Jim Johnson
10-16-2007, 05:54 PM
CHECKLIST OF 10 OFTEN OVERLOOKED REAL ESTATE TAX DEDUCTIONS
1
Home acquisition mortgage loan fees: If you bought your primary or secondary home last year, you probably
obtained a mortgage to finance the purchase. That mortgage is called an “acquisition mortgage” because it enabled
purchase of the residence. If you paid a loan fee to obtain that acquisition mortgage, usually called “points,” that
loan fee qualifies as an itemized interest deduction. Each point paid equals 1 percent of the amount borrowed.
2
Home improvement loan fees: If you paid a loan fee to obtain a home improvement loan, that loan fee is fully
deductible in the tax year it was paid.
3
Loan fees paid to refinance a home loan or borrow against other real estate: If you refinanced your existing home
loan last year, or borrowed against other real estate such as an apartment building, any loan fee you paid must be
deducted over the life of the mortgage; i.e., if you paid a $1,000 loan fee to refinance with a new 30-year home
mortgage, you can deduct $33.33 for each of the next 30 years.
4
When refinancing, deduct any undeducted loan fees: Thanks to low mortgage interest rates, many home owners
refinanced again last year after previously refinancing a year or two earlier. These home owners should remember
to deduct on last year’s income tax returns any undeducted loan fees from a prior mortgage refinance.
5
If you bought or sold property last year, remember to deduct prorated real estate taxes: A major tax deduction
many real estate buyers and sellers overlook is the prorated property tax they paid at the close of escrow. Even if
the other party remitted the payment to the tax collector, but you were charged a prorated portion of the tax bill, be
sure to deduct your share on your last year’s return.
6
Deduct prorated mortgage interest in the year of property purchase or sale: Similarly, if you bought a residence (or
other real estate) and took over an existing mortgage, don’t forget to deduct your prorated interest share for the
month of the sale (even if the seller made the payment to the lender). Your closing settlement statement shows your
prorated share of mortgage interest.
7
When land rent payments qualify as interest deductions: Millions of homes are located on leased land and Internal
Revenue Code 163(c) allows land rent to be deducted like interest when the lease: (a) is for at least 15 years,
including renewal periods; (b) is freely assignable; (c) contains a present or future option to buy the land; and (d) is
like a security interest, such as a mortgage. Of course, payments to buy the land are not deductible, nor are ground
rent payments deductible if you do not have the option to buy the land, such as in a mobile home park.
8
Mortgage prepayment penalty: If you paid off an existing mortgage early and were charged a prepayment penalty
by the lender, that prepayment penalty qualified as a itemized deduction.
9
Home construction loan interest: If you built a new home last year, or are building one now, don’t forget to deduct
the construction loan interest paid. It’s deductible if the construction period does not exceed 24 months before
occupancy of your principal residence.
10
Deduct prepaid property taxes and mortgage interest. If you prepaid this year’s real estate
taxes last year, as home owners do to increase their tax deductions, or if you paid your
January of this year mortgage payment in December of last year, don’t forget to deduct
these extra mortgage interest and property tax payments on last year’s income tax returns.
1
Home acquisition mortgage loan fees: If you bought your primary or secondary home last year, you probably
obtained a mortgage to finance the purchase. That mortgage is called an “acquisition mortgage” because it enabled
purchase of the residence. If you paid a loan fee to obtain that acquisition mortgage, usually called “points,” that
loan fee qualifies as an itemized interest deduction. Each point paid equals 1 percent of the amount borrowed.
2
Home improvement loan fees: If you paid a loan fee to obtain a home improvement loan, that loan fee is fully
deductible in the tax year it was paid.
3
Loan fees paid to refinance a home loan or borrow against other real estate: If you refinanced your existing home
loan last year, or borrowed against other real estate such as an apartment building, any loan fee you paid must be
deducted over the life of the mortgage; i.e., if you paid a $1,000 loan fee to refinance with a new 30-year home
mortgage, you can deduct $33.33 for each of the next 30 years.
4
When refinancing, deduct any undeducted loan fees: Thanks to low mortgage interest rates, many home owners
refinanced again last year after previously refinancing a year or two earlier. These home owners should remember
to deduct on last year’s income tax returns any undeducted loan fees from a prior mortgage refinance.
5
If you bought or sold property last year, remember to deduct prorated real estate taxes: A major tax deduction
many real estate buyers and sellers overlook is the prorated property tax they paid at the close of escrow. Even if
the other party remitted the payment to the tax collector, but you were charged a prorated portion of the tax bill, be
sure to deduct your share on your last year’s return.
6
Deduct prorated mortgage interest in the year of property purchase or sale: Similarly, if you bought a residence (or
other real estate) and took over an existing mortgage, don’t forget to deduct your prorated interest share for the
month of the sale (even if the seller made the payment to the lender). Your closing settlement statement shows your
prorated share of mortgage interest.
7
When land rent payments qualify as interest deductions: Millions of homes are located on leased land and Internal
Revenue Code 163(c) allows land rent to be deducted like interest when the lease: (a) is for at least 15 years,
including renewal periods; (b) is freely assignable; (c) contains a present or future option to buy the land; and (d) is
like a security interest, such as a mortgage. Of course, payments to buy the land are not deductible, nor are ground
rent payments deductible if you do not have the option to buy the land, such as in a mobile home park.
8
Mortgage prepayment penalty: If you paid off an existing mortgage early and were charged a prepayment penalty
by the lender, that prepayment penalty qualified as a itemized deduction.
9
Home construction loan interest: If you built a new home last year, or are building one now, don’t forget to deduct
the construction loan interest paid. It’s deductible if the construction period does not exceed 24 months before
occupancy of your principal residence.
10
Deduct prepaid property taxes and mortgage interest. If you prepaid this year’s real estate
taxes last year, as home owners do to increase their tax deductions, or if you paid your
January of this year mortgage payment in December of last year, don’t forget to deduct
these extra mortgage interest and property tax payments on last year’s income tax returns.