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Www 1040 com 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. Www 1040 com S. Www 1040 com Individual Income Tax Return, and itemize your deductions on Schedule A (Form 1040). Www 1040 com If you itemize, you cannot take the standard deduction. Www 1040 com This section explains what expenses you can deduct as a homeowner. Www 1040 com It also points out expenses that you cannot deduct. Www 1040 com There are four primary discussions: real estate taxes, sales taxes, home mortgage interest, and mortgage insurance premiums. Www 1040 com Generally, your real estate taxes, home mortgage interest, and mortgage insurance premiums are included in your house payment. Www 1040 com Your house payment. Www 1040 com   If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. Www 1040 com Your house payment may include several costs of owning a home. Www 1040 com 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. Www 1040 com These are discussed in more detail later. Www 1040 com   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. Www 1040 com Minister's or military housing allowance. Www 1040 com   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. Www 1040 com You do not have to reduce your deductions by your nontaxable allowance. Www 1040 com 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. Www 1040 com Nondeductible payments. Www 1040 com   You cannot deduct any of the following items. Www 1040 com Insurance (other than mortgage insurance premiums), including fire and comprehensive coverage, and title insurance. Www 1040 com Wages you pay for domestic help. Www 1040 com Depreciation. Www 1040 com The cost of utilities, such as gas, electricity, or water. Www 1040 com Most settlement costs. Www 1040 com See Settlement or closing costs under Cost as Basis, later, for more information. Www 1040 com Forfeited deposits, down payments, or earnest money. Www 1040 com 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. Www 1040 com 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. Www 1040 com 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. Www 1040 com 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). Www 1040 com 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. Www 1040 com Real Estate Taxes Most state and local governments charge an annual tax on the value of real property. Www 1040 com This is called a real estate tax. Www 1040 com You can deduct the tax if it is assessed uniformly at a like rate on all real property throughout the community. Www 1040 com 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. Www 1040 com Deductible Real Estate Taxes You can deduct real estate taxes imposed on you. Www 1040 com 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. Www 1040 com If you own a cooperative apartment, see Special Rules for Cooperatives , later. Www 1040 com Where to deduct real estate taxes. Www 1040 com   Enter the amount of your deductible real estate taxes on Schedule A (Form 1040), line 6. Www 1040 com Real estate taxes paid at settlement or closing. Www 1040 com   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. Www 1040 com Your share of these taxes is fully deductible if you itemize your deductions. Www 1040 com Division of real estate taxes. Www 1040 com   For federal income tax purposes, the seller is treated as paying the property taxes up to, but not including, the date of sale. Www 1040 com You (the buyer) are treated as paying the taxes beginning with the date of sale. Www 1040 com This applies regardless of the lien dates under local law. Www 1040 com Generally, this information is included on the settlement statement you get at closing. Www 1040 com   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. Www 1040 com You each can deduct your own share, if you itemize deductions, for the year the property is sold. Www 1040 com Example. Www 1040 com You bought your home on September 1. Www 1040 com The property tax year (the period to which the tax relates) in your area is the calendar year. Www 1040 com The tax for the year was $730 and was due and paid by the seller on August 15. Www 1040 com You owned your new home during the property tax year for 122 days (September 1 to December 31, including your date of purchase). Www 1040 com You figure your deduction for real estate taxes on your home as follows. Www 1040 com 1. Www 1040 com Enter the total real estate taxes for the real property tax year $730 2. Www 1040 com Enter the number of days in the property tax year that you owned the property 122 3. Www 1040 com Divide line 2 by 365 . Www 1040 com 3342 4. Www 1040 com Multiply line 1 by line 3. Www 1040 com This is your deduction. Www 1040 com 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. Www 1040 com 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. Www 1040 com Delinquent taxes. Www 1040 com   Delinquent taxes are unpaid taxes that were imposed on the seller for an earlier tax year. Www 1040 com If you agree to pay delinquent taxes when you buy your home, you cannot deduct them. Www 1040 com You treat them as part of the cost of your home. Www 1040 com See Real estate taxes , later, under Basis. Www 1040 com Escrow accounts. Www 1040 com   Many monthly house payments include an amount placed in escrow (put in the care of a third party) for real estate taxes. Www 1040 com You may not be able to deduct the total you pay into the escrow account. Www 1040 com You can deduct only the real estate taxes that the lender actually paid from escrow to the taxing authority. Www 1040 com Your real estate tax bill will show this amount. Www 1040 com Refund or rebate of real estate taxes. Www 1040 com   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. Www 1040 com 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. Www 1040 com For more information, see Recoveries in Publication 525, Taxable and Nontaxable Income. Www 1040 com Items You Cannot Deduct as Real Estate Taxes The following items are not deductible as real estate taxes. Www 1040 com Charges for services. Www 1040 com   An itemized charge for services to specific property or people is not a tax, even if the charge is paid to the taxing authority. Www 1040 com 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). Www 1040 com    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. Www 1040 com If your taxing authority (or lender) does not furnish you a copy of your real estate tax bill, ask for it. Www 1040 com Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. Www 1040 com Assessments for local benefits. Www 1040 com   You cannot deduct amounts you pay for local benefits that tend to increase the value of your property. Www 1040 com Local benefits include the construction of streets, sidewalks, or water and sewer systems. Www 1040 com You must add these amounts to the basis of your property. Www 1040 com   You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. Www 1040 com An example is a charge to repair an existing sidewalk and any interest included in that charge. Www 1040 com   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. Www 1040 com If you cannot show what part of the assessment is for maintenance, repair, or interest charges, you cannot deduct any of it. Www 1040 com   An assessment for a local benefit may be listed as an item in your real estate tax bill. Www 1040 com If so, use the rules in this section to find how much of it, if any, you can deduct. Www 1040 com Transfer taxes (or stamp taxes). Www 1040 com   You cannot deduct transfer taxes and similar taxes and charges on the sale of a personal home. Www 1040 com If you are the buyer and you pay them, include them in the cost basis of the property. Www 1040 com If you are the seller and you pay them, they are expenses of the sale and reduce the amount realized on the sale. Www 1040 com Homeowners association assessments. Www 1040 com   You cannot deduct these assessments because the homeowners association, rather than a state or local government, imposes them. Www 1040 com 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. Www 1040 com As an owner of a cooperative apartment, you own shares of stock in a corporation that owns or leases housing facilities. Www 1040 com 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. Www 1040 com For this purpose, gross income means all income received during the entire tax year, including any received before the corporation changed to cooperative ownership. Www 1040 com 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. Www 1040 com 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. Www 1040 com Tenant-stockholders. Www 1040 com   A tenant-stockholder can be any entity (such as a corporation, trust, estate, partnership, or association) as well as an individual. Www 1040 com The tenant-stockholder does not have to live in any of the cooperative's dwelling units. Www 1040 com The units that the tenant-stockholder has the right to occupy can be rented to others. Www 1040 com Deductible taxes. Www 1040 com   You figure your share of real estate taxes in the following way. Www 1040 com Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Www 1040 com Multiply the corporation's deductible real estate taxes by the number you figured in (1). Www 1040 com This is your share of the real estate taxes. Www 1040 com   Generally, the corporation will tell you your share of its real estate tax. Www 1040 com This is the amount you can deduct if it reasonably reflects the cost of real estate taxes for your dwelling unit. Www 1040 com Refund of real estate taxes. Www 1040 com   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. Www 1040 com Your deduction for real estate taxes the corporation paid this year is reduced by your share of the refund the corporation received. Www 1040 com 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). Www 1040 com 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. Www 1040 com For information on figuring your deduction, see the Instructions for Schedule A (Form 1040). Www 1040 com 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. Www 1040 com 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. Www 1040 com Most home buyers take out a mortgage (loan) to buy their home. Www 1040 com They then make monthly payments to either the mortgage holder or someone collecting the payments for the mortgage holder. Www 1040 com 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). Www 1040 com 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. Www 1040 com If either of these situations applies to you, see Publication 936 for more information. Www 1040 com Also see Publication 936 if you later refinance your mortgage or buy a second home. Www 1040 com Refund of home mortgage interest. Www 1040 com   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. Www 1040 com For more information, see Recoveries in Publication 525. Www 1040 com The amount of the refund will usually be shown on the mortgage interest statement you receive from your mortgage lender. Www 1040 com See Mortgage Interest Statement , later. Www 1040 com Deductible Mortgage Interest To be deductible, the interest you pay must be on a loan secured by your main home or a second home. Www 1040 com The loan can be a first or second mortgage, a home improvement loan, or a home equity loan. Www 1040 com Prepaid interest. Www 1040 com   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. Www 1040 com Generally, you can deduct in each year only the interest that qualifies as home mortgage interest for that year. Www 1040 com An exception (discussed later) applies to points. Www 1040 com Late payment charge on mortgage payment. Www 1040 com   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. Www 1040 com Mortgage prepayment penalty. Www 1040 com   If you pay off your home mortgage early, you may have to pay a penalty. Www 1040 com 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. Www 1040 com Ground rent. Www 1040 com   In some states (such as Maryland), you may buy your home subject to a ground rent. Www 1040 com A ground rent is an obligation you assume to pay a fixed amount per year on the property. Www 1040 com Under this arrangement, you are leasing (rather than buying) the land on which your home is located. Www 1040 com Redeemable ground rents. Www 1040 com   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct the payments as mortgage interest. Www 1040 com The ground rent is a redeemable ground rent only if all of the following are true. Www 1040 com Your lease, including renewal periods, is for more than 15 years. Www 1040 com You can freely assign the lease. Www 1040 com 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. Www 1040 com The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. Www 1040 com   Payments made to end the lease and buy the lessor's entire interest in the land are not redeemable ground rents. Www 1040 com You cannot deduct them. Www 1040 com Nonredeemable ground rents. Www 1040 com   Payments on a nonredeemable ground rent are not mortgage interest. Www 1040 com You can deduct them as rent only if they are a business expense or if they are for rental property. Www 1040 com Cooperative apartment. Www 1040 com   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 . Www 1040 com In addition, you can treat as home mortgage interest your share of the corporation's deductible mortgage interest. Www 1040 com 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. Www 1040 com For more information on cooperatives, see Special Rule for Tenant-Stockholders in Cooperative Housing Corporations in Publication 936. Www 1040 com Refund of cooperative's mortgage interest. Www 1040 com   You must reduce your mortgage interest deduction by your share of any cash portion of a patronage dividend that the cooperative receives. Www 1040 com The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. Www 1040 com   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. Www 1040 com Mortgage Interest Paid at Settlement One item that normally appears on a settlement or closing statement is home mortgage interest. Www 1040 com You can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). Www 1040 com This amount should be included in the mortgage interest statement provided by your lender. Www 1040 com See the discussion under Mortgage Interest Statement , later. Www 1040 com Also, if you pay interest in advance, see Prepaid interest , earlier, and Points , next. Www 1040 com Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Www 1040 com Points also may be called loan origination fees, maximum loan charges, loan discount, or discount points. Www 1040 com A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. Www 1040 com See Points paid by the seller , later. Www 1040 com General rule. Www 1040 com   You cannot deduct the full amount of points in the year paid. Www 1040 com They are prepaid interest, so you generally must deduct them over the life (term) of the mortgage. Www 1040 com Exception. Www 1040 com   You can deduct the full amount of points in the year paid if you meet all the following tests. Www 1040 com Your loan is secured by your main home. Www 1040 com (Generally, your main home is the one you live in most of the time. Www 1040 com ) Paying points is an established business practice in the area where the loan was made. Www 1040 com The points paid were not more than the points generally charged in that area. Www 1040 com You use the cash method of accounting. Www 1040 com This means you report income in the year you receive it and deduct expenses in the year you pay them. Www 1040 com Most individuals use this method. Www 1040 com 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. Www 1040 com The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. Www 1040 com The funds you provided are not required to have been applied to the points. Www 1040 com They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. Www 1040 com You cannot have borrowed these funds. Www 1040 com You use your loan to buy or build your main home. Www 1040 com The points were computed as a percentage of the principal amount of the mortgage. Www 1040 com The amount is clearly shown on the settlement statement (such as the Uniform Settlement Statement, Form HUD-1) as points charged for the mortgage. Www 1040 com The points may be shown as paid from either your funds or the seller's. Www 1040 com Note. Www 1040 com 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. Www 1040 com 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. Www 1040 com Home improvement loan. Www 1040 com   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. Www 1040 com Refinanced loan. Www 1040 com   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. Www 1040 com You can deduct the rest of the points over the life of the loan. Www 1040 com Points not fully deductible in year paid. Www 1040 com    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. Www 1040 com Figure A. Www 1040 com   You can use Figure A, next, as a quick guide to see whether your points are fully deductible in the year paid. Www 1040 com    Please click here for the text description of the image. Www 1040 com Figure A. Www 1040 com Are my points fully deductible this year? Amounts charged for services. Www 1040 com   Amounts charged by the lender for specific services connected to the loan are not interest. Www 1040 com Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. Www 1040 com You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. Www 1040 com For information about the tax treatment of these amounts and other settlement fees and closing costs, see Basis , later. Www 1040 com Points paid by the seller. Www 1040 com   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Www 1040 com Treatment by seller. Www 1040 com   The seller cannot deduct these fees as interest. Www 1040 com However, they are a selling expense that reduces the seller's amount realized. Www 1040 com See Publication 523 for more information. Www 1040 com Treatment by buyer. Www 1040 com   The buyer treats seller-paid points as if he or she had paid them. Www 1040 com If all the tests listed earlier under Exception are met, the buyer can deduct the points in the year paid. Www 1040 com If any of those tests are not met, the buyer must deduct the points over the life of the loan. Www 1040 com   The buyer must also reduce the basis of the home by the amount of the seller-paid points. Www 1040 com For more information about the basis of your home, see Basis , later. Www 1040 com Funds provided are less than points. Www 1040 com   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. Www 1040 com In addition, you can deduct any points paid by the seller. Www 1040 com Example 1. Www 1040 com When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). Www 1040 com 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. Www 1040 com Of the $1,000 you were charged for points, you can deduct $750 in the year paid. Www 1040 com You spread the remaining $250 over the life of the mortgage. Www 1040 com Example 2. Www 1040 com 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. Www 1040 com In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). Www 1040 com You spread the remaining $250 over the life of the mortgage. Www 1040 com You must reduce the basis of your home by the $1,000 paid by the seller. Www 1040 com Excess points. Www 1040 com   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. Www 1040 com You must spread any additional points over the life of the mortgage. Www 1040 com Mortgage ending early. Www 1040 com   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. Www 1040 com A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Www 1040 com Example. Www 1040 com Dan paid $3,000 in points in 2006 that he had to spread out over the 15-year life of the mortgage. Www 1040 com He had deducted $1,400 of these points through 2012. Www 1040 com Dan prepaid his mortgage in full in 2013. Www 1040 com He can deduct the remaining $1,600 of points in 2013. Www 1040 com Exception. Www 1040 com   If you refinance the mortgage with the same lender, you cannot deduct any remaining points for the year. Www 1040 com Instead, deduct them over the term of the new loan. Www 1040 com Form 1098. Www 1040 com   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. Www 1040 com See Mortgage Interest Statement , later. Www 1040 com 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). Www 1040 com If you did not receive a Form 1098, enter your deductible interest on line 11, and any deductible points on line 12. Www 1040 com See Table 1 below for a summary of where to deduct home mortgage interest and real estate taxes. Www 1040 com 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. Www 1040 com The seller must give you this number and you must give the seller your SSN. Www 1040 com Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Www 1040 com Failure to meet either of these requirements may result in a $50 penalty for each failure. Www 1040 com Table 1. Www 1040 com Where To Deduct Interest and Taxes Paid on Your Home See the text for information on what expenses are eligible. Www 1040 com IF you are eligible to deduct . Www 1040 com . Www 1040 com . Www 1040 com THEN report the amount  on Schedule A (Form 1040) . Www 1040 com . Www 1040 com . Www 1040 com real estate taxes line 6. Www 1040 com home mortgage interest and points reported on Form 1098 line 10. Www 1040 com home mortgage interest not reported on  Form 1098 line 11. Www 1040 com points not reported on Form 1098 line 12. Www 1040 com qualified mortgage insurance premiums line 13. Www 1040 com 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. Www 1040 com The statement will show the total interest paid on your mortgage during the year. Www 1040 com 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. Www 1040 com See Points , earlier. Www 1040 com The interest you paid at settlement should be included on the statement. Www 1040 com 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. Www 1040 com Put the total on Schedule A (Form 1040), line 10, and attach a statement to your return explaining the difference. Www 1040 com Write “See attached” to the right of line 10. Www 1040 com A mortgage holder can be a financial institution, a governmental unit, or a cooperative housing corporation. Www 1040 com If a statement comes from a cooperative housing corporation, it generally will show your share of interest. Www 1040 com Your mortgage interest statement for 2013 should be provided or sent to you by January 31, 2014. Www 1040 com If it is mailed, you should allow adequate time to receive it before contacting the mortgage holder. Www 1040 com A copy of this form will be sent to the IRS also. Www 1040 com Example. Www 1040 com You bought a new home on May 3. Www 1040 com You paid no points on the purchase. Www 1040 com During the year, you made mortgage payments which included $4,480 deductible interest on your new home. Www 1040 com The settlement sheet for the purchase of the home included interest of $620 for 29 days in May. Www 1040 com The mortgage statement you receive from the lender includes total interest of $5,100 ($4,480 + $620). Www 1040 com You can deduct the $5,100 if you itemize your deductions. Www 1040 com Refund of overpaid interest. Www 1040 com   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. Www 1040 com Generally, you must include the refund in income in the year you receive it. Www 1040 com See Refund of home mortgage interest , earlier, under Home Mortgage Interest. Www 1040 com More than one borrower. Www 1040 com   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. Www 1040 com Show how much of the interest each of you paid, and give the name and address of the person who received the form. Www 1040 com Deduct your share of the interest on Schedule A (Form 1040), line 11, and write “See attached” to the right of that line. Www 1040 com 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. Www 1040 com Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as an itemized deduction. Www 1040 com 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). Www 1040 com Prepaid mortgage insurance premiums. Www 1040 com   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. Www 1040 com The premiums are treated as paid in the year to which they were allocated. Www 1040 com If the mortgage is satisfied before its term, no deduction is allowed for the unamortized balance. Www 1040 com See Publication 936 for details. Www 1040 com Exception for certain mortgage insurance. Www 1040 com   The allocation rules, explained above, do not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or Rural Housing Service. Www 1040 com 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. Www 1040 com It also must be secured by that home. Www 1040 com 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. Www 1040 com Home acquisition debt limit. Www 1040 com   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). Www 1040 com Discharges of qualified principal residence indebtedness. Www 1040 com   You can exclude from gross income any discharges of qualified principal residence indebtedness made after 2006 and before 2014. Www 1040 com You must reduce the basis of your principal residence (but not below zero) by the amount you exclude. Www 1040 com Principal residence. Www 1040 com   Your principal residence is the home where you ordinarily live most of the time. Www 1040 com You can have only one principal residence at any one time. Www 1040 com Qualified principal residence indebtedness. Www 1040 com   This is a mortgage that you took out to buy, build, or substantially improve your principal residence and that is secured by that residence. Www 1040 com 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. Www 1040 com   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. Www 1040 com Additional debt incurred to substantially improve your principal residence is also qualified principal residence indebtedness. Www 1040 com Amount you can exclude. Www 1040 com   You can only exclude debt discharged after 2006 and before 2014. Www 1040 com The most you can exclude is $2 million ($1 million if married filing separately). Www 1040 com 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. Www 1040 com Ordering rule. Www 1040 com   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. Www 1040 com Qualified Home This means your main home or your second home. Www 1040 com A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. Www 1040 com Main home. Www 1040 com   You can have only one main home at any one time. Www 1040 com This is the home where you ordinarily live most of the time. Www 1040 com Second home and other special situations. Www 1040 com   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. Www 1040 com 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. Www 1040 com 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. Www 1040 com If your AGI is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. Www 1040 com Form 1098. Www 1040 com   The amount of mortgage insurance premiums you paid during 2013 should be reported in box 4. Www 1040 com See Form 1098, Mortgage Interest Statement in Publication 936. Www 1040 com Mortgage Interest Credit The mortgage interest credit is intended to help lower-income individuals afford home ownership. Www 1040 com If you qualify, you can claim the credit on Form 8396 each year for part of the home mortgage interest you pay. Www 1040 com Who qualifies. Www 1040 com   You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate (MCC) from your state or local government. Www 1040 com Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. Www 1040 com The MCC will show the certificate credit rate you will use to figure your credit. Www 1040 com It also will show the certified indebtedness amount. Www 1040 com Only the interest on that amount qualifies for the credit. Www 1040 com See Figuring the Credit , later. Www 1040 com You must contact the appropriate government agency about getting an MCC before you get a mortgage and buy your home. Www 1040 com Contact your state or local housing finance agency for information about the availability of MCCs in your area. Www 1040 com How to claim the credit. Www 1040 com   To claim the credit, complete Form 8396 and attach it to your Form 1040 or Form 1040NR, U. Www 1040 com S. Www 1040 com Nonresident Alien Income Tax Return. Www 1040 com 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. Www 1040 com Reducing your home mortgage interest deduction. Www 1040 com   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. Www 1040 com You must do this even if part of that amount is to be carried forward to 2014. Www 1040 com Selling your home. Www 1040 com   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. Www 1040 com For additional information, see Recapturing (Paying Back) a Federal Mortgage Subsidy, in Publication 523. Www 1040 com Figuring the Credit Figure your credit on Form 8396. Www 1040 com Mortgage not more than certified indebtedness. Www 1040 com   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. Www 1040 com Mortgage more than certified indebtedness. Www 1040 com   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. Www 1040 com 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. Www 1040 com 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. Www 1040 com Example. Www 1040 com Emily bought a home this year. Www 1040 com Her mortgage loan is $125,000. Www 1040 com The certified indebtedness amount on her MCC is $100,000. Www 1040 com She paid $7,500 interest this year. Www 1040 com Emily figures the interest to enter on Form 8396, line 1, as follows:   $100,000 = 80% (. Www 1040 com 80)       $125,000       $7,500 x . Www 1040 com 80 = $6,000   Emily enters $6,000 on Form 8396, line 1. Www 1040 com In each later year, she will figure her credit using only 80% of the interest she pays for that year. Www 1040 com Limits Two limits may apply to your credit. Www 1040 com A limit based on the credit rate, and A limit based on your tax. Www 1040 com Limit based on credit rate. Www 1040 com   If the certificate credit rate is higher than 20%, the credit you are allowed cannot be more than $2,000. Www 1040 com Limit based on tax. Www 1040 com   After applying the limit based on the credit rate, your credit generally cannot be more than your tax liability. Www 1040 com See the Credit Limit Worksheet in the Form 8396 instructions to calculate the limit based on tax. Www 1040 com 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. Www 1040 com Example. Www 1040 com John and his brother, George, were issued an MCC. Www 1040 com They used it to get a mortgage on their main home. Www 1040 com John has a 60% ownership interest in the home, and George has a 40% ownership interest in the home. Www 1040 com John paid $5,400 mortgage interest this year and George paid $3,600. Www 1040 com The MCC shows a credit rate of 25% and a certified indebtedness amount of $130,000. Www 1040 com The loan amount (mortgage) on their home is $120,000. Www 1040 com The credit is limited to $2,000 because the credit rate is more than 20%. Www 1040 com 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. Www 1040 com His credit is limited to $1,200 ($2,000 × 60%). Www 1040 com 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. Www 1040 com His credit is limited to $800 ($2,000 × 40%). Www 1040 com 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. Www 1040 com Example. Www 1040 com You receive a mortgage credit certificate from State X. Www 1040 com This year, your regular tax liability is $1,100, you owe no alternative minimum tax, and your mortgage interest credit is $1,700. Www 1040 com You claim no other credits. Www 1040 com Your unused mortgage interest credit for this year is $600 ($1,700 − $1,100). Www 1040 com You can carry forward this amount to the next 3 years or until used, whichever comes first. Www 1040 com Credit rate more than 20%. Www 1040 com   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). Www 1040 com Example. Www 1040 com In the earlier example under Dividing the Credit , John and George used the entire $2,000 credit. Www 1040 com 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. Www 1040 com 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. Www 1040 com The amount of credit you can claim on the new loan may change. Www 1040 com Table 2 below summarizes how to figure your credit if you refinance your original mortgage loan. Www 1040 com Table 2. Www 1040 com Effect of Refinancing on Your Credit IF you get a new (reissued) MCC and the amount of your new mortgage is . Www 1040 com . Www 1040 com . Www 1040 com THEN the interest you claim on Form 8396, line 1, is* . Www 1040 com . Www 1040 com . Www 1040 com smaller than or equal to the certified indebtedness amount on the new MCC all the interest paid during the year on your new mortgage. Www 1040 com larger than the certified indebtedness amount on the new MCC interest paid during the year on your new mortgage multiplied by the following fraction. Www 1040 com         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. Www 1040 com  See New MCC cannot increase your credit above. Www 1040 com An issuer may reissue an MCC after you refinance your mortgage. Www 1040 com 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. Www 1040 com Year of refinancing. Www 1040 com   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. Www 1040 com   If your new MCC has a credit rate different from the rate on the old MCC, you must attach a statement to Form 8396. Www 1040 com 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. Www 1040 com It must show a separate calculation for the part of the year when the new MCC was in effect. Www 1040 com 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. Www 1040 com New MCC cannot increase your credit. Www 1040 com   The credit that you claim with your new MCC cannot be more than the credit that you could have claimed with your old MCC. Www 1040 com   In most cases, the agency that issues your new MCC will make sure that it does not increase your credit. Www 1040 com However, if either your old loan or your new loan has a variable (adjustable) interest rate, you will need to check this yourself. Www 1040 com In that case, you will need to know the amount of the credit you could have claimed using the old MCC. Www 1040 com   There are two methods for figuring the credit you could have claimed. Www 1040 com Under one method, you figure the actual credit that would have been allowed. Www 1040 com This means you use the credit rate on the old MCC and the interest you would have paid on the old loan. Www 1040 com   If your old loan was a variable rate mortgage, you can use another method to determine the credit that you could have claimed. Www 1040 com 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. Www 1040 com 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. Www 1040 com The principal of the hypothetical mortgage is the remaining outstanding balance of the certified mortgage indebtedness shown on the old MCC. Www 1040 com    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. Www 1040 com    As part of your tax records, you should keep your old MCC and the schedule of payments for your old mortgage. Www 1040 com 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. Www 1040 com While you own your home, you may add certain items to your basis. Www 1040 com You may subtract certain other items from your basis. Www 1040 com These items are called adjustments to basis and are explained later under Adjusted Basis . Www 1040 com 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. Www 1040 com You also must keep records of the events that affect basis or adjusted basis. Www 1040 com See Keeping Records , below. Www 1040 com Figuring Your Basis How you figure your basis depends on how you acquire your home. Www 1040 com If you buy or build your home, your cost is your basis. Www 1040 com 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. Www 1040 com If you inherit your home from a decedent, different rules apply depending on the date of the decedent's death. Www 1040 com Each of these topics is discussed later. Www 1040 com Property transferred from a spouse. Www 1040 com   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. Www 1040 com Publication 504, Divorced or Separated Individuals, fully discusses transfers between spouses. Www 1040 com 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. Www 1040 com The cost of your home includes most settlement or closing costs you paid when you bought the home. Www 1040 com If you built your home, your cost includes most closing costs paid when you bought the land or settled on your mortgage. Www 1040 com See Settlement or closing costs , later. Www 1040 com 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. Www 1040 com Purchase. Www 1040 com   The basis of a home you bought is the amount you paid for it. Www 1040 com This usually includes your down payment and any debt you assumed. Www 1040 com The basis of a cooperative apartment is the amount you paid for your shares in the corporation that owns or controls the property. Www 1040 com This amount includes any purchase commissions or other costs of acquiring the shares. Www 1040 com Construction. Www 1040 com   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. Www 1040 com 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. Www 1040 com If you built all or part of your home yourself, your basis is the total amount it cost you to build it. Www 1040 com You cannot include in basis the value of your own labor or any other labor for which you did not pay. Www 1040 com Real estate taxes. Www 1040 com   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. Www 1040 com 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. Www 1040 com   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. Www 1040 com You cannot deduct them as taxes paid. Www 1040 com   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. Www 1040 com Do not include those taxes in your basis. Www 1040 com If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Www 1040 com Example 1. Www 1040 com You bought your home on September 1. Www 1040 com The property tax year in your area is the calendar year, and the tax is due on August 15. Www 1040 com 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. Www 1040 com You did not reimburse the seller for your share of the real estate taxes from September 1 through December 31. Www 1040 com You must reduce the basis of your home by the $426 [(122 ÷ 365) × $1,275] the seller paid for you. Www 1040 com You can deduct your $426 share of real estate taxes on your return for the year you purchased your home. Www 1040 com Example 2. Www 1040 com You bought your home on May 3, 2013. Www 1040 com The property tax year in your area is the calendar year. Www 1040 com The taxes for the previous year are assessed on January 2 and are due on May 31 and November 30. Www 1040 com Under state law, the taxes become a lien on May 31. Www 1040 com You agreed to pay all taxes due after the date of sale. Www 1040 com The taxes due in 2013 for 2012 were $1,375. Www 1040 com The taxes due in 2014 for 2013 will be $1,425. Www 1040 com 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. Www 1040 com Instead, you add the $1,375 to the cost (basis) of your home. Www 1040 com 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. Www 1040 com You add the remaining $476 ($1,425 − $949) of taxes paid in 2014 to the cost (basis) of your home. Www 1040 com Settlement or closing costs. Www 1040 com   If you bought your home, you probably paid settlement or closing costs in addition to the contract price. Www 1040 com These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. Www 1040 com If you built your home, you probably paid these costs when you bought the land or settled on your mortgage. Www 1040 com   The only settlement or closing costs you can deduct are home mortgage interest and certain real estate taxes. Www 1040 com You deduct them in the year you buy your home if you itemize your deductions. Www 1040 com You can add certain other settlement or closing costs to the basis of your home. Www 1040 com Items added to basis. Www 1040 com   You can include in your basis the settlement fees and closing costs you paid for buying your home. Www 1040 com A fee is for buying the home if you would have had to pay it even if you paid cash for the home. Www 1040 com   The following are some of the settlement fees and closing costs that you can include in the original basis of your home. Www 1040 com Abstract fees (abstract of title fees). Www 1040 com Charges for installing utility services. Www 1040 com Legal fees (including fees for the title search and preparation of the sales contract and deed). Www 1040 com Recording fees. Www 1040 com Surveys. Www 1040 com Transfer or stamp taxes. Www 1040 com Owner's title insurance. Www 1040 com 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. Www 1040 com   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. Www 1040 com Items not added to basis and not deductible. Www 1040 com   Here are some settlement and closing costs that you cannot deduct or add to your basis. Www 1040 com Fire insurance premiums. Www 1040 com Charges for using utilities or other services related to occupancy of the home before closing. Www 1040 com Rent for occupying the home before closing. Www 1040 com 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. Www 1040 com Points paid by seller. Www 1040 com   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. Www 1040 com   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. Www 1040 com See Points , earlier, for the rules on deducting points. Www 1040 com 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. Www 1040 com Fair market value. Www 1040 com   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. Www 1040 com Donor's adjusted basis is more than FMV. Www 1040 com   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. Www 1040 com Disposition basis. Www 1040 com   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. Www 1040 com Your basis for figuring a gain is the same as the donor's adjusted basis. Www 1040 com Your basis for figuring a loss is the FMV when you received the gift. Www 1040 com 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. Www 1040 com However, if using the FMV results in a gain, then you neither have a gain nor a loss. Www 1040 com Example 1. Www 1040 com Andrew received a house as a gift from Ishmael (the donor). Www 1040 com At the time of the gift, the home had an FMV of $80,000. Www 1040 com Ishmael's adjusted basis was $100,000. Www 1040 com After he received the house, no events occurred to increase or decrease the basis. Www 1040 com 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. Www 1040 com Example 2. Www 1040 com Same facts as Example 1 , except this time Andrew sells the house for $70,000. Www 1040 com 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. Www 1040 com Example 3. Www 1040 com Same facts as Example 1 , except this time Andrew sells the house for $90,000. Www 1040 com Initially, he figures the gain using Ishmael's adjusted basis ($100,000), which results in a loss of $10,000. Www 1040 com Since it is a loss, Andrew must now recalculate the loss using the FMV ($80,000), which results in a gain of $10,000. Www 1040 com So in this situation, Andrew will neither have a gain nor a loss. Www 1040 com Donor's adjusted basis equal to or less than the FMV. Www 1040 com   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. Www 1040 com Part of federal gift tax due to net increase in value. Www 1040 com   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. Www 1040 com 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. Www 1040 com The net increase in the value of the home is its FMV minus the adjusted basis of the donor. Www 1040 com Publication 551 gives more information, including examples, on figuring your basis when you receive property as a gift. Www 1040 com 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. Www 1040 com If an estate tax return was filed, your basis is generally the value of the home listed on the estate tax return. Www 1040 com 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. Www 1040 com Publication 551 and Publication 559, Survivors, Executors, and Administrators, have more information on the basis of inherited property. Www 1040 com 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. Www 1040 com Adjusted Basis While you own your home, various events may take place that can change the original basis of your home. Www 1040 com These events can increase or decrease your original basis. Www 1040 com The result is called adjusted basis. Www 1040 com See Table 3, on this page, for a list of some of the items that can adjust your basis. Www 1040 com Table 3. Www 1040 com Adjusted Basis This table lists examples of some items that generally will increase or decrease your basis in your home. Www 1040 com It is not intended to be all-inclusive. Www 1040 com 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. Www 1040 com   An improvement materially adds to the value of your home, considerably prolongs its useful life, or adapts it to new uses. Www 1040 com You must add the cost of any improvements to the basis of your home. Www 1040 com You cannot deduct these costs. Www 1040 com   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. Www 1040 com Amount added to basis. Www 1040 com   The amount you add to your basis for improvements is your actual cost. Www 1040 com This includes all costs for material and labor, except your own labor, and all expenses related to the improvement. Www 1040 com 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. Www 1040 com   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. Www 1040 com These assessments are discussed earlier under Real Estate Taxes . Www 1040 com Improvements no longer part of home. Www 1040 com    Your home's adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home. Www 1040 com Example. Www 1040 com You put wall-to-wall carpeting in your home 15 years ago. Www 1040 com Later, you replaced that carpeting with new wall-to-wall carpeting. Www 1040 com The cost of the old carpeting you replaced is no longer part of your home's adjusted basis. Www 1040 com Repairs versus improvements. Www 1040 com   A repair keeps your home in an ordinary, efficient operating condition. Www 1040 com It does not add to the value of your home or prolong its life. Www 1040 com Repairs include repainting your home inside or outside, fixing your gutters or floors, fixing leaks or plastering, and replacing broken window panes. Www 1040 com You cannot deduct repair costs and generally cannot add them to the basis of your home. Www 1040 com   However, repairs that are done as part of an extensive remodeling or restoration of your home are considered improvements. Www 1040 com You add them to the basis of your home. Www 1040 com Records to keep. Www 1040 com   You can use Table 4 (at the end of the publication) as a guide to help you keep track of improvements to your home. Www 1040 com Also see Keeping Records , below. Www 1040 com Energy conservation subsidy. Www 1040 com   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. Www 1040 com You must reduce the basis of your home by that value. Www 1040 com   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. Www 1040 com 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. Www 1040 com 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. Www 1040 com You should keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis. Www 1040 com In addition, you should keep track of any decreases to the basis such as those listed in Table 3, earlier. Www 1040 com How to keep records. Www 1040 com   How you keep records is up to you, but they must be clear and accurate and must be available to the IRS. Www 1040 com How long to keep records. Www 1040 com   You must keep your records for as long as they are important for meeting any provision of the federal tax law. Www 1040 com   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. Www 1040 com (A period of limitations is the period of time after which no legal action can be brought. Www 1040 com ) For assessment of tax you owe, this is generally 3 years from the date you filed the return. Www 1040 com 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. Www 1040 com Returns filed before the due date are treated as filed on the due date. Www 1040 com   You may need to keep records relating to the basis of property (discussed earlier) for longer than the period of limitations. Www 1040 com Keep those records as long as they are important in figuring the basis of the original or replacement property. Www 1040 com 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. Www 1040 com Table 4. Www 1040 com Record of Home Improvements Keep this for your records. Www 1040 com Also, keep receipts or other proof of improvements. Www 1040 com Remove from this record any improvements that are no longer part of your main home. Www 1040 com 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. Www 1040 com (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
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Understanding Your CP05 Notice

We’re reviewing your tax return to verify the following:

  • Your income
  • The withholding you reported on your income and social security benefits
  • The tax credits you claimed
  • The household help you claimed
  • Your business income

We’re holding your refund pending the results of our review.


What you need to do

You don’t need to take any action at this time. We may contact third parties to verify the information you reported on your return. If you haven’t received your refund or been contacted by us within 45 days from the date of this notice, you can call us at the number provided on your notice.


You may want to

  • Review this notice with your tax preparer.
  • If you are experiencing economic harm, believe an IRS system or procedure isn’t working as it should, or are seeking help in resolving tax problems that have not been resolved through normal channels, you may be eligible for Taxpayer Advocate Service (TAS) assistance. You can reach them at 1-877-777-4778 or TTY/TTD 1-800-829-4059.

Answers to Common Questions

Why was my return being reviewed?
While most returns are accepted as filed, some are selected for examination. The IRS examines some federal tax returns to determine if income, expenses, and credits are being reported accurately. The IRS selects returns for examination using various methods which include random sampling, computerized screening, and comparison of information received by the IRS such as Forms W-2 and 1099. Having your return selected for examination does not suggest that you made an error or were dishonest.

What if I did not file a tax return claiming the items you are questioning and someone else is using my name and social security number?
Send us a completed and signed Form 14039, Identity Theft Affidavit. You can download this form online at www.irs.gov. You can also refer to the IRS Identity Theft resource page for more information.


Tips for next year

Review all of your income and withholding documents for completeness and review your return to make sure you are eligible to claim all income, credits and business income that you reported.

Page Last Reviewed or Updated: 19-Feb-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Www 1040 Com

Www 1040 com 4. Www 1040 com   Deductions Table of Contents Standard DeductionStandard Deduction for Dependents Itemized DeductionsMedical and Dental Expenses Most taxpayers have a choice of taking a standard deduction or itemizing their deductions. Www 1040 com You benefit from the standard deduction if your standard deduction is more than the total of your allowable itemized deductions. Www 1040 com If you have a choice, you should use the method that gives you the lower tax. Www 1040 com Standard Deduction The standard deduction amount depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer. Www 1040 com Generally, the standard deduction amounts are adjusted each year for inflation. Www 1040 com In most cases, you can use Worksheet 4-1 to figure your standard deduction amount. Www 1040 com Persons not eligible for the standard deduction. Www 1040 com   Your standard deduction is zero and you should itemize any deductions you have if: You are married and filing a separate return, and your spouse itemizes deductions, You are filing a tax return for a short tax year because of a change in your annual accounting period, or You are a nonresident or dual-status alien during the year. Www 1040 com You are considered a dual-status alien if you were both a nonresident alien and a resident alien during the year. Www 1040 com   If you are a nonresident alien who is married to a U. Www 1040 com S. Www 1040 com citizen or resident alien at the end of the year, you can choose to be treated as a U. Www 1040 com S. Www 1040 com resident. Www 1040 com See Publication 519, U. Www 1040 com S. Www 1040 com Tax Guide for Aliens. Www 1040 com If you make this choice, you can take the standard deduction. Www 1040 com Decedent's final return. Www 1040 com   The amount of the standard deduction for a decedent's final tax return is the same as it would have been had the decedent continued to live. Www 1040 com However, if the decedent was not 65 or older at the time of death, the higher standard deduction for age cannot be claimed. Www 1040 com Higher standard deduction for age (65 or older). Www 1040 com   If you do not itemize deductions, you are entitled to a higher standard deduction if you are age 65 or older at the end of the year. Www 1040 com You are considered age 65 on the day before your 65th birthday. Www 1040 com Therefore, you can take a higher standard deduction for 2013 if you were born before January 2, 1949. Www 1040 com Higher standard deduction for blindness. Www 1040 com   If you are blind on the last day of the year and you do not itemize deductions, you are entitled to a higher standard deduction. Www 1040 com You qualify for this benefit if you are totally or partly blind. Www 1040 com Not totally blind. Www 1040 com   If you are not totally blind, you must get a certified statement from an eye doctor (ophthalmologist or optometrist) that: You cannot see better than 20/200 in the better eye with glasses or contact lenses, or Your field of vision is not more than 20 degrees. Www 1040 com   If your eye condition will never improve beyond these limits, the statement should include this fact. Www 1040 com You must keep the statement in your records. Www 1040 com   If your vision can be corrected beyond these limits only by contact lenses that you can wear only briefly because of pain, infection, or ulcers, you can take the higher standard deduction for blindness if you otherwise qualify. Www 1040 com Spouse 65 or older or blind. Www 1040 com   You can take the higher standard deduction if your spouse is age 65 or older or blind and: You file a joint return, or You file a separate return and can claim an exemption for your spouse because your spouse had no gross income and an exemption for your spouse could not be claimed by another taxpayer. Www 1040 com    You cannot claim the higher standard deduction for an individual other than yourself and your spouse. Www 1040 com Example. Www 1040 com This example illustrates how to determine your standard deduction using Worksheet 4-1. Www 1040 com Bill and Lisa are filing a joint return for 2013. Www 1040 com Both are over age 65. Www 1040 com Neither is blind, and neither can be claimed as a dependent. Www 1040 com They do not itemize deductions, so they use Worksheet 4-1. Www 1040 com Because they are married filing jointly, they enter $12,200 on line 1. Www 1040 com They check the “No” box on line 2, so they also enter $12,200 on line 4. Www 1040 com Because they are both over age 65, they enter $2,400 ($1,200 × 2) on line 5. Www 1040 com They enter $14,600 ($12,200 + $2,400) on line 6, so their standard deduction is $14,600. Www 1040 com Standard Deduction for Dependents The standard deduction for an individual for whom an exemption can be claimed on another person's tax return is generally limited to the greater of: $1,000, or The individual's earned income for the year plus $350 (but not more than the regular standard deduction amount, generally $6,100). Www 1040 com However, the standard deduction may be higher if the individual is 65 or older or blind. Www 1040 com If an exemption for you (or your spouse if you are filing jointly) can be claimed on someone else's return, use Worksheet 4-1, if applicable, to determine your standard deduction. Www 1040 com Worksheet 4-1. Www 1040 com 2013 Standard Deduction Worksheet Caution. Www 1040 com If you are married filing separately and your spouse itemizes deductions, or if you are a dual-status alien, do not complete this worksheet. Www 1040 com If you were born before January 2, 1949, and/or blind, check the correct number of boxes below. Www 1040 com Put the total number of boxes checked in box c and go to line 1. Www 1040 com a. Www 1040 com You   Born before  January 2, 1949     Blind b. Www 1040 com Your spouse, if claiming  spouse's exemption   Born before January 2, 1949     Blind c. Www 1040 com Total boxes checked             1. Www 1040 com Enter the amount shown below for your filing status. Www 1040 com               Single or married filing separately — $6,100 Married filing jointly or Qualifying widow(er) — $12,200 Head of household — $8,950   1. Www 1040 com           2. Www 1040 com Can you (or your spouse if filing jointly) be claimed as a dependent on someone else's return?  No. Www 1040 com Skip line 3; enter the amount from line 1 on line 4. Www 1040 com   Yes. Www 1040 com Go to line 3. Www 1040 com         3. Www 1040 com Is your earned income* more than $650?               Yes. Www 1040 com Add $350 to your earned income. Www 1040 com Enter the total   3. Www 1040 com         No. Www 1040 com Enter $1,000 4. Www 1040 com Enter the smaller of line 1 or line 3 4. Www 1040 com   5. Www 1040 com If born before January 2, 1949, or blind, multiply the number in box c by $1,200 ($1,500 if single or head of household). Www 1040 com Enter the result here. Www 1040 com Otherwise, enter -0- 5. Www 1040 com   6. Www 1040 com Add lines 4 and 5. Www 1040 com This is your standard deduction for 2013. Www 1040 com 6. Www 1040 com   * Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. Www 1040 com It also includes any amount received as a scholarship that you must include in your income. Www 1040 com Generally, your earned income is the total of the amount(s) you reported on Form 1040, lines 7, 12, and 18, minus the amount, if any, on line 27 (or the amount you reported on Form 1040A, line 7). Www 1040 com Itemized Deductions Some individuals should itemize their deductions because it will save them money. Www 1040 com Others should itemize because they do not qualify for the standard deduction. Www 1040 com See the discussion under Standard Deduction , earlier, to decide if it would be to your advantage to itemize deductions. Www 1040 com You may be subject to a limit on some of your itemized deductions if your adjusted gross income is more than $150,000. Www 1040 com For more information, see Overall limitation, later. Www 1040 com Medical and dental expenses, some taxes, certain interest expenses, charitable contributions, casualty and theft losses, and certain other miscellaneous expenses may be itemized as deductions on Schedule A (Form 1040). Www 1040 com You may benefit from itemizing your deductions on Schedule A (Form 1040) if you: Cannot take the standard deduction, Had uninsured medical or dental expenses that are more than 10% of your adjusted gross income (or more than 7. Www 1040 com 5% of your adjusted gross income if either you or your spouse is age 65 or older), Paid interest on your home, Paid real estate or personal property taxes, Paid mortgage insurance premiums, Paid state and local income or general sales taxes, Had large unreimbursed employee business expenses or other miscellaneous deductions, Had large uninsured casualty or theft losses, Made large contributions to qualified charities (see Publication 526, Charitable Contributions), or Have total itemized deductions that are more than the standard deduction that applies to you. Www 1040 com See the Schedule A (Form 1040) instructions for more information. Www 1040 com Overall limitation. Www 1040 com   You may not be able to deduct all of your itemized deductions if your adjusted gross income is more than: $150,000, if married filing separately, $250,000, if single, $275,000, if head of household, or $300,000, if married filing jointly or qualifying widow(er). Www 1040 com  If your adjusted gross income exceeds the applicable amount, you will use the Itemized Deductions Worksheet in the Instructions for Schedule A (Form 1040) to figure your total itemized deductions. Www 1040 com Medical and Dental Expenses You can deduct certain medical and dental expenses you paid for yourself, your spouse, and your dependent(s) if you itemize your deductions on Schedule A (Form 1040). Www 1040 com Table 4-1 shows some common items that you can or cannot include in figuring your medical expense deduction. Www 1040 com For more information, see the following discussions of selected items, which are presented in alphabetical order. Www 1040 com A more extensive list of items and further details can be found in Publication 502, Medical and Dental Expenses. Www 1040 com Table 4-1. Www 1040 com Medical and Dental Expenses Checklist You can include: You cannot include: Bandages Capital expenses for equipment or improvements to your home needed for medical care (see Publication 502) Certain weight-loss expenses for obesity Diagnostic devices Expenses of an organ donor Eye surgery—to promote the correct function of the eye Guide dogs or other animals aiding the blind, deaf, and disabled Hospital services fees (lab work, therapy, nursing services, surgery, etc. Www 1040 com ) Lead-based paint removal (see Publication 502) Long-term care contracts, qualified (see Publication 502) Meals and lodging provided by a hospital during medical treatment Medical and hospital insurance premiums Medical services fees (from doctors, dentists, surgeons, specialists, and other medical practitioners) Medicare Part D premiums Oxygen equipment and oxygen Part of life-care fee paid to retirement home designated for medical care Prescription medicines (prescribed by a doctor) and insulin Psychiatric and psychological treatment Social security tax, Medicare tax, FUTA, and state employment tax for worker providing medical care (see Publication 502) Special items (artificial limbs, false teeth, eyeglasses, contact lenses, hearing aids, crutches, wheelchair, etc. Www 1040 com ) Special education for mentally or physically disabled persons (see Publication 502) Stop-smoking programs Transportation for needed medical care Treatment at a drug or alcohol center (includes meals and lodging provided by the center) Wages for nursing services (see Publication 502) Contributions to Archer MSAs (see Publication 969) Bottled water Diaper service Expenses for your general health (even if following your doctor's advice) such as: —Health club dues —Household help (even if recommended by a doctor) —Social activities, such as dancing or swimming lessons —Trip for general health improvement Flexible spending account reimbursements for medical expenses (if contributions were on a pretax basis) (see Publication 502) Funeral, burial, or cremation expenses Health savings account payments for medical expenses (see Publication 502) Illegal operation or treatment Life insurance or income protection policies, or policies providing payment for loss of life, limb, sight, etc. Www 1040 com Medical insurance included in a car insurance policy covering all persons injured in or by your car Medicine you buy without a prescription Nursing care for a healthy baby Prescription drugs you brought in (or ordered shipped) from another country, in most cases (see Publication 502) Surgery for purely cosmetic reasons (see Publication 502) Toothpaste, toiletries, cosmetics, etc. Www 1040 com Teeth whitening Weight-loss expenses not for the treatment of obesity or other disease You can deduct only the amount of your medical and dental expenses that is more than 10% of your adjusted gross income (or that is more than 7. Www 1040 com 5% of your adjusted gross income if you or your spouse is age 65 or older). Www 1040 com What to include. Www 1040 com   Generally, you can include only the medical and dental expenses you paid this year, regardless of when the services were provided. Www 1040 com If you pay medical expenses by check, the day you mail or deliver the check generally is the date of payment. Www 1040 com If you use a pay-by-phone or online account to pay your medical expenses, the date reported on the statement of the financial institution showing when payment was made is the date of payment. Www 1040 com You can include medical expenses you charge to your credit card in the year the charge is made. Www 1040 com It does not matter when you actually pay the amount charged. Www 1040 com Home Improvements You can include in medical expenses amounts you pay for home improvements if their main purpose is medical care for you, your spouse, or your dependent. Www 1040 com Only reasonable costs to accommodate a home to your disabled condition (or that of your spouse or your dependent(s) who live with you) are considered medical care. Www 1040 com Additional costs for personal motives, such as for architectural or aesthetic reasons, are not medical expenses. Www 1040 com Publication 502 contains additional information and examples, including a capital expense worksheet, to assist you in figuring the amount of the capital expense that you can include in your medical expenses. Www 1040 com Also, see Publication 502 for information about deductible operating and upkeep expenses related to such capital expense items, and for information about improvements, for medical reasons, to property rented by a person with disabilities. Www 1040 com Household Help You cannot include in medical expenses the cost of household help, even if such help is recommended by a doctor. Www 1040 com This is a personal expense that is not deductible. Www 1040 com However, you may be able to include certain expenses paid to a person providing nursing-type services. Www 1040 com For more information, see Nursing Services , later. Www 1040 com Also, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses. Www 1040 com For more information, see Qualified long-term care services under Long-Term Care, later. Www 1040 com Hospital Services You can include in medical expenses amounts you pay for the cost of inpatient care at a hospital or similar institution if a principal reason for being there is to receive medical care. Www 1040 com This includes amounts paid for meals and lodging. Www 1040 com Also, see Meals and Lodging , later. Www 1040 com Long-Term Care You can include in medical expenses amounts paid for qualified long-term care services and premiums paid for qualified long-term care insurance contracts. Www 1040 com Qualified long-term care services. Www 1040 com   Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services (defined later) that are: Required by a chronically ill individual, and Provided under a plan of care prescribed by a licensed health care practitioner. Www 1040 com Chronically ill individual. Www 1040 com    An individual is chronically ill if, within the previous 12 months, a licensed health care practitioner has certified that the individual meets either of the following descriptions. Www 1040 com He or she is unable to perform at least two activities of daily living without substantial assistance from another individual for at least 90 days, due to a loss of functional capacity. Www 1040 com Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. Www 1040 com He or she requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Www 1040 com Maintenance and personal care services. Www 1040 com    Maintenance or personal care services is care which has as its primary purpose the providing of a chronically ill individual with needed assistance with his or her disabilities (including protection from threats to health and safety due to severe cognitive impairment). Www 1040 com Qualified long-term care insurance contracts. Www 1040 com   A qualified long-term care insurance contract is an insurance contract that provides only coverage of qualified long-term care services. Www 1040 com The contract must: Be guaranteed renewable, Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed, Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract must be used only to reduce future premiums or increase future benefits, and Generally not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer, or the contract makes per diem or other periodic payments without regard to expenses. Www 1040 com   The amount of qualified long-term care premiums you can include is limited. Www 1040 com You can include the following as medical expenses on Schedule A (Form 1040). Www 1040 com Qualified long-term care premiums up to the following amounts. Www 1040 com Age 40 or under – $360. Www 1040 com Age 41 to 50 – $680. Www 1040 com Age 51 to 60 – $1,360. Www 1040 com Age 61 to 70 – $3,640. Www 1040 com Age 71 or over – $4,550. Www 1040 com Unreimbursed expenses for qualified long-term care services. Www 1040 com Note. Www 1040 com The limit on premiums is for each person. Www 1040 com Meals and Lodging You can include in medical expenses the cost of meals and lodging at a hospital or similar institution if your main reason for being there is to receive medical care. Www 1040 com You may be able to include in medical expenses the cost of lodging (but not meals) not provided in a hospital or similar institution. Www 1040 com You can include the cost of such lodging while away from home if all of the following requirements are met. Www 1040 com The lodging is primarily for, and essential to, medical care. Www 1040 com The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital. Www 1040 com The lodging is not lavish or extravagant under the circumstances. Www 1040 com There is no significant element of personal pleasure, recreation, or vacation in the travel away from home. Www 1040 com The amount you include in medical expenses for lodging cannot be more than $50 per night for each person. Www 1040 com You can include lodging for a person traveling with the person receiving the medical care. Www 1040 com For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. Www 1040 com (Meals are not included. Www 1040 com ) Nursing home. Www 1040 com   You can include in medical expenses the cost of medical care in a nursing home or a home for the aged for yourself, your spouse, or your dependent(s). Www 1040 com This includes the cost of meals and lodging in the home if a main reason for being there is to get medical care. Www 1040 com   Do not include the cost of meals and lodging if the reason for being in the home is personal. Www 1040 com However, you can include in medical expenses the part of the cost that is for medical or nursing care. Www 1040 com Medical Insurance Premiums You can include in medical expenses insurance premiums you pay for policies that cover medical care. Www 1040 com Policies can provide payment for: Hospitalization, surgical fees, X-rays, Prescription drugs and insulin, Dental care, Replacement of lost or damaged contact lenses, and Qualified long-term care insurance contracts (subject to the additional limits included in the discussion on qualified long-term care insurance contracts under Long-Term Care , earlier). Www 1040 com If you have a policy that provides payments for other than medical care, you can include the premiums for the medical care part of the policy if the charge for the medical part is reasonable. Www 1040 com The cost of the medical portion must be separately stated in the insurance contract or given to you in a separate statement. Www 1040 com Medicare Part A. Www 1040 com   If you are covered under social security (or if you are a government employee who paid Medicare tax), you are enrolled in Medicare Part A. Www 1040 com The payroll tax paid for Medicare Part A is not a medical expense. Www 1040 com If you are not covered under social security (or were not a government employee who paid Medicare tax), you can enroll voluntarily in Medicare Part A. Www 1040 com In this situation you can include the premiums you paid for Medicare Part A as a medical expense. Www 1040 com Medicare Part B. Www 1040 com   Medicare Part B is a supplemental medical insurance. Www 1040 com Premiums you pay for Medicare Part B are a medical expense. Www 1040 com If you applied for it at age 65 or after you became disabled, you can include in medical expenses the monthly premiums you paid. Www 1040 com If you were over age 65 or disabled when you first enrolled, check with your local Social Security Administration office, or go to their website at www. Www 1040 com SSA. Www 1040 com gov, to find out your premium. Www 1040 com Medicare Part D. Www 1040 com   Medicare Part D is a voluntary prescription drug insurance program for persons with Medicare Part A or Part B. Www 1040 com You can include as a medical expense premiums you pay for Medicare Part D. Www 1040 com Prepaid insurance premiums. Www 1040 com   Insurance premiums you pay before you are age 65 for medical care for yourself, your spouse, or your dependents after you reach age 65 are medical care expenses in the year paid if they are: Payable in equal yearly installments, or more often, and Payable for at least 10 years, or until you reach age 65 (but not for less than 5 years). Www 1040 com Medicines You can include in medical expenses amounts you pay for prescribed medicines and drugs. Www 1040 com A prescribed drug is one that requires a prescription by a doctor for its use by an individual. Www 1040 com You can also include amounts you pay for insulin. Www 1040 com Except for insulin, you cannot include in medical expenses amounts you pay for a drug that is not prescribed. Www 1040 com Imported medicines and drugs. Www 1040 com   If you import medicines or drugs from other countries, see Medicines and Drugs From Other Countries, under What Expenses Are Not Includible, in Publication 502. Www 1040 com Nursing Services You can include in medical expenses wages and other amounts you pay for nursing services. Www 1040 com The services need not be performed by a nurse as long as the services are of a kind generally performed by a nurse. Www 1040 com This includes services connected with caring for the patient's condition, such as giving medication or changing dressings, as well as bathing and grooming the patient. Www 1040 com These services can be provided in your home or another care facility. Www 1040 com Generally, only the amount spent for nursing services is a medical expense. Www 1040 com If the attendant also provides personal and household services, amounts paid to the attendant must be divided between the time spent performing household and personal services and the time spent for nursing services. Www 1040 com However, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses. Www 1040 com See Maintenance and personal care services under Qualified long-term care services, earlier. Www 1040 com Additionally, certain expenses for household services or for the care of a qualifying individual incurred to allow you to work may qualify for the child and dependent care credit. Www 1040 com See Child and Dependent Care Credit , later, and Publication 503, Child and Dependent Care Expenses. Www 1040 com You can also include in medical expenses part of the amount you pay for that attendant's meals. Www 1040 com Divide the food expense among the household members to find the cost of the attendant's food. Www 1040 com Then divide that cost in the same manner as in the preceding paragraph. Www 1040 com If you had to pay additional amounts for household upkeep because of the attendant, you can include the extra amounts with your medical expenses. Www 1040 com This includes extra rent or utilities you pay because you moved to a larger apartment to provide space for the attendant. Www 1040 com Employment taxes. Www 1040 com   You can include as a medical expense social security tax, FUTA, Medicare tax, and state employment taxes you pay for a nurse, attendant, or other person who provides medical care. Www 1040 com If the attendant also provides personal and household services, you can include as a medical expense only the amount of employment taxes paid for medical services as explained earlier under Nursing Services. Www 1040 com For information on employment tax responsibilities of household employers, see Publication 926, Household Employer's Tax Guide. Www 1040 com Transportation You can include in medical expenses amounts paid for transportation primarily for, and essential to, medical care. Www 1040 com Car expenses. Www 1040 com    You can include out-of-pocket expenses, such as the cost of gas and oil, when you use a car for medical reasons. Www 1040 com You cannot include depreciation, insurance, general repair, or maintenance expenses. Www 1040 com   If you do not want to use your actual expenses for 2013, you can use the standard medical mileage rate of 24 cents a mile. Www 1040 com   You can also include parking fees and tolls. Www 1040 com You can add these fees and tolls to your medical expenses whether you use actual expenses or use the standard mileage rate. Www 1040 com You can also include:    Bus, taxi, train, or plane fares or ambulance service, and Transportation expenses of a nurse or other person who can give injections, medications, or other treatment required by a patient who is traveling to get medical care and is unable to travel alone. Www 1040 com Do not include transportation expenses if, for purely personal reasons, you choose to travel to another city for an operation or other medical care prescribed by your doctor. Www 1040 com Prev  Up  Next   Home   More Online Publications