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Tax Deductions and your Home

Owning your home? Selling your home?  Doing your 2014 tax return? What is deductable and what is not!

 

What You Can and Cannot Deduct

First and foremost, to deduct expenses of owning a home, you must file Form 1040, U.S. Individual Income Tax Return, and itemize your deductions on Schedule A (Form 1040). If you itemize, you cannot take the standard deduction.

This section explains what expenses you can deduct as a homeowner. It also points out expenses that you cannot deduct. There are four primary discussions: real estate taxes, sales taxes, home mortgage interest, and mortgage insurance premiums. Generally, your real estate taxes, home mortgage interest, and mortgage insurance premiums are included in your house payment.

Your house payment.   If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. Your house payment may include several costs of owning a home. 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. These are discussed in more detail later.

  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.
  • Items added to basis.   You can include in your basis the      settlement fees and closing costs you paid 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.                        
  •   The following are      some of the settlement fees and closing costs that you can include in the      original basis of your home.
    • Abstract fees (abstract of       title fees).
    • Charges for installing utility       services.
    • Legal fees (including fees for       the title search and preparation of the sales contract and deed).
    • Recording fees.
    • Surveys.
    • Transfer or stamp taxes.
    • Owner’s title insurance.
    • 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.

  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.

Items not added to basis and not deductible.   Here are some settlement and closing costs that you cannot deduct or add to your basis.

1.   Fire insurance premiums.

2.   Charges for using utilities or other services related to occupancy of the home     before closing.

3.  Rent for occupying the home before closing.

4.  Charges connected with getting or refinancing a mortgage loan, such as:

  1. a.      Loan assumption fees,
  2. b.      Cost of a credit report, and
  3. c.       Fee for an appraisal required by a lender.

Points paid by seller.   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.

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.

 

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