Interest, Investment, Money Transactions
(Alimony, Bad Debts, Applicable Federal Interest Rate,
Gambling, Legal Fees, Loans, etc.)
This is archived information that pertains only to the 2002 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
Where are fees and commissions for investments deducted?
If they are deductible, investment expenses other than investment interest are taken as miscellaneous deductions on Form 1040, Schedule A (PDF), Itemized Deductions. These deductions must be reduced by 2% of your 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 non-publicly offered mutual funds, partnerships, or trusts are deductible. All of these fees are subject to the 2% limit. For more information, refer to Publication 529 (PDF), Miscellaneous Deductions; Publication 550 (PDF), Investment Income and Expenses; and Publication 564 (PDF), Mutual Fund Distributions.
References: 3.6 Itemized Deductions/Standard Deductions: Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses) 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, points that represent interest and certain real estate taxes. You, may, deduct them in the year you buy your home if you itemize your deductions. 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 add certain other settlement or closing costs to the basis of your home. You include in your basis the settlement fees and closing costs that are for buying your home. A fee is for buying the home if you would have had to pay it even if you paid cash for the home
There are some settlement or closing costs that you cannot deduct or add to the basis of your home. These include fees and costs that are for getting a mortgage loan. For more information refer to Publication 530 (PDF), Tax Information for First Time-Homeowners, and Publication 936 (PDF),Home Mortgage Interest Deduction
References: 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 that represent interest paid for a refinanced mortgage 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. It is possible to deduct a larger percentage of the points in the first year if a portion of the mortgage proceeds is used to improve the home and sufficient cash is added to the transaction to be equal to or greater than the amount of the points. Certain other restrictions apply. For more information, refer to Publication 936 (PDF), Home Mortgage Interest Deduction; and Tax Topic 504, Home Mortgage Points.
References: If 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 over the term of the loan and deduct points for a year according to the number of payments made in the year. If the loan ends prematurely, due to payoff or refinance, for example, then the remaining points are deducted in that year. Points not included in Form 1098 (PDF) (usually not included on a refinance) should be entered on line 12 of Form 1040, Schedule A (PDF), Itemized Deductions. For more information, refer to Publication 936 (PDF), Home Mortgage Interest Deduction; and Tax Topic 504, Home Mortgage Points.
References: I refinanced my home 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. Am I entitled to include the $984 (remaining points paid off) on Schedule A this year?
If you spread your deduction of the points over the life of the mortgage, you can deduct any remaining balance of the points in the year the mortgage ends. A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event.
Under the conditions described in the question, the $984 would be deductible in the year the mortgage ended. You would report the deduction on Form 1040, Schedule A (PDF), Itemized Deductions. For more information, refer to Publication 936 (PDF), Home Mortgage Interest Deduction; and Tax Topic 504, Home Mortgage Points.
References: 11.2 Sale or Trade of Business, Depreciation, Rentals: Rental Expenses & Passive Activity Losses (PALs) I purchased a rental property last year. What closing costs can I deduct?
The only deductible closing costs are those for interest, and deductible real estate taxes. Other settlement fees and closing costs for buying the property become additions to your basis in the property. These basis adjustments include: - Abstract fees,
- Charges for installing utility services,
- Legal fees,
- Recording fees,
- Surveys,
- Transfer taxes,
- Title insurance, and
- Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions.
- Fees related to obtaining a loan are capital expenses and should be amortized over the life of the loan.
For additional information, refer to Publication 527 (PDF), Residential Rental Property, Publication 17 (PDF), Your Individual Income Tax Guide, and Publication 535 (PDF), Business Espenses.
References: 11.4 Sale or Trade of Business, Depreciation, Rentals: Sales, Trades, Exchanges I am selling my rental property and was asked to pay the buyer's closing costs. Is all or part of the costs deductible for me?
In computing your gain or loss on the sale, reduce your proceeds from the sale by your selling expenses, including the buyer's closing costs that you agree to pay. Refer to Publication 544 (PDF), Sales and Other Dispositions of Assets, for additional information.
References:
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