The IRS defines a home as any house, condominium,
cooperative, mobile home, boat, or similar property that has sleeping space,
toilet facilities, and cooking facilities. Some homeowners qualify for these
deductions.
Real Estate Taxes You can deduct real estate taxes assessed on all the real estate you own. You are not limited to the tax on just one or two homes.
• Only
the amount actually paid is deductible. Don’t confuse this amount with deposits
made to your mortgage escrow account.
• Charges
for trash collection, sewer, etc., are sometimes added to real estate tax
bills. These amounts are not deductible as real estate taxes.
• Special
assessments are sometimes added to real es-tate tax bills. Assessments are not
necessarily deductible as real estate taxes.
Form 1098
Your lender will generally give you Form 1098, Mortgage Interest Statement, to tell you
how much interest you have paid. An explanation must be
attached to your tax return if the amount shown on Form 1098 is different from
the deducted amount or if more than one person paid deductible mortgage
interest (other than a spouse filing jointly). If
you did not receive Form 1098, you must provide the name, identifying number,
and address of the interest recipient.
Home Mortgage
A home mortgage is any loan secured by your main or second
home, including first and second mortgages, home equity loans, and refinanced
loans. The loan must be legally recorded, with the home as collateral for the
debt. You must be legally liable to make the payments. For example, if you
borrow money from your parents to make a down payment on your home, you cannot
deduct the interest you pay them unless the loan is legally recorded with the
home as collateral.
Refinanced Loans
Debt that is refinanced generally retains its character as
acquisition or home equity debt, up to the old loan balance.
• Debt
used to substantially improve your home is acquisition debt, even if it is
refinanced home equity debt.
• Refinanced
acquisition debt that exceeds your old debt may qualify as home equity debt.
Points
Terms such as points, loan discount, loan origination fees,
etc., refer to certain charges you might pay in order to obtain a mortgage. If
you pay points to borrow money, the points are deductible as prepaid interest.
• Points are deductible over the life of your loan. Points you pay at
the time of your home purchase are deductible in full.
• Points
you pay to the lender in exchange for a lower interest rate are generally shown
on your closing statement. Each point charged to obtain a loan is 1% of the
loan amount. For example, 2.5 points charged on a $100,000 loan equals $2,500
($100,000 × 2.5%).
• Fees
your lender charges for specific loan services are not deductible. Examples
include appraisal, notary, and document fees.
Mortgage Insurance Premiums
Premiums paid for acquisition indebtedness for insurance
contracts issued after December 31, 2006 on a first or second home are treated
as deductible mortgage interest. The deduction begins to phase out when AGI
exceeds $100,000 ($50,000 MFS). Qualified mortgage insurance providers include
the Department of Veterans Affairs, the Federal Housing Administration, or the
Rural Housing Service, and private mortgage insurance.
Medical Expense Deductions
You may need to make home improvements in order to provide medical care for
yourself, your spouse, or your dependent. Examples:
(1) Lifts or elevators, (2) therapy pool for help with a specific medical
condition, (3) bathroom or countertop modifications to accommodate a person who
is disabled, (4) ramps, handrails, support or grab bars, (5) modifications to
halls and doorways.
An expense may generate a medical deduction to the extent
the expense does not result in an increase to the home’s value. Not every
expense results in such an increase.
Operation and Upkeep
Amounts you pay to operate and maintain a medically related
home improvement qualify as medical expenses, if the main reason is for medical
care. This is true even if only part or none of the asset cost qualified for a
deduction.
Casualty and Theft Losses
If your home is damaged or destroyed due to an identifiable
event that is sudden, unexpected, and unusual, you may have a casualty loss.
Losses are calculated on Form 4684, Casualties
and Thefts, and carried to Schedule A, Itemized
Deductions.
Business Use of the Home
If you use a home office as an employee, you may be able to
claim a miscellaneous itemized deduction for the business use of your home.
• You
must use your home office for the convenience of your employer.
• You
may not rent your home office to your employer.
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