What you CAN & CANNOT deduct...
Information obtained from the official IRS website at http://www.irs.gov
Table of Contents
- What You Can and Cannot Deduct
- Real Estate Taxes
- Sales Taxes
- Home Mortgage Interest
- Mortgage Insurance Premiums
- Mortgage Interest Credit
- Figuring the Credit
- District of Columbia First-Time Homebuyer Credit
- Basis
- Figuring Your Basis
- Adjusted Basis
- Keeping Records
- How To Get Tax Help
- Taxpayer Advocacy Panel (TAP).
- Low Income Taxpayer Clinics (LITCs).
To deduct expenses of owning a home, you must file Form 1040 and itemize your deductions on Schedule A (Form 1040). If you itemize, you cannot take the standard deduction.
This section explains what expenses you can deduct as a homeowner. It also points out expenses that you cannot deduct. There are four primary discussions: real estate taxes, sales taxes, home mortgage interest, and mortgage insurance premiums. Generally, your real estate taxes, home mortgage interest, and mortgage insurance premiums are included in your house payment.
Here are some expenses, which may be included in your house payment, that cannot be deducted.
-
Fire or homeowner's insurance premiums.
-
The amount applied to reduce the principal of the mortgage.
-
Insurance (other than mortgage insurance premiums), including fire and comprehensive coverage, and title insurance.
-
Wages you pay for domestic help.
-
Depreciation.
-
The cost of utilities, such as gas, electricity, or water.
-
Most settlement costs. See Settlement or closing costs under Cost as Basis, later, for more information.
-
Forfeited deposits, down payments, or earnest money.
Most state and local governments charge an annual tax on the value of real property. This is called a real estate tax. You can deduct the tax if it is based on the assessed value of the real property and the taxing authority charges a uniform rate on all property in its jurisdiction. The tax must be for the welfare of the general public and not be a payment for a special privilege granted or service rendered to you.
You can deduct real estate taxes imposed on you. 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. If you own a cooperative apartment, see Special Rules for Cooperatives, later.
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. You each can deduct your own share, if you itemize deductions, for the year the property is sold.
Example.
You bought your home on September 1. The property tax year (the period to which the tax relates) in your area is the calendar year. The tax for the year was $730 and was due and paid by the seller on August 15.
You owned your new home during the property tax year for 122 days (September 1 to December 31, including your date of purchase). You figure your deduction for real estate taxes on your home as follows.
| 1. | Enter the total real estate taxes for the real property tax year | $730 |
| 2. | Enter the number of days in the property tax year that you owned the property | 122 |
| 3. | Divide line 2 by 365 | .3342 |
| 4. | Multiply line 1 by line 3. This is your deduction. Enter it on Schedule A (Form 1040), line 6 | $244 |
The following items are not deductible as real estate taxes.
-
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).
You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. An example is a charge to repair an existing sidewalk and any interest included in that charge.
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. If you cannot show what part of the assessment is for maintenance, repair, or interest charges, you cannot deduct any of it.
An assessment for a local benefit may be listed as an item in your real estate tax bill. If so, use the rules in this section to find how much of it, if any, you can deduct.
If you own a cooperative apartment, some special rules apply to you, though you generally receive the same tax treatment as other homeowners. As an owner of a cooperative apartment, you own shares of stock in a corporation that owns or leases housing facilities. 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. For this purpose, gross income means all income received during the entire tax year, including any received before the corporation changed to cooperative ownership,
-
At least 80% of the total square footage of the corporation's property must be available for use by the tenant-stockholder during the entire tax year, or
-
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-shareholder during the entire tax year.
-
-
Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation.
-
Multiply the corporation's deductible real estate taxes by the number you figured in (1). This is your share of the real estate taxes.
Generally, the corporation will tell you your share of its real estate tax. This is the amount you can deduct if it reasonably reflects the cost of real estate taxes for your dwelling unit.
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). 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. For information on figuring your deduction, see the Instructions for Schedule A (Form 1040).
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.
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.
Most home buyers take out a mortgage (loan) to buy their home. They then make monthly payments to either the mortgage holder or someone collecting the payments for the mortgage holder.
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). 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.
If either of these situations applies to you, you will need to get Publication 936. You also may need Publication 936 if you later refinance your mortgage or buy a second home.
To be deductible, the interest you pay must be on a loan secured by your main home or a second home. The loan can be a first or second mortgage, a home improvement loan, or a home equity loan.
-
Your lease, including renewal periods, is for more than 15 years.
-
You can freely assign the lease.
-
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.
-
The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled.
Payments made to end the lease and buy the lessor's entire interest in the land are not redeemable ground rents. You cannot deduct them.
If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct.
Figure A. Are my points fully deductible this year?
One item that normally appears on a settlement or closing statement is home mortgage interest.
You can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). This amount should be included in the mortgage interest statement provided by your lender. See the discussion under Mortgage Interest Statement, later. Also, if you pay interest in advance, see Prepaid interest, earlier, and Points, next.
The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points also may be called loan origination fees, maximum loan charges, loan discount, or discount points.
A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. See Points paid by the seller, later.
-
Your loan is secured by your main home. (Generally, your main home is the one you live in most of the time.)
-
Paying points is an established business practice in the area where the loan was made.
-
The points paid were not more than the points generally charged in that area.
-
You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them. Most individuals use this method.
-
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.
-
The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. The funds you provided do not have to have been applied to the points. They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. You cannot have borrowed these funds from your lender or mortgage broker.
-
You use your loan to buy or build your main home.
-
The points were computed as a percentage of the principal amount of the mortgage.
-
The amount is clearly shown on the settlement statement (such as the Uniform Settlement Statement, Form HUD-1) as points charged for the mortgage. The points may be shown as paid from either your funds or the seller's.
Note.
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. 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.
-
Appraisal fees,
-
Notary fees, and
-
Preparation costs for the mortgage note or deed of trust.
The buyer must also reduce the basis of the home by the amount of the seller-paid points. For more information about the basis of your home, see Basis, later.
Example 1.
When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). 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. Of the $1,000 you were charged for points, you can deduct $750 in the year paid. You spread the remaining $250 over the life of the mortgage.
Example 2.
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. In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). You spread the remaining $250 over the life of the mortgage. You must reduce the basis of your home by the $1,000 paid by the seller.
Enter on Schedule A (Form 1040), line 10, the home mortgage interest and points reported to you on Form 1098 (discussed next). If you did not receive a Form 1098, enter your deductible interest on line 11, and any deductible points on line 12. See Table 1 for a summary of where to deduct home mortgage interest and real estate taxes.
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. The seller must give you this number and you must give the seller your SSN. Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Failure to meet either of these requirements may result in a $50 penalty for each failure.
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. The statement will show the total interest paid on your mortgage during the year. 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. See Points, earlier.
The interest you paid at settlement should be included on the statement. 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. Put the total on Schedule A (Form 1040), line 10, and attach a statement to your return explaining the difference. Write “See attached” to the right of line 10.
A mortgage holder can be a financial institution, a governmental unit, or a cooperative housing corporation. If a statement comes from a cooperative housing corporation, it generally will show your share of interest.
Your mortgage interest statement for 2007 should be provided or sent to you by January 31, 2008. If it is mailed, you should allow adequate time to receive it before contacting the mortgage holder. A copy of this form will be sent to the IRS also.
Example.
You bought a new home on May 3. You paid no points on the purchase. During the year, you made mortgage payments which included $4,480 deductible interest on your new home. The settlement sheet for the purchase of the home included interest of $620 for 29 days in May. The mortgage statement you receive from the lender includes total interest of $5,100 ($4,480 + $620). You can deduct the $5,100 if you itemize your deductions.
You can take an itemized deduction on line 13, Schedule A (Form 1040), for premiums you pay or accrue during 2007 for qualified mortgage insurance in connection with home acquisition debt on your qualified home.
Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as an itemized deduction. Mortgage insurance premiums you paid or accrued after December 31, 2007, or that are properly allocable to any period after December 31, 2007, are not deductible as an itemized deduction.
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).
Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home. It also must be secured by that home.
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.
This means your main home or your second home. A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.
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. See Line 13 in the instructions for Schedule A&B (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. If your AGI is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums.
The mortgage interest credit is intended to help lower-income individuals afford home ownership. If you qualify, you can claim the credit each year for part of the home mortgage interest you pay.
The MCC will show the certificate credit rate you will use to figure your credit. It also will show the certified indebtedness amount. Only the interest on that amount qualifies for the credit. See Figuring the Credit, later.
Table 1. Where To Deduct Interest and Taxes Paid on Your Home
See the text for information on what expenses are eligible.
| IF you are eligible to deduct . . . | THEN report the amount on Schedule A (Form 1040) . . . |
|---|---|
| real estate taxes | line 6. |
| home mortgage interest and points reported on Form 1098 | line 10. |
| home mortgage interest not reported on Form 1098 | line 11. |
| points not reported on Form 1098 |
line 12. |
| qualified mortgage insurance premiums | line 13. |
You must contact the appropriate government agency about getting an MCC before you get a mortgage and buy your home. Contact your state or local housing finance agency for information about the availability of MCCs in your area.
Figure your credit on Form 8396.
| 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.
Example.
Emily bought a home this year. Her mortgage loan is $125,000. The certified indebtedness amount on her MCC is $100,000. She paid $7,500 interest this year. Emily figures the interest to enter on Form 8396, line 1, as follows:
| $100,000 $125,000 | = | 80% | (.80) | ||
| $7,500 | x | .80 | = | $6,000 |
Emily enters $6,000 on Form 8396, line 1. In each later year, she will figure her credit using only 80% of the interest she pays for that year.
Two limits may apply to your credit.
-
A limit based on the credit rate, and
-
A limit based on your tax.
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.
Example.
John and his brother, George, were issued an MCC. They used it to get a mortgage on their main home. John has a 60% ownership interest in the home, and George has a 40% ownership interest in the home. John paid $5,400 mortgage interest this year and George paid $3,600.
The MCC shows a credit rate of 25% and a certified indebtedness amount of $130,000. The loan amount (mortgage) on their home is $120,000. The credit is limited to $2,000 because the credit rate is more than 20%.
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. His credit is limited to $1,200 ($2,000 × 60%).
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. His credit is limited to $800 ($2,000 × 40%).
Table 2. Effect of Refinancing on Your Credit
| IF you get a new (reissued) MCC and the amount of your new mortgage is ... | THEN the interest you claim on Form 8396, line 1, is* ... | ||
| smaller than or equal to the certified indebtedness amount on the new MCC | all the interest paid during the year on your new mortgage. | ||
| larger than the certified indebtedness amount on the new MCC | interest paid during the year on your new mortgage multiplied by the following fraction. | ||
| 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. See New MCC cannot increase your credit. |
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.
Example.
You receive a mortgage credit certificate from State X. This year, your regular tax liability is $1,100, you owe no alternative minimum tax, and your mortgage interest credit is $1,700. You claim no other credits. Your unused mortgage interest credit for this year is $600 ($1,700 - $1,100). You can carry forward this amount to the next 3 years or until used, whichever comes first.
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. The amount of credit you can claim on the new loan may change. Table 2 summarizes how to figure your credit if you refinance your original mortgage loan.
An issuer may reissue an MCC after you refinance your mortgage. 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.
If your new MCC has a credit rate different from the rate on the old MCC, you must attach a statement to Form 8396. 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. It must show a separate calculation for the part of the year when the new MCC was in effect. 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.
In most cases, the agency that issues your new MCC will make sure that it does not increase your credit. However, if either your old loan or your new loan has a variable (adjustable) interest rate, you will need to check this yourself. In that case, you will need to know the amount of the credit you could have claimed using the old MCC.
There are two methods for figuring the credit you could have claimed. Under one method, you figure the actual credit that would have been allowed. This means you use the credit rate on the old MCC and the interest you would have paid on the old loan.
If your old loan was a variable rate mortgage, you can use another method to determine the credit that you could have claimed. 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. 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. The principal of the hypothetical mortgage is the remaining outstanding balance of the certified mortgage indebtedness shown on the old MCC.
You may be able to claim a one-time tax credit of up to $5,000 ($2,500 if married filing separately) if you buy a main home in the District of Columbia. You must reduce the basis of your home by the amount of the tentative credit.
The credit is not allowed if you acquired your home from certain related persons or by gift or inheritance.
You qualify for the credit if you (and your spouse if you are married) did not have an ownership interest in a main home in the District of Columbia for at least 1 year before buying the new home. Individuals with modified adjusted gross income of $90,000 or more ($130,000 or more in the case of a joint return) cannot claim the credit. Individuals with modified adjusted gross income between $70,000 and $90,000 (between $110,000 and $130,000 in the case of a joint return) can claim only a reduced credit.
Use Form 8859, District of Columbia First-Time Homebuyer Credit, to figure your credit. See the form and its instructions for more information.
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.
While you own your home, you may add certain items to your basis. You may subtract certain other items from your basis. These items are called adjustments to basis and are explained later under Adjusted Basis.
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. You also must keep records of the events that affect basis or adjusted basis. See Keeping Records, later.
How you figure your basis depends on how you acquire your home. If you buy or build your home, your cost is your basis. 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. If you inherit your home from a decedent, the fair market value at the date of the decedent's death is generally your basis. Each of these topics is discussed later.
The cost of your home, whether you purchased it or constructed it, is the amount you paid for it, including any debt you assumed.
The cost of your home includes most settlement or closing costs you paid when you bought the home. If you built your home, your cost includes most closing costs paid when you bought the land or settled on your mortgage.
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.
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. You cannot deduct them as taxes paid.
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. Do not include those taxes in your basis. If you did not reimburse the seller, you must reduce your basis by the amount of those taxes.
Table 3. Adjusted Basis
This table lists examples of some items that generally will increase or decrease your basis in your home. It is not intended to be all-inclusive.
| Increases to Basis | Decreases to Basis |
|---|---|
Improvements:
Assessments for local improvements (see Assessments for local benefits, under What You Can and Cannot Deduct) Amounts spent to restore damaged property |
|
Example 1.
You bought your home on September 1. The property tax year in your area is the calendar year, and the tax is due on August 15. 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. You did not reimburse the seller for your share of the real estate taxes from September 1 through December 31. You must reduce the basis of your home by the $426 [(122 ÷ 365) × $1,275] the seller paid for you. You can deduct your $426 share of real estate taxes on your return for the year you purchased your home.
Example 2.
You bought your home on May 3, 2007. The property tax year in your area is the calendar year. The taxes for the previous year are assessed on January 2 and are due on May 31 and November 30. Under state law, the taxes become a lien on May 31. You agreed to pay all taxes due after the date of sale. The taxes due in 2007 for 2006 were $1,375. The taxes due in 2008 for 2007 will be $1,425.
You cannot deduct any of the taxes paid in 2007 because they relate to the 2006 property tax year and you did not own the home until 2007. Instead, you add the $1,375 to the cost (basis) of your home.
You owned the home in 2007 for 243 days (May 3 to December 31), so you can take a tax deduction on your 2008 return of $949 [(243 ÷ 365) × $1,425] paid in 2008 for 2007. You add the remaining $476 ($1,425 - $949) of taxes paid in 2008 to the cost (basis) of your home.
The only settlement or closing costs you can deduct are home mortgage interest and certain real estate taxes. You deduct them in the year you buy your home if you itemize your deductions. You can add certain other settlement or closing costs to the basis of your home.
The following are some of the settlement fees and closing costs that you can include in the original basis of your home.
-
Abstract fees (abstract of title fees).
-
Charges for installing utility services.
-
Legal fees (including fees for the title search and preparation of the sales contract and deed).
-
Recording fees.
-
Surveys.
-
Transfer taxes.
-
Owner's title insurance.
-
Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions.
If the seller actually paid for any item for which you are liable and for which you can take a deduction (such as your share of the real estate taxes for the year of sale), you must reduce your basis by that amount unless you are charged for it in the settlement.
-
Charges for using utilities or other services related to occupancy of the home before closing.
-
Rent for occupying the home before closing.
-
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.
-
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. See Points, earlier, for the rules on deducting points.
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 FMV at the time it was given to you, and any gift tax paid on it.
-
If using the donor's adjusted basis results in a loss when you sell the home, you must use the fair market value of the home at the time of the gift as your basis.
-
If using the fair market value results in a gain, you have neither a gain nor a loss.
Publication 551 gives more information, including examples, on figuring your basis when you receive property as a gift.
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 alternate valuation date if the personal representative for the estate chooses to use alternative valuation.
If an estate tax return was filed, your basis is generally the value of the home listed on the estate tax return.
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. Publication 551 and Publication 559, Survivors, Executors, and Administrators, have more information on the basis of inherited property.
While you own your home, various events may take place that can change the original basis of your home. These events can increase or decrease your original basis. The result is called adjusted basis. See Table 3, earlier, for a list of some of the items that can adjust your basis.
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.
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. These assessments are discussed earlier under Real Estate Taxes.
However, repairs that are done as part of an extensive remodeling or restoration of your home are considered improvements. You add them to the basis of your home.
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.
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. 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. You should keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis. In addition, you should keep track of any decreases to the basis such as those listed in Table 3.
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. (A period of limitations is the period of time after which no legal action can be brought.) For assessment of tax you owe, this is generally 3 years from the date you filed the return. 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. Returns filed before the due date are treated as filed on the due date.
You may need to keep records relating to the basis of property (discussed earlier) longer than for the period of limitations. Keep those records as long as they are important in figuring the basis of the original or replacement property. 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.
Table 4. Record of Home Improvements
Keep this for your records. Also, keep receipts or other proof of improvements.
|
|
||||||
|---|---|---|---|---|---|---|
| (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 | ||||||
You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. By selecting the method that is best for you, you will have quick and easy access to tax help.
You can contact the TAS by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059 to see if you are eligible for assistance. You can also call or write to your local taxpayer advocate, whose phone number and address are listed in your local telephone directory and in Publication 1546, Taxpayer Advocate Service - Your Voice at the IRS. You can file Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on your behalf. For more information, go to www.irs.gov/advocate.
www.improveirs.org.
Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities.
Internet. You can access the IRS website at www.irs.gov 24 hours a day, 7 days a week to:
-
E-file your return. Find out about commercial tax preparation and e-file services available free to eligible taxpayers.
-
Check the status of your 2007 refund. Click on Where's My Refund. Wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). Have your 2007 tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund.
-
Download forms, instructions, and publications.
-
Order IRS products online.
-
Research your tax questions online.
-
Search publications online by topic or keyword.
-
View Internal Revenue Bulletins (IRBs) published in the last few years.
-
Figure your withholding allowances using the withholding calculator online at
www.irs.gov/individuals. -
Determine if Form 6251 must be filed using our Alternative Minimum Tax (AMT) Assistant.
-
Sign up to receive local and national tax news by email.
-
Get information on starting and operating a small business.
Phone. Many services are available by phone.
-
Ordering forms, instructions, and publications. Call 1-800-829-3676 to order current-year forms, instructions, and publications, and prior-year forms and instructions. You should receive your order within 10 days.
-
Asking tax questions. Call the IRS with your tax questions at 1-800-829-1040.
-
Solving problems. You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Call your local Taxpayer Assistance Center for an appointment. To find the number, go to www.irs.gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service.
-
TTY/TDD equipment. If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications.
-
TeleTax topics. Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics.
-
Refund information. To check the status of your 2007 refund, call 1-800-829-4477 and press 1 for automated refund information or call 1-800-829-1954. Be sure to wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). Have your 2007 tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund.
Evaluating the quality of our telephone services. To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. One method is for a second IRS representative to listen in on or record random telephone calls. Another is to ask some callers to complete a short survey at the end of the call.
Walk-in. Many products and services are available on a walk-in basis.
-
Products. You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes.
-
Services. You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you're more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. No appointment is necessary, but if you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. To find the number, go to www.irs.gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service.
Mail. You can send your order for forms, instructions, and publications to the address below. You should receive a response within 10 days after your request is received.
National Distribution Center
P.O. Box 8903
Bloomington, IL 61702-8903
CD/DVD for tax products. You can order Publication 1796, IRS Tax Products CD/DVD, and obtain:
-
Current-year forms, instructions, and publications.
-
Prior-year forms, instructions, and publications.
-
Bonus: Historical Tax Products DVD - Ships with the final release.
-
Tax Map: an electronic research tool and finding aid.
-
Tax law frequently asked questions.
-
Tax Topics from the IRS telephone response system.
-
Fill-in, print, and save features for most tax forms.
-
Internal Revenue Bulletins.
-
Toll-free and email technical support.
-
The CD which is released twice during the year.
- The first release will ship the beginning of January 2008.
- The final release will ship the beginning of March 2008.
Purchase the CD/DVD from National Technical Information Service (NTIS) at www.irs.gov/cdorders for $35 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the CD/DVD for $35 (plus a $5 handling fee). Price is subject to change.
CD for small businesses. Publication 3207, The Small Business Resource Guide CD for 2007, is a must for every small business owner or any taxpayer about to start a business. This year's CD includes:
-
Helpful information, such as how to prepare a business plan, find financing for your business, and much more.
-
All the business tax forms, instructions, and publications needed to successfully manage a business.
-
Tax law changes for 2007.
-
Tax Map: an electronic research tool and finding aid.
-
Web links to various government agencies, business associations, and IRS organizations.
-
“Rate the Product” survey—your opportunity to suggest changes for future editions.
-
A site map of the CD to help you navigate the pages of the CD with ease.
-
An interactive “Teens in Biz” module that gives practical tips for teens about starting their own business, creating a business plan, and filing taxes.
An updated version of this CD is available each year in early April. You can get a free copy by calling 1-800-829-3676 or by visiting www.irs.gov/smallbiz.
For more information on how you can save money on your next transaction, download our free report called "Eight Insider Tips That Save Buyers Thousands!" This report is offered to all guests.
