgage and had to pay $2,000.00 worth of points to get the mortgage. Can I claim these points as a deduction on my tax return?
Points may be deductible as home mortgage interest. Normally, the points have to be amortized over the life of the loan. Points charged for specific services, such as preparation costs for a mortgage note, appraisal fees or notary fees are not interest and cannot be deducted.
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If the IRS says I must deduct points over the life of my mortgage, and I have a 30 year mortgage, does this mean that I divide the points paid by 30 and enter that amount on Schedule A?
You need to divide the points by the number of payments and deduct points for a year according to the number of payments made in the year. Points not included in Form 1098 should be entered on Line 12 of Form 1040, SCHEDULE A, Itemized Deductions.
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I refinanced my house once and paid $1,230 in points. On Schedule A, line 12 (points not reported on Form 1098) I have listed $41 each year. I refinanced my home again and paid off the entire previous loan including the points. Am I entitled to include the $984 (remaining points paid off) on Schedule A this year?
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. A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event.
Under the conditions you describe in your question, you would be able to deduct $984, in the year the mortgage ended. You would report the deduction on Form 1040, SCHEDULE A, Itemized Deductions.
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I took out a second mortgage and received a form with my mortgage interest on it but it has no points. Under the points section it states to check with your original lender. Can I still claim those points? If so, how do I get a form stating them?
Yes, you can still claim the points that were paid to the original lender (provided that it meets the limitations for points). Lenders are required to issue Mortgage Interest Statement's if you paid $600 or more of mortgage interest (including certain points) during the year on any one mortgage. You generally will receive a Form 1098, Mortgage Interest Statement, or a similar statement from the mortgage holder.
You should receive the statement for each year by January 31 of the following year. A copy of this form will also be sent to the IRS. If you have not received the Form 1098 from the original lender, you should try to contact them for a copy of the form.
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What is itemizing and is it beneficial to me?
Itemizing is listing on Form 1040, SCHEDULE A all amounts you paid during the year for certain items such as medical and dental care, state and local income taxes, real estate taxes, home mortgage interest, and gifts to charity.
When you complete your list, you total the amount spent and compare the total with your standard deduction. The larger of the two deductions, standard or itemized, will be the deduction to choose, since it will lower the amount of federal income tax you will owe. For additional information refer to Tax Topic 501, Should I Itemize?
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My spouse and I are filing separate returns. How can we split our itemized deductions?
If you and your spouse file separate returns and one of you itemizes deductions, the other spouse will have a standard deduction of zero. Therefore, the other spouse should also itemize deductions.
You may be able to claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse. Deductible expenses that are paid out of separate funds, such as medical expenses, are deductible by the spouse who pays them. If these expenses are paid from community funds, the deduction may depend on whether or not you live in a community property state. In a community property state, the deduction is divided equally between you and your spouse. Otherwise, refer to Publication 504, Divorced or Separated Individuals, for how to allocate the expenses.
Refer to Publication 555, Community Property, for additional information about community property.
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I am in a disaster area and heard the IRS could help me. What can the IRS do?
If you have been impacted by a Presidentially declared disaster, the IRS may help you by allowing additional time for your filing returns, and waiving penalties and interest in some circumstances if the disaster has caused you to file or pay late. We may be able to provide copies or transcripts of previously filed tax returns free of charge, and you may be able to get some money back from the IRS right now. Our disaster services page, Help During Disasters and Emergencies, provides more detail and a link to the Federal Emergency Management Agency (FEMA).
We have also assembled a set of forms and publications you can download for further assistance. There is a set for individuals and a set for businesses.
Also check Around the Nation for any additional information your local IRS office may have provided.
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