Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses)
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.
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 last year and paid points. Are they all deductible this year?
Points paid to refinance your home are not, deductible in their entirety in the year paid. They are "amortized" or deducted over the life of the loan. For more information, refer to Publication 936 (PDF) , Home Mortgage Interest Deduction, and Tax Topic 504, Home Mortgage Points.
References: 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?
Deductible fees are limited to home mortgage interest and certain real estate taxes. Points that represent interest on a refinancing are amorized over the life of the loan.
Fees that are not associated with the acquisition of a loan may only have effect on the basis of the home. An example would be a transfer tax that would be charged regardless of whether a loan was involved.
Fees related to the acquisition of a loan are not deductible and are not basis adjustments. A credit report fee is a good example.
For more information, refer to Publication 936 (PDF), Home Mortgage Interest Deduction; Tax Topic 504, Home Mortgage Points; and Publication 551 (PDF), Basis of Assets.
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) Where on Schedule E do you put costs paid (points, fees, etc.) to refinance a rental property?
Expenses you pay to obtain a mortgage on your rental property cannot be deducted as interest. These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses. You may amortize them over the life of the mortgage on line 18 of Form 1040, Schedule E (PDF), Supplemental Income and Loss.
References:
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