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Tax Software Reviews

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Tax software reviews 11. Tax software reviews   Departing Aliens and the Sailing or Departure Permit Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Aliens Not Required To Obtain Sailing or Departure Permits Aliens Required To Obtain Sailing or Departure PermitsGetting a Sailing or Departure Permit Forms To File Paying Taxes and Obtaining Refunds Bond To Ensure Payment Filing Annual U. Tax software reviews S. Tax software reviews Income Tax Returns Introduction Before leaving the United States, all aliens (except those listed under Aliens Not Required To Obtain Sailing or Departure Permits must obtain a certificate of compliance. Tax software reviews This document, also popularly known as the sailing permit or departure permit, is part of the income tax form you must file before leaving. Tax software reviews You will receive a sailing or departure permit after filing a Form 1040-C or Form 2063. Tax software reviews These forms are discussed in this chapter. Tax software reviews To find out if you need a sailing or departure permit, first read Aliens Not Required To Obtain Sailing or Departure Permits . Tax software reviews If you do not fall into one of the categories in that discussion, you must obtain a sailing or departure permit. Tax software reviews Read Aliens Required To Obtain Sailing or Departure Permits . Tax software reviews Topics - This chapter discusses: Who needs a sailing permit, How to get a sailing permit, and Forms you file to get a sailing permit. Tax software reviews Useful Items - You may want to see: Form (and Instructions) 1040-C U. Tax software reviews S. Tax software reviews Departing Alien Income Tax Return 2063 U. Tax software reviews S. Tax software reviews Departing Alien Income Tax Statement See chapter 12 for information about getting these forms. Tax software reviews Aliens Not Required To Obtain Sailing or Departure Permits If you are included in one of the following categories, you do not have to get a sailing or departure permit before leaving the United States. Tax software reviews If you are in one of these categories and do not have to get a sailing or departure permit, you must be able to support your claim for exemption with proper identification or give the authority for the exemption. Tax software reviews Category 1. Tax software reviews   Representatives of foreign governments with diplomatic passports, whether accredited to the United States or other countries, members of their households, and servants accompanying them. Tax software reviews Servants who are leaving, but not with a person with a diplomatic passport, must get a sailing or departure permit. Tax software reviews However, they can get a sailing or departure permit on Form 2063 without examination of their income tax liability by presenting a letter from the chief of their diplomatic mission certifying that: Their name appears on the “White List” (a list of employees of diplomatic missions), and They do not owe to the United States any income tax, and will not owe any tax up to and including the intended date of departure. Tax software reviews   The statement must be presented to an IRS office. Tax software reviews Category 2. Tax software reviews    Employees of international organizations and foreign governments (other than diplomatic representatives exempt under category 1) and members of their households: Whose compensation for official services is exempt from U. Tax software reviews S. Tax software reviews tax under U. Tax software reviews S. Tax software reviews tax laws (described in chapter 10), and Who receive no other income from U. Tax software reviews S. Tax software reviews sources. Tax software reviews If you are an alien in category (1) or (2), above, who filed the waiver under section 247(b) of the Immigration and Nationality Act, you must get a sailing or departure permit. Tax software reviews This is true even if your income is exempt from U. Tax software reviews S. Tax software reviews tax because of an income tax treaty, consular agreement, or international agreement. Tax software reviews Category 3. Tax software reviews   Alien students, industrial trainees, and exchange visitors, including their spouses and children, who enter on an “F-1,” “F-2,” “H-3,” “H-4,” “J-1,” “J-2,” or “Q” visa only and who receive no income from U. Tax software reviews S. Tax software reviews sources while in the United States under those visas other than: Allowances to cover expenses incident to study or training in the United States, such as expenses for travel, maintenance, and tuition, The value of any services or food and lodging connected with this study or training, Income from employment authorized by the U. Tax software reviews S. Tax software reviews Citizenship and Immigration Services (USCIS), or Interest income on deposits that is not effectively connected with a U. Tax software reviews S. Tax software reviews trade or business. Tax software reviews (See Interest Income in chapter 3. Tax software reviews ) Category 4. Tax software reviews   Alien students, including their spouses and children, who enter on an “M-1” or “M-2” visa only and who receive no income from U. Tax software reviews S. Tax software reviews sources while in the United States under those visas, other than: Income from employment authorized by the U. Tax software reviews S. Tax software reviews Citizenship and Immigration Services (USCIS) or Interest income on deposits that is not effectively connected with a U. Tax software reviews S. Tax software reviews trade or business. Tax software reviews (See Interest Income in chapter 3. Tax software reviews ) Category 5. Tax software reviews   Certain other aliens temporarily in the United States who have received no taxable income during the tax year up to and including the date of departure or during the preceding tax year. Tax software reviews If the IRS has reason to believe that an alien has received income subject to tax and that the collection of income tax is jeopardized by departure, it may then require the alien to obtain a sailing or departure permit. Tax software reviews Aliens in this category are: Alien military trainees who enter the United States for training under the sponsorship of the Department of Defense and who leave the United States on official military travel orders, Alien visitors for business on a “B-1” visa, or on both a “B-1” visa and a “B-2” visa, who do not remain in the United States or a U. Tax software reviews S. Tax software reviews possession for more than 90 days during the tax year, Alien visitors for pleasure on a “B-2” visa, Aliens in transit through the United States or any of its possessions on a “C-1” visa, or under a contract, such as a bond agreement, between a transportation line and the Attorney General, and Aliens who enter the United States on a border-crossing identification card or for whom passports, visas, and border-crossing identification cards are not required, if they are: Visitors for pleasure, Visitors for business who do not remain in the United States or a U. Tax software reviews S. Tax software reviews possession for more than 90 days during the tax year, or In transit through the United States or any of its possessions. Tax software reviews Category 6. Tax software reviews   Alien residents of Canada or Mexico who frequently commute between that country and the United States for employment, and whose wages are subject to the withholding of U. Tax software reviews S. Tax software reviews tax. Tax software reviews Aliens Required To Obtain Sailing or Departure Permits If you do not fall into one of the categories listed under Aliens Not Required To Obtain Sailing or Departure Permits, you must obtain a sailing or departure permit. Tax software reviews To obtain a permit, file Form 1040-C or Form 2063 (whichever applies) with your local IRS office before you leave the United States. Tax software reviews See Forms To File , later. Tax software reviews You must also pay all the tax shown as due on Form 1040-C and any taxes due for past years. Tax software reviews See Paying Taxes and Obtaining Refunds , later. Tax software reviews Getting a Sailing or Departure Permit The following discussion covers when and where to get your sailing permit. Tax software reviews Where to get a sailing or departure permit. Tax software reviews   If you have been working in the United States, you should get the permit from an IRS office in the area of your employment, or you may obtain one from an IRS office in the area of your departure. Tax software reviews When to get a sailing or departure permit. Tax software reviews   You should get your sailing or departure permit at least 2 weeks before you plan to leave. Tax software reviews You cannot apply earlier than 30 days before your planned departure date. Tax software reviews Do not wait until the last minute in case there are unexpected problems. Tax software reviews Papers to submit. Tax software reviews   Getting your sailing or departure permit will go faster if you bring to the IRS office papers and documents related to your income and your stay in the United States. Tax software reviews Bring the following records with you if they apply. Tax software reviews Your passport and alien registration card or visa. Tax software reviews Copies of your U. Tax software reviews S. Tax software reviews income tax returns filed for the past 2 years. Tax software reviews If you were in the United States for less than 2 years, bring the income tax returns you filed for that period. Tax software reviews Receipts for income taxes paid on these returns. Tax software reviews Receipts, bank records, canceled checks, and other documents that prove your deductions, business expenses, and dependents claimed on your returns. Tax software reviews A statement from each employer showing wages paid and tax withheld from January 1 of the current year to the date of departure if you were an employee. Tax software reviews If you were self-employed, you must bring a statement of income and expenses up to the date you plan to leave. Tax software reviews Proof of estimated tax payments for the past year and this year. Tax software reviews Documents showing any gain or loss from the sale of personal property and/or real property, including capital assets and merchandise. Tax software reviews Documents relating to scholarship or fellowship grants including: Verification of the grantor, source, and purpose of the grant. Tax software reviews Copies of the application for, and approval of, the grant. Tax software reviews A statement of the amount paid, and your duties and obligations under the grant. Tax software reviews A list of any previous grants. Tax software reviews Documents indicating you qualify for any special tax treaty benefits claimed. Tax software reviews Document verifying your date of departure from the United States, such as an airline ticket. Tax software reviews Document verifying your U. Tax software reviews S. Tax software reviews taxpayer identification number, such as a social security card or an IRS issued Notice CP 565 showing your individual taxpayer identification number (ITIN). Tax software reviews Note. Tax software reviews   If you are married and reside in a community property state, also bring the above-listed documents for your spouse. Tax software reviews This applies whether or not your spouse requires a permit. Tax software reviews Forms To File If you must get a sailing or departure permit, you must file Form 2063 or Form 1040-C. Tax software reviews Employees in the IRS office can assist in filing these forms. Tax software reviews Both forms have a “certificate of compliance” section. Tax software reviews When the certificate of compliance is signed by an agent of the Field Assistance Area Director, it certifies that your U. Tax software reviews S. Tax software reviews tax obligations have been satisfied according to available information. Tax software reviews Your Form 1040-C copy of the signed certificate, or the one detached from Form 2063, is your sailing or departure permit. Tax software reviews Form 2063 This is a short form that asks for certain information but does not include a tax computation. Tax software reviews The following departing aliens can get their sailing or departure permits by filing Form 2063. Tax software reviews Aliens, whether resident or nonresident, who have had no taxable income for the tax year up to and including the date of departure and for the preceding year, if the period for filing the income tax return for that year has not expired. Tax software reviews Resident aliens who have received taxable income during the tax year or preceding year and whose departure will not hinder the collection of any tax. Tax software reviews However, if the IRS has information indicating that the aliens are leaving to avoid paying their income tax, they must file a Form 1040-C. Tax software reviews Aliens in either of these categories who have not filed an income tax return or paid income tax for any tax year must file the return and pay the income tax before they can be issued a sailing or departure permit on Form 2063. Tax software reviews The sailing or departure permit detached from Form 2063 can be used for all departures during the current year. Tax software reviews However, the IRS may cancel the sailing or departure permit for any later departure if it believes the collection of income tax is jeopardized by that later departure. Tax software reviews Form 1040-C If you must get a sailing or departure permit and you do not qualify to file Form 2063, you must file Form 1040-C. Tax software reviews Ordinarily, all income received or reasonably expected to be received during the tax year up to and including the date of departure must be reported on Form 1040-C and the tax on it must be paid. Tax software reviews When you pay any tax shown as due on the Form 1040-C, and you file all returns and pay all tax due for previous years, you will receive a sailing or departure permit. Tax software reviews However, the IRS may permit you to furnish a bond guaranteeing payment instead of paying the taxes for certain years. Tax software reviews See Bond To Ensure Payment , discussed later. Tax software reviews The sailing or departure permit issued under the conditions in this paragraph is only for the specific departure for which it is issued. Tax software reviews Returning to the United States. Tax software reviews   If you furnish the IRS with information showing, to the satisfaction of the IRS, that you intend to return to the United States and that your departure does not jeopardize the collection of income tax, you can get a sailing or departure permit by filing Form 1040-C without having to pay the tax shown on it. Tax software reviews You must, however, file all income tax returns that have not yet been filed as required, and pay all income tax that is due on these returns. Tax software reviews   Your Form 1040-C must include all income received and reasonably expected to be received during the entire year of departure. Tax software reviews The sailing or departure permit issued with this Form 1040-C can be used for all departures during the current year. Tax software reviews However, the Service may cancel the sailing or departure permit for any later departure if the payment of income tax appears to be in jeopardy. Tax software reviews Joint return on Form 1040-C. Tax software reviews   Departing husbands and wives who are nonresident aliens cannot file joint returns. Tax software reviews However, if both spouses are resident aliens, they can file a joint return on Form 1040-C if: Both spouses can reasonably be expected to qualify to file a joint return at the normal close of their tax year, and The tax years of the spouses end at the same time. Tax software reviews Paying Taxes and Obtaining Refunds You must pay all tax shown as due on the Form 1040-C at the time of filing it, except when a bond is furnished, or the IRS is satisfied that your departure does not jeopardize the collection of income tax. Tax software reviews You must also pay any taxes due for past years. Tax software reviews If the tax computation on Form 1040-C results in an overpayment, there is no tax to pay at the time you file that return. Tax software reviews However, the IRS cannot provide a refund at the time of departure. Tax software reviews If you are due a refund, you must file either Form 1040NR or Form 1040NR-EZ at the end of the tax year. Tax software reviews Bond To Ensure Payment Usually, you must pay the tax shown as due on Form 1040-C when you file it. Tax software reviews However, if you pay all taxes due that you owe for prior years, you can furnish a bond guaranteeing payment instead of paying the income taxes shown as due on the Form 1040-C or the tax return for the preceding year if the period for filing that return has not expired. Tax software reviews The bond must equal the tax due plus interest to the date of payment as figured by the IRS. Tax software reviews Information about the form of bond and security on it can be obtained from your IRS office. Tax software reviews Filing Annual U. Tax software reviews S. Tax software reviews Income Tax Returns Form 1040-C is not an annual U. Tax software reviews S. Tax software reviews income tax return. Tax software reviews If an income tax return is required by law, that return must be filed even though a Form 1040-C has already been filed. Tax software reviews Chapters 5 and 7 discuss filing an annual U. Tax software reviews S. Tax software reviews income tax return. Tax software reviews The tax paid with Form 1040-C should be taken as a credit against the tax liability for the entire tax year on your annual U. Tax software reviews S. Tax software reviews income tax return. Tax software reviews Prev  Up  Next   Home   More Online Publications
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IRS Criminal Investigation Combats Identity Theft Refund Fraud

IRS YouTube Videos
ID Theft: IRS Efforts on Identity Theft

FS-2014-3, January 2014

The Internal Revenue Service (IRS) has seen a significant increase in refund fraud that involves identity thieves who file false claims for refunds by stealing and using someone's Social Security number. The investigative work done by Criminal Investigation (CI) is a major component of the IRS’s efforts to combat tax-related identity theft. 

Statistical Data 

In Fiscal Year (FY) 2013, the IRS initiated approximately 1,492 identity theft related criminal investigations, an increase of 66 percent over investigations initiated in FY 2012. Direct investigative time applied to identity theft related investigations has increased 216 percent over the last two years. Prosecution recommendations, indictments, and those convicted and sentenced for identity theft violations have increased dramatically since FY 2011. Sentences handed down for convictions relating to identity theft have been significant, ranging from two months to 317 months.  
 

 

FY2013

FY 2012

  FY 2011

 Investigations Initiated

1492

898

276

 Prosecution Recommendations

1257

544

218

 Indictments/Informations

1050

494

165

 Sentenced

438

223

80


Enforcement Efforts 

Criminal Investigation is committed to investigating and prosecuting identity thieves who attempt to defraud the federal government by filing fraudulent refund claims using another person’s identifying information.

The IRS continues to seek out and identify additional tools and methods to combat the proliferation of tax-related identity theft.  FY 2013 efforts include: 

Identity Theft Enforcement Sweeps - In January 2013, Criminal Investigation conducted a coordinated identity theft enforcement sweep in collaboration with DOJ-Tax and United States Attorney’s Offices throughout the country.  This nationwide effort resulted in 734 enforcement actions related to identity theft and refund fraud and involved 389 individuals, 109 arrests, 48 search warrants, and 189 indictments, information and criminal complaints.

Law Enforcement Assistance Program - In March 2013, IRS announced to the public that the Law Enforcement Assistance Program, formerly known as the Identity Theft Pilot Disclosure Program, was expanded nationwide.  This program provides for the disclosure of federal tax return information associated with the accounts of known and suspected identity victims of identity theft with the express written consent of those victims.  There are currently more than 300 state/local law enforcement agencies from 35 states participating.  For FY 2013, more than 2,400 requests had been received from state and local law enforcement agencies.

Identify Theft Clearinghouse (ITC) - The Identity Theft Clearinghouse (ITC) continues to develop and refer identity theft refund fraud schemes to CI Field Offices for investigation.  For FY 2013 the ITC had received more than 1,400 identity theft related leads. 

Data Processing Center(DPC) Identity Theft Victims List Process - This process centralizes identity theft victims’ lists and information forwarded to IRS-CI by other federal, state and local agencies during nationwide investigative efforts.  The information is analyzed and necessary adjustments are made to accounts of taxpayers that are likely targets of ID theft.  The DPC processed over 71.7 percent more identity records in FY 2013 than it did in FY 2012.

Multi-Agency Task Forces and Working Groups - CI is the lead agency or actively involved in more than 30 multi-regional task forces or working groups including state/local and federal law enforcement agencies solely focusing on identity theft.      

The following are highlights from significant identity-theft cases. All details are based on court documents.

Self-Proclaimed “First Lady” of Tax Fraud Sentenced

On July 16, 2013, in Tampa, Fla., Rashia Wilson, was sentenced to 234 months in prison on wire fraud and aggravated identity theft charges stemming from her scheme to defraud the IRS, and to a consecutive 18 months in prison for being a felon in possession of a firearm.  Wilson was also ordered to forfeit $2,240,096, which constituted the proceeds traceable to the offense.  According to court documents, from at least April 2009 through their arrests in September 2012, Wilson and her co-conspirator, Maurice J. Larry, engaged in a scheme to defraud the IRS by negotiating fraudulently obtained tax refunds. They did so by receiving U.S. Treasury checks and pre-paid debit cards that were loaded with proceeds derived from filing false and fraudulent federal income tax returns in other persons' names, without those persons’ permission or knowledge.  Wilson and Larry filed these false and fraudulent federal income tax returns from multiple locations, including Wilson's residence and hotels in the Tampa area.  Wilson, Larry, and others then used these fraudulently obtained tax refunds to make hundreds of thousands of dollars’ worth of retail purchases, to purchase money orders, and to withdraw cash. Larry was sentenced to 174 months in prison and ordered to forfeit $2,240,096.

Woman Sentenced for Running Stolen Identity Tax Fraud Scheme
On July 30, 2013, in St. Louis, Mo., Tania Henderson was sentenced to 144 months in prison and ordered to pay $835,883 in restitution to the IRS. Henderson pleaded guilty on April 29, 2013, to theft of government funds and aggravated identity theft. According to her plea agreement and other court documents, Henderson stole the identities of more than 400 individuals, many of whom were deceased, and filed fraudulent tax returns using their names and Social Security account numbers. Between August and November 2012, Henderson filed 236 fraudulent tax returns. Using a network of family and friends, she would collect refund checks or prepaid debit cards for the refund amounts and liquidate the proceeds of her scheme.  

Leaders of Multi-Million Dollar Fraud Ring Sentenced
On May 8, 2012, in Montgomery, Ala., Veronica Dale and Alchico Grant, who jointly ran a stolen identity refund fraud ring that attempted to defraud the United States of millions of dollars over several years, were sentenced to prison. Veronica Dale was sentenced to 334 months in prison and Alchico Grant was sentenced to 310 months in prison.  Dale and Grant were both ordered to pay more than $2.8 million in restitution to the IRS. In September 2011, Grant pleaded guilty to five charges from two separate indictments, including conspiracy, wire fraud and aggravated identity theft. In October 2011, Dale pleaded guilty to seven charges from two indictments, including conspiracy, filing false claims, wire fraud and aggravated identity theft.  According to court documents, beginning in 2009 and continuing through 2010, the defendants were part of a scheme that involved fraudulently obtaining tax refunds by filing false tax returns using stolen identities. Dale admitted that she filed more than 500 fraudulent returns that sought at least $3,741,908 in tax refunds.  These returns were filed using the names of Medicaid beneficiaries, whose personal information Dale obtained while working for a company that serviced Medicaid programs.  Dale directed the refunds to different bank accounts that she and other co-conspirators controlled.

The latest information on Identity Theft enforcement efforts and individual cases are available on IRS.gov.

Page Last Reviewed or Updated: 07-Jan-2014

The Tax Software Reviews

Tax software reviews Publication 530 - Main Content Table of Contents What You Can and Cannot DeductHardest Hit Fund and Emergency Homeowners' Loan Programs Real Estate Taxes Sales Taxes Home Mortgage Interest Mortgage Insurance Premiums Mortgage Interest CreditFiguring the Credit BasisFiguring Your Basis Adjusted Basis Keeping Records How To Get Tax HelpLow Income Taxpayer Clinics What You Can and Cannot Deduct To deduct expenses of owning a home, you must file Form 1040, U. Tax software reviews S. Tax software reviews Individual Income Tax Return, and itemize your deductions on Schedule A (Form 1040). Tax software reviews If you itemize, you cannot take the standard deduction. Tax software reviews This section explains what expenses you can deduct as a homeowner. Tax software reviews It also points out expenses that you cannot deduct. Tax software reviews There are four primary discussions: real estate taxes, sales taxes, home mortgage interest, and mortgage insurance premiums. Tax software reviews Generally, your real estate taxes, home mortgage interest, and mortgage insurance premiums are included in your house payment. Tax software reviews Your house payment. Tax software reviews   If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. Tax software reviews Your house payment may include several costs of owning a home. Tax software reviews 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. Tax software reviews These are discussed in more detail later. Tax software reviews   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. Tax software reviews Minister's or military housing allowance. Tax software reviews   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you still can deduct your real estate taxes and your home mortgage interest. Tax software reviews You do not have to reduce your deductions by your nontaxable allowance. Tax software reviews For more information see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers, and Publication 3, Armed Forces' Tax Guide. Tax software reviews Nondeductible payments. Tax software reviews   You cannot deduct any of the following items. Tax software reviews Insurance (other than mortgage insurance premiums), including fire and comprehensive coverage, and title insurance. Tax software reviews Wages you pay for domestic help. Tax software reviews Depreciation. Tax software reviews The cost of utilities, such as gas, electricity, or water. Tax software reviews Most settlement costs. Tax software reviews See Settlement or closing costs under Cost as Basis, later, for more information. Tax software reviews Forfeited deposits, down payments, or earnest money. Tax software reviews Hardest Hit Fund and Emergency Homeowners' Loan Programs You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. Tax software reviews You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. Tax software reviews You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. Tax software reviews If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098-MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received), box 4 (mortgage insurance premiums) and box 5 (real property taxes). Tax software reviews However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. Tax software reviews Real Estate Taxes Most state and local governments charge an annual tax on the value of real property. Tax software reviews This is called a real estate tax. Tax software reviews You can deduct the tax if it is assessed uniformly at a like rate on all real property throughout the community. Tax software reviews The proceeds must be for general community or governmental purposes and not be a payment for a special privilege granted or service rendered to you. Tax software reviews Deductible Real Estate Taxes You can deduct real estate taxes imposed on you. Tax software reviews You must have paid them either at settlement or closing, or to a taxing authority (either directly or through an escrow account) during the year. Tax software reviews If you own a cooperative apartment, see Special Rules for Cooperatives , later. Tax software reviews Where to deduct real estate taxes. Tax software reviews   Enter the amount of your deductible real estate taxes on Schedule A (Form 1040), line 6. Tax software reviews Real estate taxes paid at settlement or closing. Tax software reviews   Real estate taxes are generally divided so that you and the seller each pay taxes for the part of the property tax year you owned the home. Tax software reviews Your share of these taxes is fully deductible if you itemize your deductions. Tax software reviews Division of real estate taxes. Tax software reviews   For federal income tax purposes, the seller is treated as paying the property taxes up to, but not including, the date of sale. Tax software reviews You (the buyer) are treated as paying the taxes beginning with the date of sale. Tax software reviews This applies regardless of the lien dates under local law. Tax software reviews Generally, this information is included on the settlement statement you get at closing. Tax software reviews   You and the seller each are considered to have paid your own share of the taxes, even if one or the other paid the entire amount. Tax software reviews You each can deduct your own share, if you itemize deductions, for the year the property is sold. Tax software reviews Example. Tax software reviews You bought your home on September 1. Tax software reviews The property tax year (the period to which the tax relates) in your area is the calendar year. Tax software reviews The tax for the year was $730 and was due and paid by the seller on August 15. Tax software reviews You owned your new home during the property tax year for 122 days (September 1 to December 31, including your date of purchase). Tax software reviews You figure your deduction for real estate taxes on your home as follows. Tax software reviews 1. Tax software reviews Enter the total real estate taxes for the real property tax year $730 2. Tax software reviews Enter the number of days in the property tax year that you owned the property 122 3. Tax software reviews Divide line 2 by 365 . Tax software reviews 3342 4. Tax software reviews Multiply line 1 by line 3. Tax software reviews This is your deduction. Tax software reviews Enter it on Schedule A (Form 1040), line 6 $244   You can deduct $244 on your return for the year if you itemize your deductions. Tax software reviews You are considered to have paid this amount and can deduct it on your return even if, under the contract, you did not have to reimburse the seller. Tax software reviews Delinquent taxes. Tax software reviews   Delinquent taxes are unpaid taxes that were imposed on the seller for an earlier tax year. Tax software reviews If you agree to pay delinquent taxes when you buy your home, you cannot deduct them. Tax software reviews You treat them as part of the cost of your home. Tax software reviews See Real estate taxes , later, under Basis. Tax software reviews Escrow accounts. Tax software reviews   Many monthly house payments include an amount placed in escrow (put in the care of a third party) for real estate taxes. Tax software reviews You may not be able to deduct the total you pay into the escrow account. Tax software reviews You can deduct only the real estate taxes that the lender actually paid from escrow to the taxing authority. Tax software reviews Your real estate tax bill will show this amount. Tax software reviews Refund or rebate of real estate taxes. Tax software reviews   If you receive a refund or rebate of real estate taxes this year for amounts you paid this year, you must reduce your real estate tax deduction by the amount refunded to you. Tax software reviews If the refund or rebate was for real estate taxes paid for a prior year, you may have to include some or all of the refund in your income. Tax software reviews For more information, see Recoveries in Publication 525, Taxable and Nontaxable Income. Tax software reviews Items You Cannot Deduct as Real Estate Taxes The following items are not deductible as real estate taxes. Tax software reviews Charges for services. Tax software reviews   An itemized charge for services to specific property or people is not a tax, even if the charge is paid to the taxing authority. Tax software reviews You cannot deduct the charge as a real estate tax if it is: A unit fee for the delivery of a service (such as a $5 fee charged for every 1,000 gallons of water you use), A periodic charge for a residential service (such as a $20 per month or $240 annual fee charged for trash collection), or A flat fee charged for a single service provided by your local government (such as a $30 charge for mowing your lawn because it had grown higher than permitted under a local ordinance). Tax software reviews    You must look at your real estate tax bill to decide if any nondeductible itemized charges, such as those listed above, are included in the bill. Tax software reviews If your taxing authority (or lender) does not furnish you a copy of your real estate tax bill, ask for it. Tax software reviews Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. Tax software reviews Assessments for local benefits. Tax software reviews   You cannot deduct amounts you pay for local benefits that tend to increase the value of your property. Tax software reviews Local benefits include the construction of streets, sidewalks, or water and sewer systems. Tax software reviews You must add these amounts to the basis of your property. Tax software reviews   You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. Tax software reviews An example is a charge to repair an existing sidewalk and any interest included in that charge. Tax software reviews   If only a part of the assessment is for maintenance, repair, or interest charges, you must be able to show the amount of that part to claim the deduction. Tax software reviews If you cannot show what part of the assessment is for maintenance, repair, or interest charges, you cannot deduct any of it. Tax software reviews   An assessment for a local benefit may be listed as an item in your real estate tax bill. Tax software reviews If so, use the rules in this section to find how much of it, if any, you can deduct. Tax software reviews Transfer taxes (or stamp taxes). Tax software reviews   You cannot deduct transfer taxes and similar taxes and charges on the sale of a personal home. Tax software reviews If you are the buyer and you pay them, include them in the cost basis of the property. Tax software reviews If you are the seller and you pay them, they are expenses of the sale and reduce the amount realized on the sale. Tax software reviews Homeowners association assessments. Tax software reviews   You cannot deduct these assessments because the homeowners association, rather than a state or local government, imposes them. Tax software reviews Special Rules for Cooperatives If you own a cooperative apartment, some special rules apply to you, though you generally receive the same tax treatment as other homeowners. Tax software reviews As an owner of a cooperative apartment, you own shares of stock in a corporation that owns or leases housing facilities. Tax software reviews You can deduct your share of the corporation's deductible real estate taxes if the cooperative housing corporation meets the following conditions: The corporation has only one class of stock outstanding, Each stockholder, solely because of ownership of the stock, can live in a house, apartment, or house trailer owned or leased by the corporation, No stockholder can receive any distribution out of capital, except on a partial or complete liquidation of the corporation, and At least one of the following: At least 80% of the corporation's gross income for the tax year was paid by the tenant-stockholders. Tax software reviews For this purpose, gross income means all income received during the entire tax year, including any received before the corporation changed to cooperative ownership. Tax software reviews At least 80% of the total square footage of the corporation's property must be available for use by the tenant-stockholders during the entire tax year. Tax software reviews At least 90% of the expenditures paid or incurred by the corporation were used for the acquisition, construction, management, maintenance, or care of the property for the benefit of the tenant-shareholders during the entire tax year. Tax software reviews Tenant-stockholders. Tax software reviews   A tenant-stockholder can be any entity (such as a corporation, trust, estate, partnership, or association) as well as an individual. Tax software reviews The tenant-stockholder does not have to live in any of the cooperative's dwelling units. Tax software reviews The units that the tenant-stockholder has the right to occupy can be rented to others. Tax software reviews Deductible taxes. Tax software reviews   You figure your share of real estate taxes in the following way. Tax software reviews Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Tax software reviews Multiply the corporation's deductible real estate taxes by the number you figured in (1). Tax software reviews This is your share of the real estate taxes. Tax software reviews   Generally, the corporation will tell you your share of its real estate tax. Tax software reviews This is the amount you can deduct if it reasonably reflects the cost of real estate taxes for your dwelling unit. Tax software reviews Refund of real estate taxes. Tax software reviews   If the corporation receives a refund of real estate taxes it paid in an earlier year, it must reduce the amount of real estate taxes paid this year when it allocates the tax expense to you. Tax software reviews Your deduction for real estate taxes the corporation paid this year is reduced by your share of the refund the corporation received. Tax software reviews Sales Taxes Generally, you can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). Tax software reviews Deductible sales taxes may include sales taxes paid on your home (including mobile and prefabricated), or home building materials if the tax rate was the same as the general sales tax rate. Tax software reviews For information on figuring your deduction, see the Instructions for Schedule A (Form 1040). Tax software reviews If you elect to deduct the sales taxes paid on your home, or home building materials, you cannot include them as part of your cost basis in the home. Tax software reviews Home Mortgage Interest This section of the publication gives you basic information about home mortgage interest, including information on interest paid at settlement, points, and Form 1098, Mortgage Interest Statement. Tax software reviews Most home buyers take out a mortgage (loan) to buy their home. Tax software reviews They then make monthly payments to either the mortgage holder or someone collecting the payments for the mortgage holder. Tax software reviews Usually, you can deduct the entire part of your payment that is for mortgage interest, if you itemize your deductions on Schedule A (Form 1040). Tax software reviews However, your deduction may be limited if: Your total mortgage balance is more than $1 million ($500,000 if married filing separately), or You took out a mortgage for reasons other than to buy, build, or improve your home. Tax software reviews If either of these situations applies to you, see Publication 936 for more information. Tax software reviews Also see Publication 936 if you later refinance your mortgage or buy a second home. Tax software reviews Refund of home mortgage interest. Tax software reviews   If you receive a refund of home mortgage interest that you deducted in an earlier year and that reduced your tax, you generally must include the refund in income in the year you receive it. Tax software reviews For more information, see Recoveries in Publication 525. Tax software reviews The amount of the refund will usually be shown on the mortgage interest statement you receive from your mortgage lender. Tax software reviews See Mortgage Interest Statement , later. Tax software reviews Deductible Mortgage Interest To be deductible, the interest you pay must be on a loan secured by your main home or a second home. Tax software reviews The loan can be a first or second mortgage, a home improvement loan, or a home equity loan. Tax software reviews Prepaid interest. Tax software reviews   If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. Tax software reviews Generally, you can deduct in each year only the interest that qualifies as home mortgage interest for that year. Tax software reviews An exception (discussed later) applies to points. Tax software reviews Late payment charge on mortgage payment. Tax software reviews   You can deduct as home mortgage interest a late payment charge if it was not for a specific service in connection with your mortgage loan. Tax software reviews Mortgage prepayment penalty. Tax software reviews   If you pay off your home mortgage early, you may have to pay a penalty. Tax software reviews You can deduct that penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. Tax software reviews Ground rent. Tax software reviews   In some states (such as Maryland), you may buy your home subject to a ground rent. Tax software reviews A ground rent is an obligation you assume to pay a fixed amount per year on the property. Tax software reviews Under this arrangement, you are leasing (rather than buying) the land on which your home is located. Tax software reviews Redeemable ground rents. Tax software reviews   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct the payments as mortgage interest. Tax software reviews The ground rent is a redeemable ground rent only if all of the following are true. Tax software reviews Your lease, including renewal periods, is for more than 15 years. Tax software reviews You can freely assign the lease. Tax software reviews You have a present or future right (under state or local law) to end the lease and buy the lessor's entire interest in the land by paying a specified amount. Tax software reviews The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. Tax software reviews   Payments made to end the lease and buy the lessor's entire interest in the land are not redeemable ground rents. Tax software reviews You cannot deduct them. Tax software reviews Nonredeemable ground rents. Tax software reviews   Payments on a nonredeemable ground rent are not mortgage interest. Tax software reviews You can deduct them as rent only if they are a business expense or if they are for rental property. Tax software reviews Cooperative apartment. Tax software reviews   You can usually treat the interest on a loan you took out to buy stock in a cooperative housing corporation as home mortgage interest if you own a cooperative apartment, and the cooperative housing corporation meets the conditions described earlier under Special Rules for Cooperatives . Tax software reviews In addition, you can treat as home mortgage interest your share of the corporation's deductible mortgage interest. Tax software reviews Figure your share of mortgage interest the same way that is shown for figuring your share of real estate taxes in the Example under Division of real estate taxes, earlier. Tax software reviews For more information on cooperatives, see Special Rule for Tenant-Stockholders in Cooperative Housing Corporations in Publication 936. Tax software reviews Refund of cooperative's mortgage interest. Tax software reviews   You must reduce your mortgage interest deduction by your share of any cash portion of a patronage dividend that the cooperative receives. Tax software reviews The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. Tax software reviews   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. Tax software reviews Mortgage Interest Paid at Settlement One item that normally appears on a settlement or closing statement is home mortgage interest. Tax software reviews You can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). Tax software reviews This amount should be included in the mortgage interest statement provided by your lender. Tax software reviews See the discussion under Mortgage Interest Statement , later. Tax software reviews Also, if you pay interest in advance, see Prepaid interest , earlier, and Points , next. Tax software reviews Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Tax software reviews Points also may be called loan origination fees, maximum loan charges, loan discount, or discount points. Tax software reviews A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. Tax software reviews See Points paid by the seller , later. Tax software reviews General rule. Tax software reviews   You cannot deduct the full amount of points in the year paid. Tax software reviews They are prepaid interest, so you generally must deduct them over the life (term) of the mortgage. Tax software reviews Exception. Tax software reviews   You can deduct the full amount of points in the year paid if you meet all the following tests. Tax software reviews Your loan is secured by your main home. Tax software reviews (Generally, your main home is the one you live in most of the time. Tax software reviews ) Paying points is an established business practice in the area where the loan was made. Tax software reviews The points paid were not more than the points generally charged in that area. Tax software reviews You use the cash method of accounting. Tax software reviews This means you report income in the year you receive it and deduct expenses in the year you pay them. Tax software reviews Most individuals use this method. Tax software reviews The points were not paid in place of amounts that ordinarily are stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes. Tax software reviews The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. Tax software reviews The funds you provided are not required to have been applied to the points. Tax software reviews They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. Tax software reviews You cannot have borrowed these funds. Tax software reviews You use your loan to buy or build your main home. Tax software reviews The points were computed as a percentage of the principal amount of the mortgage. Tax software reviews The amount is clearly shown on the settlement statement (such as the Uniform Settlement Statement, Form HUD-1) as points charged for the mortgage. Tax software reviews The points may be shown as paid from either your funds or the seller's. Tax software reviews Note. Tax software reviews If you meet all of the tests listed above and you itemize your deductions in the year you get the loan, you can either deduct the full amount of points in the year paid or deduct them over the life of the loan, beginning in the year you get the loan. Tax software reviews If you do not itemize your deductions in the year you get the loan, you can spread the points over the life of the loan and deduct the appropriate amount in each future year, if any, when you do itemize your deductions. Tax software reviews Home improvement loan. Tax software reviews   You can also fully deduct in the year paid points paid on a loan to improve your main home, if you meet the first six tests listed earlier. Tax software reviews Refinanced loan. Tax software reviews   If you use part of the refinanced mortgage proceeds to improve your main home and you meet the first six tests listed earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. Tax software reviews You can deduct the rest of the points over the life of the loan. Tax software reviews Points not fully deductible in year paid. Tax software reviews    If you do not qualify under the exception to deduct the full amount of points in the year paid (or choose not to do so), see Points in Publication 936 for the rules on when and how much you can deduct. Tax software reviews Figure A. Tax software reviews   You can use Figure A, next, as a quick guide to see whether your points are fully deductible in the year paid. Tax software reviews    Please click here for the text description of the image. Tax software reviews Figure A. Tax software reviews Are my points fully deductible this year? Amounts charged for services. Tax software reviews   Amounts charged by the lender for specific services connected to the loan are not interest. Tax software reviews Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. Tax software reviews You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. Tax software reviews For information about the tax treatment of these amounts and other settlement fees and closing costs, see Basis , later. Tax software reviews Points paid by the seller. Tax software reviews   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Tax software reviews Treatment by seller. Tax software reviews   The seller cannot deduct these fees as interest. Tax software reviews However, they are a selling expense that reduces the seller's amount realized. Tax software reviews See Publication 523 for more information. Tax software reviews Treatment by buyer. Tax software reviews   The buyer treats seller-paid points as if he or she had paid them. Tax software reviews If all the tests listed earlier under Exception are met, the buyer can deduct the points in the year paid. Tax software reviews If any of those tests are not met, the buyer must deduct the points over the life of the loan. Tax software reviews   The buyer must also reduce the basis of the home by the amount of the seller-paid points. Tax software reviews For more information about the basis of your home, see Basis , later. Tax software reviews Funds provided are less than points. Tax software reviews   If you meet all the tests listed earlier under Exception except that the funds you provided were less than the points charged to you (test 6), you can deduct the points in the year paid up to the amount of funds you provided. Tax software reviews In addition, you can deduct any points paid by the seller. Tax software reviews Example 1. Tax software reviews When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). Tax software reviews You meet all the tests for deducting points in the year paid (see Exception , earlier), except the only funds you provided were a $750 down payment. Tax software reviews Of the $1,000 you were charged for points, you can deduct $750 in the year paid. Tax software reviews You spread the remaining $250 over the life of the mortgage. Tax software reviews Example 2. Tax software reviews The facts are the same as in Example 1 , except that the person who sold you your home also paid one point ($1,000) to help you get your mortgage. Tax software reviews In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). Tax software reviews You spread the remaining $250 over the life of the mortgage. Tax software reviews You must reduce the basis of your home by the $1,000 paid by the seller. Tax software reviews Excess points. Tax software reviews   If you meet all the tests under Exception , earlier, except that the points paid were more than are generally charged in your area (test 3), you can deduct in the year paid only the points that are generally charged. Tax software reviews You must spread any additional points over the life of the mortgage. Tax software reviews Mortgage ending early. Tax software reviews   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. Tax software reviews A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Tax software reviews Example. Tax software reviews Dan paid $3,000 in points in 2006 that he had to spread out over the 15-year life of the mortgage. Tax software reviews He had deducted $1,400 of these points through 2012. Tax software reviews Dan prepaid his mortgage in full in 2013. Tax software reviews He can deduct the remaining $1,600 of points in 2013. Tax software reviews Exception. Tax software reviews   If you refinance the mortgage with the same lender, you cannot deduct any remaining points for the year. Tax software reviews Instead, deduct them over the term of the new loan. Tax software reviews Form 1098. Tax software reviews   The mortgage interest statement you receive should show not only the total interest paid during the year, but also your deductible points paid during the year. Tax software reviews See Mortgage Interest Statement , later. Tax software reviews Where To Deduct Home Mortgage Interest Enter on Schedule A (Form 1040), line 10, the home mortgage interest and points reported to you on Form 1098 (discussed next). Tax software reviews If you did not receive a Form 1098, enter your deductible interest on line 11, and any deductible points on line 12. Tax software reviews See Table 1 below for a summary of where to deduct home mortgage interest and real estate taxes. Tax software reviews If you paid home mortgage interest to the person from whom you bought your home, show that person's name, address, and social security number (SSN) or employer identification number (EIN) on the dotted lines next to line 11. Tax software reviews The seller must give you this number and you must give the seller your SSN. Tax software reviews Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Tax software reviews Failure to meet either of these requirements may result in a $50 penalty for each failure. Tax software reviews Table 1. Tax software reviews Where To Deduct Interest and Taxes Paid on Your Home See the text for information on what expenses are eligible. Tax software reviews IF you are eligible to deduct . Tax software reviews . Tax software reviews . Tax software reviews THEN report the amount  on Schedule A (Form 1040) . Tax software reviews . Tax software reviews . Tax software reviews real estate taxes line 6. Tax software reviews home mortgage interest and points reported on Form 1098 line 10. Tax software reviews home mortgage interest not reported on  Form 1098 line 11. Tax software reviews points not reported on Form 1098 line 12. Tax software reviews qualified mortgage insurance premiums line 13. Tax software reviews Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) during the year on any one mortgage to a mortgage holder in the course of that holder's trade or business, you should receive a Form 1098 or similar statement from the mortgage holder. Tax software reviews The statement will show the total interest paid on your mortgage during the year. Tax software reviews If you bought a main home during the year, it also will show the deductible points you paid and any points you can deduct that were paid by the person who sold you your home. Tax software reviews See Points , earlier. Tax software reviews The interest you paid at settlement should be included on the statement. Tax software reviews If it is not, add the interest from the settlement sheet that qualifies as home mortgage interest to the total shown on Form 1098 or similar statement. Tax software reviews Put the total on Schedule A (Form 1040), line 10, and attach a statement to your return explaining the difference. Tax software reviews Write “See attached” to the right of line 10. Tax software reviews A mortgage holder can be a financial institution, a governmental unit, or a cooperative housing corporation. Tax software reviews If a statement comes from a cooperative housing corporation, it generally will show your share of interest. Tax software reviews Your mortgage interest statement for 2013 should be provided or sent to you by January 31, 2014. Tax software reviews If it is mailed, you should allow adequate time to receive it before contacting the mortgage holder. Tax software reviews A copy of this form will be sent to the IRS also. Tax software reviews Example. Tax software reviews You bought a new home on May 3. Tax software reviews You paid no points on the purchase. Tax software reviews During the year, you made mortgage payments which included $4,480 deductible interest on your new home. Tax software reviews The settlement sheet for the purchase of the home included interest of $620 for 29 days in May. Tax software reviews The mortgage statement you receive from the lender includes total interest of $5,100 ($4,480 + $620). Tax software reviews You can deduct the $5,100 if you itemize your deductions. Tax software reviews Refund of overpaid interest. Tax software reviews   If you receive a refund of mortgage interest you overpaid in a prior year, you generally will receive a Form 1098 showing the refund in box 3. Tax software reviews Generally, you must include the refund in income in the year you receive it. Tax software reviews See Refund of home mortgage interest , earlier, under Home Mortgage Interest. Tax software reviews More than one borrower. Tax software reviews   If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on a mortgage that was for your home, and the other person received a Form 1098 showing the interest that was paid during the year, attach a statement to your return explaining this. Tax software reviews Show how much of the interest each of you paid, and give the name and address of the person who received the form. Tax software reviews Deduct your share of the interest on Schedule A (Form 1040), line 11, and write “See attached” to the right of that line. Tax software reviews Mortgage Insurance Premiums You may be able to take an itemized deduction on Schedule A (Form 1040), line 13, for premiums you pay or accrue during 2013 for qualified mortgage insurance in connection with home acquisition debt on your qualified home. Tax software reviews Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as an itemized deduction. Tax software reviews Qualified Mortgage Insurance Qualified mortgage insurance is mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, or the Rural Housing Administration, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). Tax software reviews Prepaid mortgage insurance premiums. Tax software reviews   If you paid premiums that are allocable to periods after 2013, you must allocate them over the shorter of: The stated term of the mortgage, or 84 months, beginning with the month the insurance was obtained. Tax software reviews The premiums are treated as paid in the year to which they were allocated. Tax software reviews If the mortgage is satisfied before its term, no deduction is allowed for the unamortized balance. Tax software reviews See Publication 936 for details. Tax software reviews Exception for certain mortgage insurance. Tax software reviews   The allocation rules, explained above, do not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or Rural Housing Service. Tax software reviews Home Acquisition Debt Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home. Tax software reviews It also must be secured by that home. Tax software reviews If the amount of your mortgage is more than the cost of the home plus the cost of any substantial improvements, only the debt that is not more than the cost of the home plus improvements qualifies as home acquisition debt. Tax software reviews Home acquisition debt limit. Tax software reviews   The total amount you can treat as home acquisition debt at any time on your home cannot be more than $1 million ($500,000 if married filing separately). Tax software reviews Discharges of qualified principal residence indebtedness. Tax software reviews   You can exclude from gross income any discharges of qualified principal residence indebtedness made after 2006 and before 2014. Tax software reviews You must reduce the basis of your principal residence (but not below zero) by the amount you exclude. Tax software reviews Principal residence. Tax software reviews   Your principal residence is the home where you ordinarily live most of the time. Tax software reviews You can have only one principal residence at any one time. Tax software reviews Qualified principal residence indebtedness. Tax software reviews   This is a mortgage that you took out to buy, build, or substantially improve your principal residence and that is secured by that residence. Tax software reviews If the amount of your original mortgage is more than the cost of your principal residence plus the cost of substantial improvements, qualified principal residence indebtedness cannot be more than the cost of your principal residence plus improvements. Tax software reviews   Any debt secured by your principal residence that you use to refinance qualified principal residence indebtedness is qualified principal residence indebtedness up to the amount of your old mortgage principal just before the refinancing. Tax software reviews Additional debt incurred to substantially improve your principal residence is also qualified principal residence indebtedness. Tax software reviews Amount you can exclude. Tax software reviews   You can only exclude debt discharged after 2006 and before 2014. Tax software reviews The most you can exclude is $2 million ($1 million if married filing separately). Tax software reviews You cannot exclude any amount that was discharged because of services performed for the lender or on account of any other factor not directly related either to a decline in the value of your residence or to your financial condition. Tax software reviews Ordering rule. Tax software reviews   If only a part of a loan is qualified principal residence indebtedness, you can exclude only the amount of the discharge that is more than the amount of the loan (immediately before the discharge) that is not qualified principal residence indebtedness. Tax software reviews Qualified Home This means your main home or your second home. Tax software reviews A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. Tax software reviews Main home. Tax software reviews   You can have only one main home at any one time. Tax software reviews This is the home where you ordinarily live most of the time. Tax software reviews Second home and other special situations. Tax software reviews   If you have a second home, use part of your home for other than residential living (such as a home office), rent out part of your home, or are having your home constructed, see Qualified Home in Publication 936. Tax software reviews Limit on Deduction If your adjusted gross income (AGI) on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are deductible is reduced and may be eliminated. Tax software reviews See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. Tax software reviews If your AGI is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. Tax software reviews Form 1098. Tax software reviews   The amount of mortgage insurance premiums you paid during 2013 should be reported in box 4. Tax software reviews See Form 1098, Mortgage Interest Statement in Publication 936. Tax software reviews Mortgage Interest Credit The mortgage interest credit is intended to help lower-income individuals afford home ownership. Tax software reviews If you qualify, you can claim the credit on Form 8396 each year for part of the home mortgage interest you pay. Tax software reviews Who qualifies. Tax software reviews   You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate (MCC) from your state or local government. Tax software reviews Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. Tax software reviews The MCC will show the certificate credit rate you will use to figure your credit. Tax software reviews It also will show the certified indebtedness amount. Tax software reviews Only the interest on that amount qualifies for the credit. Tax software reviews See Figuring the Credit , later. Tax software reviews You must contact the appropriate government agency about getting an MCC before you get a mortgage and buy your home. Tax software reviews Contact your state or local housing finance agency for information about the availability of MCCs in your area. Tax software reviews How to claim the credit. Tax software reviews   To claim the credit, complete Form 8396 and attach it to your Form 1040 or Form 1040NR, U. Tax software reviews S. Tax software reviews Nonresident Alien Income Tax Return. Tax software reviews Include the credit in your total for Form 1040, line 53, or Form 1040NR, line 50; be sure to check box c and write “Form 8396” on that line. Tax software reviews Reducing your home mortgage interest deduction. Tax software reviews   If you itemize your deductions on Schedule A (Form 1040), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on Form 8396, line 3. Tax software reviews You must do this even if part of that amount is to be carried forward to 2014. Tax software reviews Selling your home. Tax software reviews   If you purchase a home after 1990 using an MCC, and you sell that home within 9 years, you may have to recapture (repay) all or part of the benefit you received from the MCC program. Tax software reviews For additional information, see Recapturing (Paying Back) a Federal Mortgage Subsidy, in Publication 523. Tax software reviews Figuring the Credit Figure your credit on Form 8396. Tax software reviews Mortgage not more than certified indebtedness. Tax software reviews   If your mortgage loan amount is equal to (or smaller than) the certified indebtedness amount shown on your MCC, enter on Form 8396, line 1, all the interest you paid on your mortgage during the year. Tax software reviews Mortgage more than certified indebtedness. Tax software reviews   If your mortgage loan amount is larger than the certified indebtedness amount shown on your MCC, you can figure the credit on only part of the interest you paid. Tax software reviews To find the amount to enter on line 1, multiply the total interest you paid during the year on your mortgage by the following fraction. Tax software reviews Certified indebtedness amount on your MCC Original amount of your mortgage   The fraction will not change as long as you are entitled to take the mortgage interest credit. Tax software reviews Example. Tax software reviews Emily bought a home this year. Tax software reviews Her mortgage loan is $125,000. Tax software reviews The certified indebtedness amount on her MCC is $100,000. Tax software reviews She paid $7,500 interest this year. Tax software reviews Emily figures the interest to enter on Form 8396, line 1, as follows:   $100,000 = 80% (. Tax software reviews 80)       $125,000       $7,500 x . Tax software reviews 80 = $6,000   Emily enters $6,000 on Form 8396, line 1. Tax software reviews In each later year, she will figure her credit using only 80% of the interest she pays for that year. Tax software reviews Limits Two limits may apply to your credit. Tax software reviews A limit based on the credit rate, and A limit based on your tax. Tax software reviews Limit based on credit rate. Tax software reviews   If the certificate credit rate is higher than 20%, the credit you are allowed cannot be more than $2,000. Tax software reviews Limit based on tax. Tax software reviews   After applying the limit based on the credit rate, your credit generally cannot be more than your tax liability. Tax software reviews See the Credit Limit Worksheet in the Form 8396 instructions to calculate the limit based on tax. Tax software reviews Dividing the Credit If two or more persons (other than a married couple filing a joint return) hold an interest in the home to which the MCC relates, the credit must be divided based on the interest held by each person. Tax software reviews Example. Tax software reviews John and his brother, George, were issued an MCC. Tax software reviews They used it to get a mortgage on their main home. Tax software reviews John has a 60% ownership interest in the home, and George has a 40% ownership interest in the home. Tax software reviews John paid $5,400 mortgage interest this year and George paid $3,600. Tax software reviews The MCC shows a credit rate of 25% and a certified indebtedness amount of $130,000. Tax software reviews The loan amount (mortgage) on their home is $120,000. Tax software reviews The credit is limited to $2,000 because the credit rate is more than 20%. Tax software reviews John figures the credit by multiplying the mortgage interest he paid this year ($5,400) by the certificate credit rate (25%) for a total of $1,350. Tax software reviews His credit is limited to $1,200 ($2,000 × 60%). Tax software reviews George figures the credit by multiplying the mortgage interest he paid this year ($3,600) by the certificate credit rate (25%) for a total of $900. Tax software reviews His credit is limited to $800 ($2,000 × 40%). Tax software reviews Carryforward If your allowable credit is reduced because of the limit based on your tax, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first. Tax software reviews Example. Tax software reviews You receive a mortgage credit certificate from State X. Tax software reviews This year, your regular tax liability is $1,100, you owe no alternative minimum tax, and your mortgage interest credit is $1,700. Tax software reviews You claim no other credits. Tax software reviews Your unused mortgage interest credit for this year is $600 ($1,700 − $1,100). Tax software reviews You can carry forward this amount to the next 3 years or until used, whichever comes first. Tax software reviews Credit rate more than 20%. Tax software reviews   If you are subject to the $2,000 limit because your certificate credit rate is more than 20%, you cannot carry forward any amount more than $2,000 (or your share of the $2,000 if you must divide the credit). Tax software reviews Example. Tax software reviews In the earlier example under Dividing the Credit , John and George used the entire $2,000 credit. Tax software reviews The excess   John $1,350 − $1,200 = $150     George $900 − $800 = $100   $150 for John ($1,350 − $1,200) and $100 for George ($900 − $800) cannot be carried forward to future years, despite the respective tax liabilities for John and George. Tax software reviews Refinancing If you refinance your original mortgage loan on which you had been given an MCC, you must get a new MCC to be able to claim the credit on the new loan. Tax software reviews The amount of credit you can claim on the new loan may change. Tax software reviews Table 2 below summarizes how to figure your credit if you refinance your original mortgage loan. Tax software reviews Table 2. Tax software reviews Effect of Refinancing on Your Credit IF you get a new (reissued) MCC and the amount of your new mortgage is . Tax software reviews . Tax software reviews . Tax software reviews THEN the interest you claim on Form 8396, line 1, is* . Tax software reviews . Tax software reviews . Tax software reviews smaller than or equal to the certified indebtedness amount on the new MCC all the interest paid during the year on your new mortgage. Tax software reviews larger than the certified indebtedness amount on the new MCC interest paid during the year on your new mortgage multiplied by the following fraction. Tax software reviews         certified indebtedness  amount on your new MCC       original amount of your  mortgage   *The credit using the new MCC cannot be more than the credit using the old MCC. Tax software reviews  See New MCC cannot increase your credit above. Tax software reviews An issuer may reissue an MCC after you refinance your mortgage. Tax software reviews If you did not get a new MCC, you may want to contact the state or local housing finance agency that issued your original MCC for information about whether you can get a reissued MCC. Tax software reviews Year of refinancing. Tax software reviews   In the year of refinancing, add the applicable amount of interest paid on the old mortgage and the applicable amount of interest paid on the new mortgage, and enter the total on Form 8396, line 1. Tax software reviews   If your new MCC has a credit rate different from the rate on the old MCC, you must attach a statement to Form 8396. Tax software reviews The statement must show the calculation for lines 1, 2, and 3 for the part of the year when the old MCC was in effect. Tax software reviews It must show a separate calculation for the part of the year when the new MCC was in effect. Tax software reviews Combine the amounts from both calculations for line 3, enter the total on line 3 of the form, and write “See attached” on the dotted line next to line 2. Tax software reviews New MCC cannot increase your credit. Tax software reviews   The credit that you claim with your new MCC cannot be more than the credit that you could have claimed with your old MCC. Tax software reviews   In most cases, the agency that issues your new MCC will make sure that it does not increase your credit. Tax software reviews However, if either your old loan or your new loan has a variable (adjustable) interest rate, you will need to check this yourself. Tax software reviews In that case, you will need to know the amount of the credit you could have claimed using the old MCC. Tax software reviews   There are two methods for figuring the credit you could have claimed. Tax software reviews Under one method, you figure the actual credit that would have been allowed. Tax software reviews This means you use the credit rate on the old MCC and the interest you would have paid on the old loan. Tax software reviews   If your old loan was a variable rate mortgage, you can use another method to determine the credit that you could have claimed. Tax software reviews Under this method, you figure the credit using a payment schedule of a hypothetical self-amortizing mortgage with level payments projected to the final maturity date of the old mortgage. Tax software reviews The interest rate of the hypothetical mortgage is the annual percentage rate (APR) of the new mortgage for purposes of the Federal Truth in Lending Act. Tax software reviews The principal of the hypothetical mortgage is the remaining outstanding balance of the certified mortgage indebtedness shown on the old MCC. Tax software reviews    You must choose one method and use it consistently beginning with the first tax year for which you claim the credit based on the new MCC. Tax software reviews    As part of your tax records, you should keep your old MCC and the schedule of payments for your old mortgage. Tax software reviews Basis Basis is your starting point for figuring a gain or loss if you later sell your home, or for figuring depreciation if you later use part of your home for business purposes or for rent. Tax software reviews While you own your home, you may add certain items to your basis. Tax software reviews You may subtract certain other items from your basis. Tax software reviews These items are called adjustments to basis and are explained later under Adjusted Basis . Tax software reviews It is important that you understand these terms when you first acquire your home because you must keep track of your basis and adjusted basis during the period you own your home. Tax software reviews You also must keep records of the events that affect basis or adjusted basis. Tax software reviews See Keeping Records , below. Tax software reviews Figuring Your Basis How you figure your basis depends on how you acquire your home. Tax software reviews If you buy or build your home, your cost is your basis. Tax software reviews If you receive your home as a gift, your basis is usually the same as the adjusted basis of the person who gave you the property. Tax software reviews If you inherit your home from a decedent, different rules apply depending on the date of the decedent's death. Tax software reviews Each of these topics is discussed later. Tax software reviews Property transferred from a spouse. Tax software reviews   If your home is transferred to you from your spouse, or from your former spouse as a result of a divorce, your basis is the same as your spouse's (or former spouse's) adjusted basis just before the transfer. Tax software reviews Publication 504, Divorced or Separated Individuals, fully discusses transfers between spouses. Tax software reviews Cost as Basis The cost of your home, whether you purchased it or constructed it, is the amount you paid for it, including any debt you assumed. Tax software reviews The cost of your home includes most settlement or closing costs you paid when you bought the home. Tax software reviews If you built your home, your cost includes most closing costs paid when you bought the land or settled on your mortgage. Tax software reviews See Settlement or closing costs , later. Tax software reviews If you elect to deduct the sales taxes on the purchase or construction of your home as an itemized deduction on Schedule A (Form 1040), you cannot include the sales taxes as part of your cost basis in the home. Tax software reviews Purchase. Tax software reviews   The basis of a home you bought is the amount you paid for it. Tax software reviews This usually includes your down payment and any debt you assumed. Tax software reviews The basis of a cooperative apartment is the amount you paid for your shares in the corporation that owns or controls the property. Tax software reviews This amount includes any purchase commissions or other costs of acquiring the shares. Tax software reviews Construction. Tax software reviews   If you contracted to have your home built on land that you own, your basis in the home is your basis in the land plus the amount you paid to have the home built. Tax software reviews This includes the cost of labor and materials, the amount you paid the contractor, any architect's fees, building permit charges, utility meter and connection charges, and legal fees that are directly connected with building your home. Tax software reviews If you built all or part of your home yourself, your basis is the total amount it cost you to build it. Tax software reviews You cannot include in basis the value of your own labor or any other labor for which you did not pay. Tax software reviews Real estate taxes. Tax software reviews   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. Tax software reviews See the earlier discussion of Real estate taxes paid at settlement or closing , under Real Estate Taxes, earlier, to figure the real estate taxes you paid or are considered to have paid. Tax software reviews   If you pay any part of the seller's share of the real estate taxes (the taxes up to the date of sale), and the seller did not reimburse you, add those taxes to your basis in the home. Tax software reviews You cannot deduct them as taxes paid. Tax software reviews   If the seller paid any of your share of the real estate taxes (the taxes beginning with the date of sale), you can still deduct those taxes. Tax software reviews Do not include those taxes in your basis. Tax software reviews If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Tax software reviews Example 1. Tax software reviews You bought your home on September 1. Tax software reviews The property tax year in your area is the calendar year, and the tax is due on August 15. Tax software reviews The real estate taxes on the home you bought were $1,275 for the year and had been paid by the seller on August 15. Tax software reviews You did not reimburse the seller for your share of the real estate taxes from September 1 through December 31. Tax software reviews You must reduce the basis of your home by the $426 [(122 ÷ 365) × $1,275] the seller paid for you. Tax software reviews You can deduct your $426 share of real estate taxes on your return for the year you purchased your home. Tax software reviews Example 2. Tax software reviews You bought your home on May 3, 2013. Tax software reviews The property tax year in your area is the calendar year. Tax software reviews The taxes for the previous year are assessed on January 2 and are due on May 31 and November 30. Tax software reviews Under state law, the taxes become a lien on May 31. Tax software reviews You agreed to pay all taxes due after the date of sale. Tax software reviews The taxes due in 2013 for 2012 were $1,375. Tax software reviews The taxes due in 2014 for 2013 will be $1,425. Tax software reviews You cannot deduct any of the taxes paid in 2013 because they relate to the 2012 property tax year and you did not own the home until 2013. Tax software reviews Instead, you add the $1,375 to the cost (basis) of your home. Tax software reviews You owned the home in 2013 for 243 days (May 3 to December 31), so you can take a tax deduction on your 2014 return of $949 [(243 ÷ 365) × $1,425] paid in 2014 for 2013. Tax software reviews You add the remaining $476 ($1,425 − $949) of taxes paid in 2014 to the cost (basis) of your home. Tax software reviews Settlement or closing costs. Tax software reviews   If you bought your home, you probably paid settlement or closing costs in addition to the contract price. Tax software reviews These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. Tax software reviews If you built your home, you probably paid these costs when you bought the land or settled on your mortgage. Tax software reviews   The only settlement or closing costs you can deduct are home mortgage interest and certain real estate taxes. Tax software reviews You deduct them in the year you buy your home if you itemize your deductions. Tax software reviews You can add certain other settlement or closing costs to the basis of your home. Tax software reviews Items added to basis. Tax software reviews   You can include in your basis the settlement fees and closing costs you paid for buying your home. Tax software reviews A fee is for buying the home if you would have had to pay it even if you paid cash for the home. Tax software reviews   The following are some of the settlement fees and closing costs that you can include in the original basis of your home. Tax software reviews Abstract fees (abstract of title fees). Tax software reviews Charges for installing utility services. Tax software reviews Legal fees (including fees for the title search and preparation of the sales contract and deed). Tax software reviews Recording fees. Tax software reviews Surveys. Tax software reviews Transfer or stamp taxes. Tax software reviews Owner's title insurance. Tax software reviews 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. Tax software reviews   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. Tax software reviews Items not added to basis and not deductible. Tax software reviews   Here are some settlement and closing costs that you cannot deduct or add to your basis. Tax software reviews Fire insurance premiums. Tax software reviews Charges for using utilities or other services related to occupancy of the home before closing. Tax software reviews Rent for occupying the home before closing. Tax software reviews Charges connected with getting or refinancing a mortgage loan, such as: Loan assumption fees, Cost of a credit report, and Fee for an appraisal required by a lender. Tax software reviews Points paid by seller. Tax software reviews   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. Tax software reviews   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. Tax software reviews See Points , earlier, for the rules on deducting points. Tax software reviews Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined later) to the donor just before it was given to you, its fair market value (FMV) at the time it was given to you, and any gift tax paid on it. Tax software reviews Fair market value. Tax software reviews   Fair market value (FMV) is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and who both have a reasonable knowledge of all the necessary facts. Tax software reviews Donor's adjusted basis is more than FMV. Tax software reviews   If someone gave you your home and the donor's adjusted basis, when it was given to you, was more than the FMV, your basis at the time of receipt is the same as the donor's adjusted basis. Tax software reviews Disposition basis. Tax software reviews   If the donor's adjusted basis at the time of the gift is more than the FMV, your basis (plus or minus any required adjustments, see Adjusted Basis , later) when you dispose of the property will depend on whether you have a gain or a loss. Tax software reviews Your basis for figuring a gain is the same as the donor's adjusted basis. Tax software reviews Your basis for figuring a loss is the FMV when you received the gift. Tax software reviews If you use the donor's adjusted basis to figure a gain and it results in a loss, then you must use the FMV (at the time of the gift) to refigure the loss. Tax software reviews However, if using the FMV results in a gain, then you neither have a gain nor a loss. Tax software reviews Example 1. Tax software reviews Andrew received a house as a gift from Ishmael (the donor). Tax software reviews At the time of the gift, the home had an FMV of $80,000. Tax software reviews Ishmael's adjusted basis was $100,000. Tax software reviews After he received the house, no events occurred to increase or decrease the basis. Tax software reviews If Andrew sells the house for $120,000, he will have a $20,000 gain because he must use the donor's adjusted basis ($100,000) at the time of the gift as his basis to figure the gain. Tax software reviews Example 2. Tax software reviews Same facts as Example 1 , except this time Andrew sells the house for $70,000. Tax software reviews He will have a loss of $10,000 because he must use the FMV ($80,000) at the time of the gift as his basis to figure the loss. Tax software reviews Example 3. Tax software reviews Same facts as Example 1 , except this time Andrew sells the house for $90,000. Tax software reviews Initially, he figures the gain using Ishmael's adjusted basis ($100,000), which results in a loss of $10,000. Tax software reviews Since it is a loss, Andrew must now recalculate the loss using the FMV ($80,000), which results in a gain of $10,000. Tax software reviews So in this situation, Andrew will neither have a gain nor a loss. Tax software reviews Donor's adjusted basis equal to or less than the FMV. Tax software reviews   If someone gave you your home after 1976 and the donor's adjusted basis, when it was given to you, was equal to or less than the FMV, your basis at the time of receipt is the same as the donor's adjusted basis, plus the part of any federal gift tax paid that is due to the net increase in value of the home. Tax software reviews Part of federal gift tax due to net increase in value. Tax software reviews   Figure the part of the federal gift tax paid that is due to the net increase in value of the home by multiplying the total federal gift tax paid by a fraction. Tax software reviews The numerator (top part) of the fraction is the net increase in the value of the home, and the denominator (bottom part) is the value of the home for gift tax purposes after reduction for any annual exclusion and marital or charitable deduction that applies to the gift. Tax software reviews The net increase in the value of the home is its FMV minus the adjusted basis of the donor. Tax software reviews Publication 551 gives more information, including examples, on figuring your basis when you receive property as a gift. Tax software reviews Inheritance Your basis in a home you inherited is generally the fair market value of the home on the date of the decedent's death or on the alternative valuation date if the personal representative for the estate chooses to use alternative valuation. Tax software reviews If an estate tax return was filed, your basis is generally the value of the home listed on the estate tax return. Tax software reviews If an estate tax return was not filed, your basis is the appraised value of the home at the decedent's date of death for state inheritance or transmission taxes. Tax software reviews Publication 551 and Publication 559, Survivors, Executors, and Administrators, have more information on the basis of inherited property. Tax software reviews If you inherited your home from someone who died in 2010, and the executor of the decedent's estate made the election to file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Tax software reviews Adjusted Basis While you own your home, various events may take place that can change the original basis of your home. Tax software reviews These events can increase or decrease your original basis. Tax software reviews The result is called adjusted basis. Tax software reviews See Table 3, on this page, for a list of some of the items that can adjust your basis. Tax software reviews Table 3. Tax software reviews Adjusted Basis This table lists examples of some items that generally will increase or decrease your basis in your home. Tax software reviews It is not intended to be all-inclusive. Tax software reviews Increases to Basis Decreases to Basis Improvements: Putting an addition on your home Replacing an entire roof Paving your driveway Installing central air conditioning Rewiring your home Assessments for local improvements (see Assessments for local benefits , under What You Can and Cannot Deduct, earlier) Amounts spent to restore damaged property Insurance or other reimbursement for casualty losses Deductible casualty loss not covered by insurance Payments received for easement or right-of-way granted Depreciation allowed or allowable if home is used for business or rental purposes Value of subsidy for energy conservation measure excluded from income Improvements. Tax software reviews   An improvement materially adds to the value of your home, considerably prolongs its useful life, or adapts it to new uses. Tax software reviews You must add the cost of any improvements to the basis of your home. Tax software reviews You cannot deduct these costs. Tax software reviews   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, installing a new roof, and paving your driveway. Tax software reviews Amount added to basis. Tax software reviews   The amount you add to your basis for improvements is your actual cost. Tax software reviews This includes all costs for material and labor, except your own labor, and all expenses related to the improvement. Tax software reviews For example, if you had your lot surveyed to put up a fence, the cost of the survey is a part of the cost of the fence. Tax software reviews   You also must add to your basis state and local assessments for improvements such as streets and sidewalks if they increase the value of the property. Tax software reviews These assessments are discussed earlier under Real Estate Taxes . Tax software reviews Improvements no longer part of home. Tax software reviews    Your home's adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home. Tax software reviews Example. Tax software reviews You put wall-to-wall carpeting in your home 15 years ago. Tax software reviews Later, you replaced that carpeting with new wall-to-wall carpeting. Tax software reviews The cost of the old carpeting you replaced is no longer part of your home's adjusted basis. Tax software reviews Repairs versus improvements. Tax software reviews   A repair keeps your home in an ordinary, efficient operating condition. Tax software reviews It does not add to the value of your home or prolong its life. Tax software reviews Repairs include repainting your home inside or outside, fixing your gutters or floors, fixing leaks or plastering, and replacing broken window panes. Tax software reviews You cannot deduct repair costs and generally cannot add them to the basis of your home. Tax software reviews   However, repairs that are done as part of an extensive remodeling or restoration of your home are considered improvements. Tax software reviews You add them to the basis of your home. Tax software reviews Records to keep. Tax software reviews   You can use Table 4 (at the end of the publication) as a guide to help you keep track of improvements to your home. Tax software reviews Also see Keeping Records , below. Tax software reviews Energy conservation subsidy. Tax software reviews   If a public utility gives you (directly or indirectly) a subsidy for the purchase or installation of an energy conservation measure for your home, do not include the value of that subsidy in your income. Tax software reviews You must reduce the basis of your home by that value. Tax software reviews   An energy conservation measure is an installation or modification primarily designed to reduce consumption of electricity or natural gas or to improve the management of energy demand. Tax software reviews Keeping Records Keeping full and accurate records is vital to properly report your income and expenses, to support your deductions and credits, and to know the basis or adjusted basis of your home. Tax software reviews These records include your purchase contract and settlement papers if you bought the property, or other objective evidence if you acquired it by gift, inheritance, or similar means. Tax software reviews You should keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis. Tax software reviews In addition, you should keep track of any decreases to the basis such as those listed in Table 3, earlier. Tax software reviews How to keep records. Tax software reviews   How you keep records is up to you, but they must be clear and accurate and must be available to the IRS. Tax software reviews How long to keep records. Tax software reviews   You must keep your records for as long as they are important for meeting any provision of the federal tax law. Tax software reviews   Keep records that support an item of income, a deduction, or a credit appearing on a return until the period of limitations for the return runs out. Tax software reviews (A period of limitations is the period of time after which no legal action can be brought. Tax software reviews ) For assessment of tax you owe, this is generally 3 years from the date you filed the return. Tax software reviews For filing a claim for credit or refund, this is generally 3 years from the date you filed the original return, or 2 years from the date you paid the tax, whichever is later. Tax software reviews Returns filed before the due date are treated as filed on the due date. Tax software reviews   You may need to keep records relating to the basis of property (discussed earlier) for longer than the period of limitations. Tax software reviews Keep those records as long as they are important in figuring the basis of the original or replacement property. Tax software reviews Generally, this means for as long as you own the property and, after you dispose of it, for the period of limitations that applies to you. Tax software reviews Table 4. Tax software reviews Record of Home Improvements Keep this for your records. Tax software reviews Also, keep receipts or other proof of improvements. Tax software reviews Remove from this record any improvements that are no longer part of your main home. Tax software reviews For example, if you put wall-to-wall carpeting in your home and later replace it with new wall-to-wall carpeting, remove the cost of the first carpeting. Tax software reviews (a) Type of Improvement (b) Date (c) Amount   (a) Type of Improvement (b) Date (c) Amount Additions:       Heating & Air  Conditioning:     Bedroom       Heating system     Bathroom       Central air conditioning     Deck       Furnace     Garage       Duct work     Porch       Central humidifier     Patio       Filtration system     Storage shed       Other     Fireplace       Electrical:     Other           Lawn & Grounds:       Lighting fixtures           Wiring upgrades     Landscaping       Other     Driveway       Plumbing:     Walkway           Fences       Water heater     Retaining wall       Soft water system     Sprinkler system       Filtration system     Swimming pool       Other     Exterior lighting       Insulation:     Other           Communications:       Attic           Walls     Satellite dish       Floors     Intercom       Pipes and duct work     Security system       Other     Other             Miscellaneous:       Interior  Improvements:     Storm windows and doors       Built-in appliances     Roof       Kitchen modernization     Central vacuum       Bathroom modernization     Other       Flooring             Wall-to-wall carpeting             Other     How To