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US Internal Revenue Service: p530--2003

US Internal Revenue Service: p530--2003

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Published by: IRS on Nov 30, 2007
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Publication 530
Important Reminders
Departmentof the
InternalWhat You Can and Cannot Deduct
Real Estate Taxes..............
Information for
Home Mortgage Interest..........
3Mortgage Interest Credit
Figuring the Credit..............
Figuring Your Basis.............
Adjusted Basis................
9Keeping Records
For use in preparing
How To Get Tax Help
Important Reminders
District of Columbia first-time homebuyercredit.
The credit for first-time homebuyers inthe District of Columbia is not allowable for prop-erty purchased after 2003. For more informationabout this credit, see page 2.
Limit on itemized deductions.
Certain item-ized deductions (including real estate taxes andhome mortgage interest) are limited if your ad- justed gross income is more than $139,500($69,750 if you are married filing separately).For more information, see the instructions forSchedule A (Form 1040).
Limit on mortgage interest credit.
Yourmortgage interest credit for 2003 can offset bothyour regular tax (after reduction by any foreigntax credit) and your alternative minimum tax forthe year, if any. See
Figuring the Credit 
Mortgage Interest Credit 
Photographs of missing children.
The Inter-nal Revenue Service is a proud partner with theNational Center for Missing and Exploited Chil-dren. Photographs of missing children selectedby the Center may appear in this publication onpages that would otherwise be blank. You canhelp bring these children home by looking at thephotographs and calling
if you recognize a child.
This publication provides tax information forfirst-time homeowners. Your first home may bea house, condominium, cooperative apartment,mobile home, houseboat, or house trailer.
Get forms and other information
The following topics are explained.
faster and easier by:
How you treat items such as settlementand closing costs, real estate taxes, home
mortgage interest, and repairs.
703–368–9694 (from your fax machine)
What you can and cannot deduct on yourtax return.
The tax credit you can claim if you re-
Form (and Instructions)
if it is based on the assessed value of the realproperty and the taxing authority charges a uni-ceived a mortgage credit certificate when
Mortgage Interest Creditform rate on all property in its jurisdiction. Theyou bought your home.See
How To Get Tax Help,
near the end oftax must be for the welfare of the general public
Why you should keep track of adjustmentsthis publication, for information about gettingand not be a payment for a special privilegeto the basis of your home. (Your home’spublications and forms.granted or service rendered to you.basis generally is what it costs; adjust-ments include the cost of any improve-ments you might make.)
Deductible Taxes
What records you should keep as proof of
What You Can and
You can deduct real estate taxes imposed onthe basis and adjusted basis.you. You must have paid them either at settle-
Cannot Deduct
ment or closing, or to a taxing authority (either
District of Columbia first-time homebuyer
directly or through an escrow account) duringTo deduct expenses of owning a home, you
You may be able to claim a one-timethe year. If you own a cooperative apartment,must file Form 1040 and itemize your deduc-tax credit of up to $5,000 ($2,500 if married filingsee
Special Rules for Cooperatives,
later.tions on Schedule A (Form 1040). If you itemize,separately) if you buy a main home in the Districtyou cannot take the standard deduction. See the
Where to deduct real estate taxes.
Enter theof Columbia. You must reduce the basis of yourForm 1040 instructions if you have questionsamount of your deductible real estate taxes onhome by the amount of the credit you claim.about whether to itemize your deductions orline 6 of Schedule A (Form 1040).Only purchases after August 4, 1997, andclaim the standard deduction.before January 1, 2004, qualify for this credit.
Real estate taxes paid at settlement or
This section explains what expenses you
Real estate taxes are generally di-The credit is not allowed if you acquired yourcan deduct as a homeowner. It also points outvided so that you and the seller each pay taxeshome from certain related persons or by gift orexpenses that you cannot deduct. There are twofor the part of the property tax year you ownedinheritance.primary discussions: real estate taxes and homethe home. Your share of these taxes is fullyYou qualify for the credit if you (and yourmortgage interest. Generally, your real estatedeductible, if you itemize your deductions.spouse if you are married) did not have an own-taxes and home mortgage interest are includedership interest in a main home in the District ofin your house payment.
Division of real estate taxes.
For federalColumbia for at least 1 year before buying theincome tax purposes, the seller is treated as
Your house payment.
If you took out a mort-new home. Individuals with modified adjustedpaying the property taxes up to, but not includ-gage (loan) to finance the purchase of yourgross income of $90,000 or more ($130,000 oring, the date of sale. You (the buyer) are treatedhome, you probably have to make monthlymore in the case of a joint return) cannot claimas paying the taxes beginning with the date ofhouse payments. Your house payment may in-the credit. Individuals with modified adjustedsale. This applies regardless of the lien datesclude several costs of owning a home. The onlygross income between $70,000 and $90,000under local law. Generally, this information iscosts you can deduct are real estate taxes actu-(between $110,000 and $130,000 in the case ofincluded on the settlement statement you get atally paid to the taxing authority and interest thata joint return) can claim only a reduced credit.closing.qualifies as home mortgage interest. These areUse Form 8859,
District of Columbia 
You and the seller each are considered todiscussed in more detail later.
First-Time Homebuyer Credit,
to figure yourhave paid your own share of the taxes, even ifHere are some expenses, which may becredit. See the form and its instructions for moreone or the other paid the entire amount. Youincluded in your house payment, that cannot beinformation.each can deduct your own share, if you itemizededucted.deductions, for the year the property is sold.
Fire or homeowner’s insurance premiums.
Comments and suggestions.
We welcome
You bought your home on Sep-your comments about this publication and your
FHA mortgage insurance premiums.tember 1. The property tax year (the period tosuggestions for future editions.
The amount applied to reduce the princi-which the tax relates) in your area is the calen-You can e-mail us at
.pal of the mortgage.dar year. The tax for the year was $730 and wasPlease put “Publications Comment” on the sub-due and paid by the seller on August 15. ject line.You owned your new home during the prop-
Minister’s or military housing allowance.
IfYou can write to us at the following address:erty tax year for 122 days (September 1 to De-you are a minister or a member of the uniformedcember 31, including your date of purchase).services and receive a housing allowance that isInternal Revenue ServiceYou figure your deduction for real estate taxesnot taxable, you still can deduct your real estateIndividual Forms and Publications Branchon your home as follows.taxes and your home mortgage interest. You doSE:W:CAR:MP:T:I
1.Enter the total real estate taxes for
not have to reduce your deductions by your1111 Constitution Ave. NW
the real property tax year.......$730
nontaxable allowance.Washington, DC 20224
2.Enter the number of days in the
Nondeductible payments.
You cannot de-
property tax year that you owned the
duct any of the following items.
We respond to many letters by telephone.
3.Divide line 2 by 365...........3342
Therefore, it would be helpful if you would in-
Insurance, including fire and comprehen-
4.Multiply line 1 by line 3. This is your
clude your daytime phone number, including thesive coverage, and title and mortgage in-
deduction. Enter it on line 6 of
area code, in your correspondence.surance.
Schedule A (Form 1040).......$244
Wages you pay for domestic help.You can deduct $244 on your return for the
Useful Items
year if you itemize your deductions. You are
Depreciation.You may want to see:considered to have paid this amount and can
The cost of utilities, such as gas, electric-deduct it on your return even if, under the con-
ity, or water.tract, you did not have to reimburse the seller.
Selling Your Home
Most settlement costs. See
Settlement or 
Delinquent taxes.
Delinquent taxes are un-
closing costs 
Cost as Basis 
, later,
Residential Rental Propertypaid taxes that were imposed on the seller for anfor more information.earlier tax year. If you agree to pay delinquent
Casualties, Disasters, and Theftstaxes when you buy your home, you cannot
Basis of Assetsdeduct them. You treat them as part of the cost
Real Estate Taxes
of your home. See
Real estate taxes,
Community Propertyunder
Cost as Basis.
Most state and local governments charge an
Business Use of Your Homeannual tax on the value of real property. This is
Escrow accounts.
Many monthly house pay-
Home Mortgage Interest Deductioncalled a
real estate tax.
You can deduct the taxments include an amount placed in escrow (putPage 2
in the care of a third party) for real estate taxes.charges on the sale of a personal home. If youreduced by your share of the refund the corpora-You may not be able to deduct the total you paytion received.are the buyer and you pay them, include them ininto the escrow account. You can deduct onlythe cost basis of the property. If you are thethe real estate taxes that the lender actually paidseller and you pay them, they are expenses of
Home Mortgage Interest
from escrow to the taxing authority. Your realthe sale and reduce the amount realized on theestate tax bill will show this amount.sale.This section of the publication gives you basicinformation about home mortgage interest, in-
Refund or rebate of real estate taxes.
If youcluding information on interest paid at settle-
Homeowners association assessments.
receive a refund or rebate of real estate taxesment, points, and Form 1098,
Mortgage Interest 
You cannot deduct these assessments becausethis year for amounts you paid this year, you
the homeowners association, rather than a statemust reduce your real estate tax deduction byMost home buyers take out a mortgageor local government, imposes them.the amount refunded to you. If the refund or(loan) to buy their home. They then makerebate was for real estate taxes paid for a priormonthly payments to either the mortgage holderyear, you may have to include some or all of theor someone collecting the payments for the
Special Rules for Cooperatives
refund in your income. For more information,mortgage holder. (See
Your house payment,
in Publication 525,
Taxable and 
If you own a
cooperative apartment,
someearlier, under
What You Can and Cannot Nontaxable Income.
special rules apply to you, though you generally
)receive the same tax treatment as other home-Usually, you can deduct the entire part ofowners. As an owner of a cooperative apart-your payment that is for mortgage interest, if you
Items You Cannot Deduct
ment, you own shares of stock in a corporationitemize your deductions on Schedule A (Form
as Real Estate Taxes
that owns or leases housing facilities. You can1040). However, your deduction may be limiteddeduct your share of the corporation’s deducti-if:The following items are not deductible as realble real estate taxes if the
cooperative housing 
estate taxes.
Your total mortgage balance is more than
meets all of the following condi-$1 million ($500,000 if married filing sepa-
Charges for services.
An itemized charge fortions.rately), orservices to specific property or people is not a
The corporation has only one class oftax, even if the charge is paid to the taxing
You took out a mortgage for reasons otherstock outstanding.authority. You cannot deduct the charge as athan to buy, build, or improve your home.real estate tax if it is:
Each stockholder, solely because of own-If either of these situations applies to you, youership of the stock, can live in a house,
A unit fee for the delivery of a servicewill need to get Publication 936. You also mayapartment, or house trailer owned or(such as a $5 fee charged for every 1,000need Publication 936 if you later refinance yourleased by the corporation.gallons of water you use),mortgage or buy a second home.
No stockholder can receive any distribu-
A periodic charge for a residential service
Refund of home mortgage interest.
If yoution out of capital, except on a partial or(such as a $20 per month or $240 annualreceive a refund of home mortgage interest thatcomplete liquidation of the corporation.fee charged for trash collection), oryou deducted in an earlier year and that reduced
The tenant-stockholders pay at least 80%
A flat fee charged for a single service pro-your tax, you generally must include the refundof the corporation’s gross income for thevided by your local government (such as ain income in the year you receive it. For moretax year. For this purpose, gross income$30 charge for mowing your lawn becauseinformation, see
in Publication 525.means all income received during the en-it had grown higher than permitted under aThe amount of the refund will usually be showntire tax year, including any received beforelocal ordinance).on the mortgage interest statement you receivethe corporation changed to cooperativefrom your mortgage lender. See
Mortgage Inter- 
est Statement,
You must look at your real estate tax bill to decide if any nondeductible item- 
A tenant-stockholder
ized charges, such as those listed 
Deductible Mortgage Interest
can be any entity (such as a corporation, trust,
above, are included in the bill. If your taxing 
estate, partnership, or association) as well as an
authority (or lender) does not furnish you a copy 
To be deductible, the interest you pay must beindividual. The tenant-stockholder does not
of your real estate tax bill, ask for it.
on a loan secured by your main home or ahave to live in any of the cooperative’s dwellingsecond home. The loan can be a first or secondunits. The units that the tenant-stockholder has
Assessments for local benefits.
You cannotmortgage, a home improvement loan, or a homethe right to occupy can be rented to others.deduct amounts you pay for local benefits thatequity loan.tend to increase the value of your property. Lo-cal benefits include the construction of streets,
Deductible taxes.
You figure your share of
Prepaid interest.
If you pay interest in ad-sidewalks, or water and sewer systems. Youreal estate taxes in the following way.vance for a period that goes beyond the end ofmust add these amounts to the basis of yourthe tax year, you must spread this interest overproperty.1)Divide the number of your shares of stockthe tax years to which it applies. You can deductYou can, however, deduct assessments (orby the total number of shares outstanding,in each year only the interest that qualifies astaxes) for local benefits if they are for mainte-including any shares held by the corpora-home mortgage interest for that year. However,nance, repair, or interest charges related totion.there is an exception that applies to points, dis-those benefits. An example is a charge to repaircussed later.2)Multiply the corporation’s deductible realan existing sidewalk and any interest included inestate taxes by the number you figured in
Late payment charge on mortgage payment.
that charge.(1). This is your share of the real estateYou can deduct as home mortgage interest aIf only a part of the assessment is for mainte-taxes.late payment charge if it was not for a specificnance, repair, or interest charges, you must beservice in connection with your mortgage loan.Generally, the corporation will tell you yourable to show the amount of that part to claim theshare of its real estate tax. This is the amountdeduction. If you cannot show what part of the
Mortgage prepayment penalty.
If you pay offyou can deduct if it reasonably reflects the costassessment is for maintenance, repair, or inter-your home mortgage early, you may have to payof real estate taxes for your dwelling unit.est charges, you cannot deduct any of it.a penalty. You can deduct that penalty as homeAn assessment for a local benefit may bemortgage interest provided the penalty is not for
Refund of real estate taxes.
If the corpora-listed as an item in your real estate tax bill. If so,a specific service performed or cost incurred intion receives a refund of real estate taxes it paiduse the rules in this section to find how much ofconnection with your mortgage loan.in an earlier year, it must reduce the amount ofit, if any, you can deduct.real estate taxes paid this year when it allocates
Ground rent.
In some states (such as Mary-the tax expense to you. Your deduction for real
Transfer taxes (or stamp taxes).
You cannotland), you may buy your home subject to aestate taxes the corporation paid this year isdeduct transfer taxes and similar taxes andground rent. A ground rent is an obligation youPage 3

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