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Frequently Asked Tax Questions And Answers
Keyword: Primary Residence
3.6 Itemized Deductions/Standard Deductions: 6. Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses)
I have a mortgage for my primary residence and a second mortgage
for land that I intend to build a home on. Can the interest be deducted for
the second mortgage?
Unless you have begun construction of a home on the bare land that you
can occupy within 24 months, the land would be considered an investment and
the interest you paid on the second mortgage would not qualify as deductible
mortgage interest. However, it would constitute investment interest if you
itemize your deductions. For more information, refer to Publication 550, Investment
Income and Expenses, and Publication 936, Home Mortgage Interest
Deduction.
References:
May I deduct my home improvements and repairs to my home?
Home improvements add to the value of your home, prolong its useful life,
or adapt it to new uses. Home improvements costs are not deductible. However,
you add the cost of improvements to the basis of your property.
Examples of 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, putting on a new roof, or paving your driveway.
For a list of some other examples of improvements, refer to Publication 523, Selling
Your Home.
Repairs maintain your home in good condition. They are not currently deductible
nor do they add to your home's value or prolong its life. You do not add their
cost to the basis of your property.
Some examples of repairs include repainting your house inside or outside,
fixing your gutters or floors, repairing leaks or plastering and replacing
broken window panes.
Exception: The entire job is considered an improvement, however, if items
that would otherwise be considered repairs are done as part of an extensive
remodeling or restoration of your home. For more information, refer to Publication 523; Selling Your Home; and Publication 551, Basis
of Assets.
References:
Is the mortgage interest and property tax on a second residence
deductible?
The mortgage interest on a second home which you use as a residence for
some portion of the taxable year, is generally deductible if the interest
satisfies the same requirements for deductibility as interest on a primary
residence. Real estate taxes paid on your primary and second residence are,
generally, deductible. Deductible real estate taxes include any state, local,
or foreign taxes on real property levied for the general public welfare. Deductible
real estate taxes do not include taxes charged for local benefits and improvements
that increase the value of the property. For more information, refer to Publication 17, Your Federal Income Tax for Individuals; Tax Topic 503, Deductible
Taxes; and Publication 530, Tax Information for First-Time Home
Buyers.
References:
What are the rules for mortgage interest on a manufactured home?
Can I deduct the interest on the mortgage for the manufactured home if it
is on a rented lot? Can I deduct the interest for the manufactured home and
for the lot if I buy a lot for the home?
For you to take a home mortgage interest deduction, your debt must be secured
by a qualified home. This means your main home or your second home. A home
includes a house, condominium, cooperative, mobile home, boat, or similar
property that has sleeping, cooking, and toilet facilities.
The mortgage interest on a manufactured home may be deducted if the home
is on a rented lot. If you buy a lot and place a manufactured home on it,
the interest paid for the lot is also qualifying home mortgage interest, provided
the mortgage is secured by the house.
References:
10.1 Capital Gains, Losses/Sale of Home: Property (Basis, Sale of Home, etc.)
I sold my home last year. Do I have to report the sale?
Report the sale of your main home on your tax return only if you have a gain and
at least part of it is taxable, or you have a gain and choose not to exclude it. Report
any taxable gain on Form 1040, Schedule D (PDF), Capital
Gains and Losses. Form 2119, Sale of Your Home is obsolete beginning in 1998.
For more information, refer to Publication 523, Selling Your Home.
References:
I sold my principal residence this year. What form do I need to file?
If you meet the ownership and use tests, you will generally only need to report
the sale of your home if your gain is more than $250,000 ($500,000 if married filing
a joint return). This means that during the 5-year period ending on the date of the
sale, you must have:
Owned the home for at least 2 years (the ownership test), and
Lived in the home as your main home for at least 2 years (the use test).
If you owned and lived in the property as your main home for less than 2 years,
you may still be able to claim an exclusion in some cases. The maximum amount you
can exclude will be reduced. If you are required or choose to report a gain, it is
reported on Form 1040, Schedule D (PDF), Capital
Gains and Losses .
If you were on qualified extended duty in the U.S. Armed Services or the Foreign
Service you may suspend the five-year test period for up to 10 years. You are on qualified
extended duty when:
At a duty station that is at least 50 miles from the residence sold, or
When residing under orders in government housing, for more than 90 days or for
an indefinite period.
This change applies to home sales after May 6, 1997. You may use this provision
for only one property at a time and one sale every two years.
For additional information on selling your home, refer to Publication 523, Selling
Your Home .
References:
If I sell my home and use the money I receive to pay off the mortgage, do
I have to pay taxes on that money?
It is not the money you receive for the sale of your home, but the amount of gain
on the sale over your cost, or basis, that determines whether you will have to include
any proceeds as taxable income on your return. You may be able to exclude any gain
from income up to a limit of $250,000 ($500,000 on a joint return in most cases).
If you can exclude all of the gain, you do not need to report the sale on your tax
return.
For additional information on selling your home, refer to Publication 523, Selling
Your Home.
References:
If I take the exclusion of capital gain tax on the sale of my old home this
year, can I also take the exclusion again if I sell my new home in the future?
With the exception of the 2-year waiting period, there is no limit on the number
of times you can exclude the gain on the sale of your principle residence so long
as you meet the ownership and use tests.
References:
What is the amount of capital gains from the sale of a home that can be
excluded if sold in less than the two year waiting period?
If you owned and lived in the property as your main home for less than 2 years,
you may still be able to claim an exclusion in some cases. The maximum amount you
can exclude will be reduced.
You can claim this reduced exclusion if either of the following is true.
(1) You did not meet the ownership and use tests on a home you sold due to:
. health reasons
. a change in place of employment
. to the extent provided by regulations, unforeseen circumstances. (see below)
(2) Your exclusion would have been disallowed because of the rule on selling more
than one home in a two year period, except you sold the home due to:
. health reasons
. a change in place of employment
. to the extent provided by regulations, unforeseen circumstances. (see below)
Use the worksheet in Publication 523, Selling Your Home, to figure
your reduced exclusion.
The IRS has issued temporary regulations. These regulations provide guidelines
for taxpayers with reduced maximum exclusion circumstances. Temp: reg. 1.121-3T (e)
details the "unforeseen circumstances" guidelines. See Temp reg 1.121-3T and Publication 523, Selling Your Home.
References:
I lived in a home as my principal residence for the first 2 of the last
5 years. For the last 3 years, the home was a rental property before selling it. Can
I still avoid the capital gains tax and, if so, how should I deal with the depreciation
I took while it was rented out?
If, during the 5-year period ending on the date of sale, you owned the home for
at least 2 years and lived in it as your main home for at least 2 years, you can exclude
up to $250,000 of the gain ($500,000 on a joint return in most cases). However, you
cannot exclude the portion of the gain equal to depreciation allowed or allowable
for periods after May 6, 1997. This gain is reported on Form 4797. If you can show
by adequate records or other evidence that the depreciation allowed was less than
the amount allowable, the amount you cannot exclude is the amount allowed. Refer toPublication 523 , Selling Your Main Home and Form 4797 (PDF), Sale of Business Property for specifics on calculating and
reporting the amount of the eligible exclusion.
References:
10.4 Capital Gains, Losses/Sale of Home: Losses (Homes, Stocks, Other Property)
Is the loss on the sale of your home deductible?
The loss on the sale of a personal residence is a nondeductible personal loss.
References:
As a result of a bankruptcy, the bank foreclosed on my house. Can you tell
me where and how to report this loss on my taxes?
The foreclosure or repossession is treated as a sale or exchange from which you,
the borrower, may realize gain or loss. However, if you realize a loss on personal
use property, such as your residence, the loss is not deductible. Refer to Publication 544, Sales and other Dispositions of Assets, and Publication 908 (PDF), Bankruptcy Tax Guide, for more information.
References:
11.4 Sale or Trade of Business, Depreciation, Rentals: Sales, Trades, Exchanges
Can we move into our rental property, live there as our main home
for two years, and sell it without having to pay capital gains tax?
You may be able to exclude your gain from the sale of your main home that
you have also used for business or to produce rental income if you meet the
ownership and use tests, detailed in Publication 523, Sale of Your
Home.
However, if you were entitled to take depreciation deductions because you
used your home for business purposes or as rental property, you cannot exclude
the part of your gain equal to any depreciation allowed or allowable as a
deduction for periods after May 6, 1997. (Note: If you can show by adequate
records or other evidence that the depreciation deduction allowed (did deduct)
was less than the amount allowable (could have deducted), the amount you cannot
exclude is the smaller of those two figures.)
The gain, exclusion, and depreciation recapture should be reported on Form 1040, Schedule D (PDF), Capital Gains and Losses,
as described in Publication 523, Selling Your Home.
References:
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