|
 |
|
3.1 Itemized Deductions/Standard Deductions: Autos, Computers, Electronic Devices (Listed Property)
My university required each incoming freshman to come to school
with their own computer. Is there any way to deduct the cost of the computer
from my tax liability?
The cost of a personal computer is generally a personal expense that is
not deductible. However, if the school bills everyone, as a condition of attendance
or enrollment, for proprietary computer devices and/or software available
no where else, then this may qualify as an expense towards either the Lifetime
Learning Credit or Hope Credit. For more information, refer to Publication 970, Tax
Benefits for Education.
References:
3.2 Itemized Deductions/Standard Deductions: Education & Work-Related Expenses
What educational expenses are deductible?
You may be able to deduct work-related educational expenses as an itemized
deduction on Schedule A of Form 1040, line 20. To be deductible, your expenses
must be for education that:
Maintains or improves skills required in your present job; or
Serves a business purpose and is required by your employer, or by law
or regulations, to keep your present salary, status, or job.
Certain restrictions also apply. For more information, refer to Publication 970, Tax Benefits for Education; and Tax Topic 513, Educational
Expenses.
References:
What are types of educational expenses?
Deductible educational expenses include amounts spent for tuition, books,
supplies, laboratory fees, and similar items. They also include the cost of
correspondence courses, as well as formal training and research you do as
part of an educational program. Transportation and travel expenses to attend
qualified educational activities may also be deductible. For more information,
refer toPublication 970 , Tax Benefits for Education;
and Tax Topic 513, Educational Expenses.
References:
Can I deduct the cost of classes I need for work?
In some cases, you may be able to deduct the cost of classes you need for
work. This deduction, however, would be subject to the 2 percent of AGI floor,
along with most other miscellaneous deductions you list on Form 1040, Schedule A (PDF), Itemized Deductions.
To be deductible, your expenses must be for education that:
(1) Maintains or improves skills required in your present job, or
(2) Serves a business purpose and is required by your employer, or by law,
to keep your present salary, status, or job.
However, these same expenses are not deductible if:
(1) The education is required to meet the minimum educational requirements
of your job, or
(2) The education is part of a program that will lead to qualifying you
in a new trade or business.
Educational expenses, related to your present work, that are incurred during
periods of temporary absence from your job may also be deductible provided
you return to the same job or same type of work. Generally, absence from work
for one year or less is considered temporary.
For more information, refer to Publication 970, Tax
Benefits for Education; and Tax Topic 513, Educational
Expenses.
Reference:
Publication 970, Tax Benefits for Education
Tax Topic 513, Educational Expenses
Am I eligible to claim both my job education expenses (minus 2%
of AGI) and the Lifetime Learning Credit on my taxes?
If you are eligible to deduct educational expenses and are also eligible
for the lifetime learning credit, then it is possible to claim both, as long
as you do NOT use the SAME educational expenses to claim both benefits. Your
expenses must be divided between the two. This is sometimes desirable because
a qualifying expense for one benefit may not be a qualifying expense for the
other tax benefit. For more information, refer to Publication 970, Tax
Benefits for Education; Form 8863 (PDF), Education
Credit (Hope and Lifetime Learning Credit); and Tax Topic 513, Educational
Expenses.
References:
I am employed as a Registered Nurse and am currently taking classes
to be an Advanced Practitioner of Nursing (which is a master's Degree in Nursing).
My classes are not required by my employer but they do increase my knowledge
to do my job well. I will probably continue working for the same employer
when I graduate. Can I claim the cost of tuition, books, travel to the university,
etc., as an unreimbursed business expense?
You may be able to claim this deduction as long as the position of Advanced
Practitioner of Nursing does not constitute a change of trade or business.
If the education merely maintains or improves the skills required in your
employment and you merely have a change of duties, your expenses would likely
be deductible as job education expenses, subject to certain limitations. However,
you should consider the relative merits of taking a tax deduction versus taking
a tax credit (the Hope and Lifetime Learning Credits) for the same expense.
For more information on the Education Credits, including the Hope and Lifetime
Learning Credits, refer to Publication 970 , Tax Benefits for Education .
For more information on deducting education expenses, refer to Tax Topic 513, Educational
Expenses ; and
Instructions for Form 2106, Employee
Business Expenses
References:
I took an accounting course in order to keep my salary on my current
job. My employer did not reimburse me for the expenses. Can I take a deduction
on my tax return for the cost of the course?
If you itemize deductions you may be able to deduct work-related educational
expenses as job expenses which, when combined with your other miscellaneous
deductions, are subject to the 2% of adjusted gross income limitation on Form 1040, Schedule A (PDF), Itemized Deductions.
To be deductible, your expenses must be for education that:
Maintains or improves skills required in your present job, or
Serves a business purpose and is required by your employer, or by law,
to keep your present salary, status, or job.
Your expenses are not deductible if the education is required to meet the
minimum educational requirements of your job or is part of a program that
will lead to qualifying you in a new trade or business. For more information
on deductible educational expenses, refer to Tax Topic 513, Educational
Expenses; orPublication 970 Tax Benefits for Education;,
and
Instructions for Form 2106, Employee Business Expenses.
References:
My employer is including my graduate school tuition reimbursements
on my W-2. Where do I claim these education expenses on my Form 1040?
If your graduate school tuition is deductible and the reimbursements are
included in your income as wages, you may take the expense as a miscellaneous
itemized deduction on Form 1040, Schedule A (PDF),
Itemized Deductions, line 20. You may also need to attach Form 2106 (PDF), Employee Business Expenses. For more information, refer
to Publication 970Tax Benefits for Education; Tax Topic 513, Educational Expenses; and Form 2106 (PDF), Employee Business Expense.
References:
Is the exclusion from income of up to $5,250 of employer-provided
educational assistance under a qualified program still available?
Yes. For courses beginning before 2002 it applied only to benefits you
receive for undergraduate courses. Beginning with the year 2002, employer-provided
educational assistance includes graduate level courses. For more information,
refer to Publication 970, Tax Benefits for Education.
References:
How do I claim an educational expense on my return?
Employees, generally, must complete Form 2106 (PDF), Employee
Business Expense or Form 2106-EZ (PDF), Unreimbursed
Employee Business Expense, when job-related educational expenses are
involved. Educational expenses are deducted as miscellaneous deductions, on
line 20, Form 1040, Schedule A (PDF), Itemized
Deductions. Alternatives to educational expense deductions should also
be considered, such as the Lifetime Learning and Hope Credits, as discussed
in Publication 970, Tax Benefits for Education.
Self-employed individuals include educational expenses as deductions on Form 1040 Schedule C (PDF), Profit or Loss From Business; Form 1040, Schedule C-EZ (PDF) , Net Profit from Business;
or Form 1040, Schedule F (PDF), Profit or
Loss from Farming. For more information, refer to the forms, instructions,
and publications listed above plus Tax Topic 513, Educational Expenses,
and Tax Topic 605, Education Credits.
References:
- Tax Topic 513, Educational Expenses
- Publication 970, Tax Benefits for Education
- Tax Topic 605, Education Credit
- Form 1040, Schedule A (PDF), Itemized
Deduction
- Form 1040, Schedule C (PDF), Profit
or Loss From a Business
- Form 1040, Schedule C-EZ (PDF), Net
Profit From a Business
- Form 1040, Schedule F (PDF), Profit
or Loss From Farming
Where can I get more information on educational expenses?
For more information on educational expenses, refer to Publication 970, Tax
Benefits for Education ; Tax Topic 513, Educational Expenses;
and Tax Topic 605, Education Credits.
References:
I have a child attending a private Catholic grade school. Is any
or all of the tuition I pay deductible or a tax credit?
Other than a medical deduction for tuition in the case of a special school
for physical or mental disability, tuition for primary or secondary education
is neither deductible as an educational expense nor as a charitable contribution,
and there are no tax credits for the tuition. You cannot take a charitable
deduction for tuition, or for amounts you pay instead of tuition, even if
you pay them for children to attend parochial schools or qualifying nonprofit
day-care centers. You also cannot deduct any fixed amount you may be required
to pay in addition to the tuition fee to enroll in a private school, even
if it is designated as a "donation." For more information, refer to Publication 526 , Charitable Contributions.
Starting in 2002, you can use distribution from a Coverdell Education Savings
Account (formerly, Education IRA) for primary school tuition if other requirements
are met. For more information, refer to Publication 970, Tax Benefits
for Education; and Tax Topic 310 Coverdell Education Savings
Accounts.
References:
I will be homeschooling my child next year and would like to know
if school related expenses, such as curriculum, school supplies, field trip
activities, etc., are deductible?
There is no deduction for your child's homeschooling expenses. These are
nondeductible personal, living, or family expenses. For more information,
refer to Publication 529, Miscellaneous Deductions.
References:
If your child is diagnosed as having Attention Deficit Disorder
ADD and cannot function in a public school setting and must be sent to a private
school, can the cost of the private school be deducted from your taxes?
The expense would not be deductible as an education or a child care expense.
The facts and circumstances will determine if the cost of the private school
qualifies as a medical expense.
Under limited circumstances, you may be able to treat as medical expenses
all or part of the tuition or fees you pay to a special school for a child
who has severe learning disabilities caused by mental or physical impairments,
including nervous system disorders. Refer to Publication 502, Medical
and Dental Expenses. Your doctor must recommend that the child attend
the school, and the main reason for using the school must be its resources
for relieving the disability.
References:
Is there a deduction for the costs of a child's music or swimming
lessons? The child attends public school and these lessons are not related
to any school program.
The costs of a child's music or swimming lessons are not deductible. These
are nondeductible personal, living, or family expenses. For more information,
refer to Publication 529, Miscellaneous Deductions.
References:
Can I file Form 1040EZ if I have interest to deduct from student
loans?
No, you cannot claim the student loan interest deduction on Form 1040EZ (PDF). To claim a student loan interest deduction, U.S. citizens and
resident aliens must file either Form 1040 (PDF) or Form 1040A (PDF). For more information on which form to
file, refer to Publication 17, Your Federal Income Tax for Individuals.
References:
Can I take a deduction for the interest I paid on my student loan?
Starting in 1998, taxpayers who have taken out qualified loans to pay certain
costs of attending an eligible educational institution for themselves, their
spouse, or their dependent are allowed to take a deduction from gross income
for the interest they paid on these student loans. Prior to 2002, deduction
of student loan interest was limited to the first 60 months of required interest
payments, and, was subject to income limitations. Beginning in 2002, interest
paid over any period of time on a qualified education loan is deductible.
There are also income limits. For more information, refer to Publication 970, Tax
Benefits for Education; and Tax Topic 456, Student Loan Interest
Deduction.
References:
What are the limits for deducting interest paid on a student loan?
The maximum deductible interest on a qualified student loan is $2,500 per
return. If you are a taxpayer whose return status is married filing jointly,
you are allowed to deduct the full $2,500 only when your Modified Adjusted
Gross Income (MAGI) is $100,000 or less. If your MAGI is between $100,000
and $130,000, the amount of your student loan interest deduction is gradually
reduced. The instructions for Form 1040 (PDF) show
you how to compute the deduction. If your MAGI is $130,000 or more, you are
not able to take any deduction.
For those whose filing status is single, head of household, or qualifying
widow(er), the full $2,500 deduction is allowed for MAGI levels equal to or
below $50,000. For MAGI between $50,000 and $65,000, the deduction amount
is phased out, and computation instructions are provided in the
Instructions for Form 1040. If your MAGI amount is, $65,000 or more,
there is no deduction.
There is no deduction if you file as married filing separately, if you
are claimed as a dependent, or if the loan is from a related party or a qualified
employer plan. For more information, refer to Publication 970, Tax
Benefits for Education ; Tax Topic 505, Interest Expense ;
and Tax Topic 513, Educational Expenses .
References:
Is the $2,500 maximum deduction for student loan interest per PERSON,
or per RETURN? I am married filing jointly, and have paid over $3,000 of qualified
interest payments for my husband and I. Are we allowed to deduct $5,000 ($2,500/person)
or only $2,500 total on our return?
The deduction is limited to $2,500 per return for tax year 2001 and beyond.
If you file as "married filing separately," there is no deduction. For more
information, refer to Publication 970, Tax Benefits for Education;
and Tax Topic 505, Interest Expense.
References:
If I file married filing separately can I claim the student loan
interest deduction?
No, you cannot claim the deduction in any tax year in which your filing
status is "married filing a separate return." For more information, refer
to Publication 970, Tax Benefits for Education, Tax Topic 505, Interest
Expense; and Tax Topic 513, Educational Expenses.
References:
I am a parent repaying a loan for my daughter's college education.
The loan is a parent's loan taken out in my name. Is the interest deductible
on my tax return?
If your daughter was your dependent when you received the loan, the interest
you paid on the loan is deductible, provided all other requirements are met.
For more information, refer to Publication 970, Tax Benefits for Education; Tax Topic 505, Interest Expense; and Tax Topic 513, Educational
Expense.
References:
My mother borrowed money for my college education. Now that I'm
out of school, I make the monthly payments, but the loan is under her name.
Can I take the student loan interest deduction since I'm actually making the
payments?
You will not be able to take a deduction for the student loan interest
that you pay because you are not the one obligated to pay on the loan. However,
your mother may take the deduction, provided all other requirements for the
deduction are met. The payment made by you is treated as a gift to her, and
then a payment by her. For more information, refer to Publication 970, Tax
Benefits for Education; Tax Topic 505, Interest Expense;
and Tax Topic 513, Educational Expenses.
References:
Last year, my parents took out a student loan for me in their name
and I also took out a student loan. My parents received Form 1098-E for their
loan and I also received Form 1098-E for my loan. Can we both claim the interest
from the loans on our tax returns? Last year, I was not their dependent.
In order for a taxpayer to claim a deduction for student loan interest,
the loan must be incurred for the taxpayer, the taxpayer' spouse, or a person
who was the taxpayer's dependent when the taxpayer took out the loan. Since
you were not your parents' dependent when they took out the student loan,
the interest they paid on the loan does not qualify for deduction. However,
the student loan interest payments you made on the student loan you took out
on your behalf are eligible for deduction, provided all the other requirements
are met. For more information, refer to Publication 970, Tax Benefits
for Education; Tax Topic 505, Interest Expense; and Tax Topic 513, Educational Expenses.
References:
I am an employee. What form do I use to claim business expenses
for local transportation?
Generally, you must use Form 2106 (PDF), Employee
Business Expenses, or Form 2106-EZ (PDF), Unreimbursed
Employee Business Expenses, to claim a deduction for employee business
expenses. Your deductible expense is then taken on line 20 of Form 1040, Schedule A (PDF) , as a miscellaneous itemized deduction,
subject to the 2% of adjusted gross income floor. Special rules may apply,
depending on the reimbursement arrangement you have with your employer. For
additional information, refer to Publication 463, Travel, Entertainment,
Gift, and Car Expenses, Tax Topic 514, Employee Business Expenses, and Publication 529, Miscellaneous Deductions.
References:
- Publication 463, Travel, Entertainment, Gift, and Car
Expenses
- Form 1040 (PDF), U.S. Individual
Income Tax Return
- Form 1040, Schedule A (PDF), Itemized
Deductions
- Form 2106 (PDF), Employee Business
Expenses
- Form 2106-EZ (PDF), Unreimbursed
Employee Business Expenses
- Tax Topic 514, Employee Business Expense
- Publication 529, Miscellaneous Deductions
I moved to a different state to accept a new job. Will I be able
to deduct all of my moving expenses?
When moving expenses coincide closely with a job transfer or the start
of a new job, some of those expenses may qualify for deduction as an adjustment
to income on Form 1040 (PDF), U.S. Individual
Income Tax Return. You must have moved far enough, and, generally, closer
to your new job than you were before you moved. You must have started and
kept full-time work for a specific period after the move. Not all moving expenses
are deductible. Deductible expenses are generally limited to one-way transportation,
including lodging, of your household members along the most direct route to
your new residence, and transportation, parking and storage of household goods.
You cannot deduct a reimbursed expense, unless the reimbursement has been
counted in your wages. For more information, refer to Publication 521, Moving
Expenses; Tax Topic 455, Moving Expenses; and the Instructions
for Form 3903 (PDF), Moving Expenses.
References:
3.3 Itemized Deductions/Standard Deductions: Gifts & Charitable Contributions
I donated a used car to a qualified charity. I itemize my deductions,
and I would like to take a charitable contribution for the donation. Do I
need to attach any special forms to my return? What records do I need to keep?
If you claim a deduction on your return of over $500 for all contributed
property, you must attach a Form 8283 (PDF), Noncash
Charitable Contributions, to your return. If you claim a total deduction
of $5,000 or less for all contributed property, you need only complete Section
A of Form 8283. If you claim a deduction of more than $5,000 for an item or
a group of similar items, you generally need to complete Section B of Form
8283 which requires a qualified appraisal by a qualified appraiser.
You will need to obtain and keep evidence of your car donation and be able
to substantiate the fair market value of the car. If you are claiming a deduction
of $250 or more for the car donation, you will also need a written acknowledgement
from the charity that includes a description of the car and a statement of
whether the charity provided any goods or services in return for the car and,
if so, a description and estimate of the fair market value of the goods or
services.
For more information on these requirements, refer to Publication 526, Charitable
Contributions, Publication 561, Determining the Value of Donated
Property; Form 8283, Noncash Charitable Contributions; and its instructions,
and Tax Topic 506, Contributions.
References:
3.4 Itemized Deductions/Standard Deductions: Interest, Investment, Money Transactions (Alimony, Bad Debts, Applicable Federal Interest Rate, Gambling, Legal Fees, Loans,
etc.)
Is the interest amount that we paid to the IRS deductible?
Interest and penalties paid to the IRS on Federal taxes are not deductible.
For more information, refer to Items You Cannot Deduct in
Chapter 25 of interest expense Publication 17, Your Federal Income
Tax for Individuals; and Tax Topic 505, Interest Expense.
References:
Can you tell me where on the Internet I can find the AFR, Applicable
Federal Rate, for the months in 2002?
The Applicable Federal
Rates for each month can be found in the first weekly Internal Revenue
Bulletin (IRB) published for that month. The Internal Revenue Bulletins are
located on the IRS.gov web-site. In the "Search IRS site
for : " box, enter "applicable federal rates index." Click on "go" and
a page with a link to AFRs will pop-up. You can access the web-site at www.irs.gov .
References:
A family member has offered me a low interest loan for purchasing
a home. Where can I find information on rates for private loans?
The rules for private or "below market" loans may be found in Publication 550, Investment Income and Expenses. To calculate the lowest
acceptable rate of interest under federal tax law, you must use the Applicable
Federal Rates (AFR) that apply based on the terms and period of your loan.
The applicable federal rates are published monthly in the Internal Revenue
Bulletin. The Internal Revenue Bulletins may be found on the IRS' web-site.
In the " search IRS site for:" box, enter "applicable federal rates
index" click on "go" and a page with a link to AFRS will pop-up. You may access
the web-site at www.irs.gov.
References:
I made a personal loan of $3,500 to a friend. She declared bankruptcy
after only paying me back $500.00. Does the IRS allow any provision for my
loss?
If, in a true debtor-creditor relationship, someone owes you money that
you cannot collect, you have a bad debt. There are two kinds of bad debts
- business and nonbusiness.
Bad debts are deductible only if the amount owed to you represents a loan
of your cash or has been previously included in your income. A business bad
debt, generally, is one that comes from operating your trade or business.
All other bad debts are nonbusiness.
Nonbusiness bad debts must be totally worthless to be deductible. You
cannot deduct a partially worthless nonbusiness bad debt. You must establish
that you have taken reasonable steps to collect the debt and that the debt
is worthless. You may take the deduction only in the year the debt becomes
totally worthless. A debt becomes totally worthless when there is no longer
any chance the amount owed will be paid. You do not have to wait until the
debt comes due. A nonbusiness bad debt is taken as a short-term capital loss
on Form 1040, Schedule D (PDF), Capital
Gains and Losses .
For more information on bad debts, refer to Publication 550, Investment
Income and Expenses, and Publication 535, Business Expenses.
Form 1040, Schedule D (PDF), Capital
Gains and Losses.
References:
Are the legal fees incurred or paid for collection of Social Security
Benefits deductible?
Personal legal fees are not, generally, deductible. However you may deduct
legal fees incurred or paid for the production or collection of taxable income.
The portion of the legal fees that is deductible would be proportional to
the taxable part of your Social Security benefit collected. The deduction
is taken on line 22 of Form 1040 Schedule A (PDF), Itemized
Deductions , subject to the 2% of Adjusted Gross Income Limitation. For
more information, refer to Publication 529, Miscellaneous Deductions;
and Publication 915, Social Security and Equivalent Railroad Retirement
Benefits.
References:
Publication 529, Miscellaneous Deductions
Publication 915, Social Security and Equivalent Railroad
Retirement Benefits
I went through a divorce last year and paid a lot of legal fees.
Are these deductible on my tax return?
Legal fees incurred or paid for a divorce are personal in nature, and are
not generally deductible. However, legal fees incurred or paid for the production
or collection of taxable income may be deductible. You may deduct legal fees
for collecting alimony because alimony is taxable income. These deductions
are taken on line 22 of Form 1040, Schedule A (PDF), Itemized
Deductions. For additional information, refer to Tax Topic 508, Miscellaneous
Expenses , and Publication 529, Miscellaneous Deductions .
References:
Can I deduct alimony paid to my former spouse?
If you are divorced or separated, you may be able to deduct the alimony
or separate maintenance payments that you are required to make to your spouse
or former spouse, or on behalf of that spouse. For additional information,
refer to Tax Topic 452, Alimony Paid (this topic covers alimony
under decrees or agreements after 1984); and Publication 504, Divorced
or Separated Individuals .
References:
Where are fees and commissions for investments deducted?
If they are deductible, investment expenses other than investment interest
are taken as miscellaneous deductions on Form 1040, Schedule A (PDF), Itemized Deductions. These deductions must
be reduced by 2% of your adjusted gross income.
Commissions and fees for the acquisition or sale of an asset are added
to the basis of that asset and are not deductible. For example, acquisition
fees, sales commissions, and load charges paid in connection with the purchase
or selling of mutual fund shares are not deductible. They can usually be added
to the basis of the shares.
Fees for managing investments, such as custodial fees and management fees,
are deductible. Fees you pay a broker to collect taxable bond interest or
stock dividends are deductible. Fees that pass through to you from non-publicly
offered mutual funds, partnerships, or trusts are deductible. All of these
fees are subject to the 2% limit. For more information, refer to Publication 529, Miscellaneous Deductions; Publication 550, Investment
Income and Expenses; and Publication 564, Mutual Fund Distributions.
References:
Is a real estate investment considered investment property? Is the
interest deductible as investment interest if you cannot deduct it as mortgage
interest?
If you borrow money and use it to buy property you hold for investment,
the interest you pay is deductible as investment interest subject to certain
limits. However, you cannot deduct interest you incurred to produce tax-exempt
income. Investment interest does not include any qualified home mortgage interest
or any interest taken into account in computing income or loss from a passive
activity. For more information, refer to, Publication 550 Investment
Income and Expenses; Tax Topic 505, Interest Expense;
and Publication 925, Passive Activity and At-Risk Rules.
References:
We took a margin loan from our investment money market account.
Can the interest we paid be deducted?
If you are a cash method taxpayer, you can deduct interest on margin accounts
to buy taxable securities as investment interest in the year you pay it. You
are considered to have paid interest on these accounts only when you actually
pay the broker or when payment becomes available to the broker through your
account. Payment may become available to the broker through your account when
the broker collects dividends or interest for your account, or sells securities
held for you or received from you. You cannot deduct any interest on money
borrowed for personal reasons. Investment interest deductions are limited
to the extent of investment income. The deductions amount is reported on Form 4952 (PDF), Investment Interest Deduction.
The deduction is then taken as an itemized deduction on line 13 of Form 1040, Schedule A (PDF), Itemized Deductions.
For more information, refer to Publication 550, Investment Income
and Expenses.
References:
If I don't itemize my deductions can I still deduct my investment
expenses such as margin interest?
Investment expenses for individuals must be taken as itemized deductions.
Investment expenses (other than interest expenses) are deducted on Form 1040, Schedule A (PDF), Itemized Deductions,
as miscellaneous deductions subject to the 2% of your Adjusted Gross Income
(AGI) limit. Investment Interest, such as margin interest, is reported on Form 4952 (PDF) , Investment Interest Deduction,
and on Form 1040, Schedule A Itemized Deductions, but is not subject to the
2% of your Adjusted Gross Income (AGI) limit. For more information, refer
to Publication 550, Investment Income and Expenses; Publication 529, Miscellaneous Deductions; and Tax Topic 508, Miscellaneous
Expenses.
References:
How do I deduct and substantiate my gambling losses?
You can deduct gambling losses only if you itemize deductions. Claim your
gambling losses as a miscellaneous deduction on line 27 of Form 1040, Schedule A (PDF), Itemized Deductions. They are not subject
to the 2% limit of your Adjusted Gross Income. The amount of losses you deduct
cannot total more than the amount of gambling income you have reported on
your return. It is important to keep an accurate diary or similar record of
your gambling winnings and losses. To deduct your losses, you must be able
to provide receipts, tickets, statements or other records that show the amount
of both your winnings and losses.
The Service provides the following guidelines for proving gambling winnings
and losses:
1. An accurate diary or similar record regularly maintained by the taxpayer,
supplemented by verifiable documentation usually is acceptable evidence for
substantiation of wagering winnings, and losses. In general, the diary should
contain at least the following information:
a) date and type of specific wager or wagering activity;
b) name of gambling establishment;
c) address or location of gambling establishment;
d) name(s) of other person(s) present with you at gambling establishment;
and
e) amount(s) won or lost.
2. Verifiable documentation includes, but is not limited to, wagering tickets,
canceled checks, credit records, bank withdrawals, and statements of actual
winnings or payment slips provided by the gambling establishment. When possible,
the diary and available documentation generated with the placement and settlement
of a wager should be supported by such documentation as hotel bills, airline
tickets, gasoline credit cards, or affidavits or testimony from responsible
gambling officials regarding the wagering activity.
For more information refer to Publication 529, Miscellaneous Deductions; and Publication 525, Taxable and Nontaxable Income.
References:
3.5 Itemized Deductions/Standard Deductions: 5. Medical, Nursing Home, Special Care Expenses
My father is in a nursing home and I pay for the entire cost. Can
I deduct the expenses on my tax return?
You may deduct qualified medical expenses you pay for yourself, your spouse,
and your dependents, including a person you claim as a dependent under a Multiple
Support Agreement. You can also deduct medical expenses you paid for someone
who would have qualified as your dependent for the purpose of taking personal
exemptions except that the person did not meet the gross income or joint return
test.
Nursing home expenses are allowable as medical expenses in certain instances.
If you, your spouse, or your dependent is in a nursing home, and the primary
reason for being there is for medical care, the entire cost, including meals
and lodging, is a medical expense. If the individual is in the home mainly
for personal reasons, then only the cost of the actual medical care is a medical
expense, and the cost of the meals and lodging is not deductible.
You deduct medical expenses on Form 1040, Schedule A (PDF), Itemized
Deductions. The total of all allowable medical expenses must be reduced
by 7.5% of your Adjusted Gross Income. For more information, refer to Publication 502, Medical and Dental Expenses.
References:
Are there any deductions that can be taken for helping my elderly
mother? She lives on social security and I paid almost $7,600 in her expenses
and bills. She collects approximately $9,600 from social security a year.
These expenses are not often medical or such but rather living expenses.
There are no special deductions for providing money to assist your aging
parent. However, you may want to review the tests in Publication 501, Exemptions,
Standard Deduction, and Filing Information, to see whether you would
be eligible to claim your mother as a dependent.
References:
Can social security tax and Medicare tax be deducted on Schedule
A, as medical insurance or anywhere else?
Social Security taxes and Medicare taxes imposed on employees are not deductible
as medical insurance or pursuant to any other provision.
If you are itemizing deductions on Schedule A, you may be able to deduct
Medicare A & B premiums paid out-of-pocket. These are considered medical
expenses and must be reduced by 7.5% of adjusted gross income.
For more information, refer to Publication 502, Medical Expenses;
and Tax Topic 502, Medical and Dental Expenses.
References:
3.6 Itemized Deductions/Standard Deductions: 6. Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses)
I just bought a home. What can I deduct from the settlement statement?
If you bought your home, you probably paid settlement or closing costs
in addition to the contract price. These costs are divided between you and
the seller according to the sales contract, local custom, or understanding
of the parties. If you built your home, you probably paid these costs when
you bought the land or settled on your mortgage.
The only settlement or closing costs you can deduct are home mortgage interest,
points that represent interest and certain real estate taxes. You may, deduct
them in the year you buy your home if you itemize your deductions. 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.
You add certain other settlement or closing costs to the basis of your
home. You include in your basis the settlement fees and closing costs that
are for buying your home. A fee is for buying the home if you would have had
to pay it even if you paid cash for the home
There are some settlement or closing costs that you cannot deduct or add
to the basis of your home. These include fees and costs that are for getting
a mortgage loan. For more information refer to Publication 530, Tax
Information for First Time-Homeowners, and Publication 936, Home
Mortgage Interest Deduction.
References:
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:
I paid my mother's mortgage and real estate taxes last year. The
house is in her name. Can I deduct the mortgage interest and property tax
on my tax return?
Generally, you can deduct only taxes that are imposed on you. You cannot
deduct the property taxes unless you are the legal owner of the property,
nor the mortgage interest unless you are legally liable for the loan. Your
mother cannot deduct the mortgage interest either because she did not make
the payments. For more information, refer to Publication 936, Home
Mortgage Interest Deduction; Publication 17, Your Federal Income
Tax for Individuals; and Tax Topic 505, Interest Expenses;
and Tax Topic 503, Deductible Taxes.
References:
My daughter and I own a house together. Her name is on the mortgage,
but both our names are on the deed. Can we each claim half of the yearly interest
and property tax on our income tax returns?
In order for both of you to claim one-half of the interest deduction, both
of you must be legally liable for the loan. Since only your daughter is legally
liable for the loan, only she can deduct the interest she paid. Since both
of you are legal owners of the property, both of you may deduct one-half of
the real estate taxes paid during the year. For more information, refer to Publication 936, Home Mortgage Interest Deduction; Publication 17, Your
Federal Income Tax for Individuals; Publication 530, Tax Information
for First Time Homeowners; Tax Topic 505, Interest Expense;
and Tax Topic 503, Deductible Taxes.
References:
Is interest on a home equity line of credit deductible as a second
mortgage?
You may deduct Home Equity Debt Interest, as an itemized deduction, if
you are legally liable to pay the interest, pay the interest in the tax year,
secure the debt with your home, and do not exceed your Home Equity Debt Limit.
For more information, refer to Publication 936, Home Mortgage Interest;
and Tax Topic 505, Interest Expense.
References:
I refinanced my home last year and paid points. Are they all deductible
this year?
Generally points paid to refinance your home are not deductible in their
entirety in the year paid. They are "amortized" or deducted over the life
of the loan. For more information, refer to Publication 936 , Home
Mortgage Interest Deduction, and Tax Topic 504, Home Mortgage
Points.
References:
Is the interest paid on the loan for a lot (with no home on it)
deductible as mortgage interest?
Generally, the interest paid on the loan incurred for purchasing a lot
is not deductible as mortgage interest.
If you are planning to build a house, you can start deducting mortgage
interest once construction begins. The following is from Publication 936, Home
Mortgage Interest Deduction:
You can treat a home under construction as a qualified home for a period
of up to 24 months, but only if it becomes your qualified home at the time
it is ready for occupancy. The 24-month period can start any time on or after
the day construction begins. For more information, refer to Publication 936, Home
Mortgage Interest Deduction; and Tax Topic 505, Interest Expense.
References:
We purchased land to build a home on. Is the interest on the mortgage
secured by the land deductible?
Interest on the mortgage secured by bare land is not, generally, deductible
as mortgage interest. In order for interest to be deductible as home mortgage
interest, the loan must be secured by a qualified residence. A qualified residence
is your principal residence or one other residence selected by you that you
use as a residence.
Once you start construction of your home, you may treat the home under
construction as a qualified residence for a period of up to 24 months, but
only if the home becomes a qualified residence at the time it is ready for
occupancy. For more information, refer to Publication 936, Home Mortgage
Interest Deduction; and Tax Topic 505, Interest Expense.
References:
Is interest paid on a construction loan for a new home considered
deductible mortgage interest?
You can treat a home under construction as a home qualifying for the home
interest deduction for a period of up to 24 months, but only if it becomes
your qualified home at the time it is ready for occupancy. For more information,
refer to Publication 936, Home Mortgage Interest Deduction; and Tax Topic 505, Interest Expense.
References:
I got a loan to buy some land. Later I got another loan for the
construction of the house. After the house was built I got a third loan which
paid off the first two loans. Is the interest on any of these loans deductible?
All three loans may have some deductible interest. Generally, the interest
paid on a financed lot is not deductible as mortgage interest. There might
be a deduction for investment interest until construction of the home begins.
Once construction begins, you can, deduct mortgage interest on the construction
loan for up to 24 months. Once the home has been completed and occupied by
you, and the two existing loans have been refinanced, you may deduct the interest
from the new mortgage. For more information, refer to Publication 936, Home
Mortgage Interest Deduction; Tax Topic 505, Interest Expense;
and Publication 550, Investment Income and Expenses.
References:
I pay interest on money borrowed to purchase land. I built a home
on that land, but have no mortgage. Is the interest I pay for the land deductible?
Where is it deductible on the return?
Until you started construction, the interest on the loan to purchase the
lot was not deductible as mortgage interest. Once you started construction
on the property, it became deductible as home mortgage interest provided that
the loan was secured by the house, and all other conditions for deductibility
of home mortgage interest were met. For more information, refer to Publication 936, Home Mortgage Interest Deduction and Tax Topic 505, Interest
Expense.
References:
I took out a home equity loan to pay off personal debts. Is this
interest deductible? Where do I enter this amount on my tax return?
A loan taken out for reasons other than to buy, build, or substantially
improve your home, such as to pay off personal debts may qualify as home equity
debt. The interest would be deducted on line 10, Form 1040, Schedule A (PDF), Itemized Deductions. You may not deduct
interest on any amount of home equity debt that exceeds your Home Equity Debt
Limit. For more information, refer to Publication 936, Home Mortgage
Interest Deduction; and Tax Topic 505, Interest Expense.
References:
If I borrow money from my 401(k) to purchase a home, is the interest
I pay back to my 401(k) deductible as mortgage interest on my 1040?
The interest you pay on money you borrow from 401(K) plan to buy a home
is not deductible as mortgage interest, because the loan is not secured by
the home. The mortgage must be a secured debt on a qualified home. Your mortgage
is a secured debt if you put your home up as collateral to protect the interests
of the lender. The term "qualified home" means your main home or second home.
For details, refer to Publication 936 , Home Mortgage
Interest Deduction and Tax Topic 505, Interest Expense.
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:
Our home was seriously damaged by flooding last year. Are there
special provisions for claiming a loss since our home is located in a declared
disaster area?
Casualty losses are generally deductible only in the year the casualty
occurred. However, if you have a deductible loss from a disaster in an area
that is officially designated by the President of the United States as eligible
for federal disaster assistance, you can choose to deduct that loss on your
return for the year immediately preceding the loss year. In other words, you
may treat the loss as having occurred in either the current year or the previous
year, whichever provides the best tax results for you. If you have already
filed your return for the preceding year the loss may be claimed by filing
an amended return, Form 1040X (PDF), Amended
U.S. Individual Income Tax Return. For more information on disaster area
losses (including flood losses), refer to Tax Topic 515 , Disaster
Area Losses (Including Flood Losses), or Publication 547, Casualties,
Disasters and Thefts (Business and Non-Business). Publication 584, Casualty,
and Theft Loss Workbook, can be used to help you catalog your property.
References:
Our garage caught fire this last July. Can we claim a loss on our
income tax return?
If you lose property through casualty or theft, you may be entitled to
a tax deduction. A casualty is the damage, destruction, or loss of property
resulting from an identifiable event that is sudden, unexpected, or unusual
in nature. Some examples of casualties include car accidents, fires, and vandalism.
If your property is covered by insurance, you cannot deduct a loss unless
you file a timely insurance claim for reimbursement. To claim a casualty or
theft loss, you must complete Form 4684 (PDF), Casualties
and Thefts, and attach it to your return. Claim the amount from the form
on line 19 of Form 1040, Schedule A (PDF), Itemized
Deductions. If your loss took place in a declared disaster area, please
refer to Tax Topic 515, Disaster Area Losses (Including Flood Losses).
For more information, refer to Form 4684, Casualties and Thefts, or Tax Topic 507, Casualty Losses, or Publication 547, Casualties,
Disasters, and Thefts (Business and Non-business). If many items are
involved, also refer to Publication 584, Casualty, Disaster, and
Theft Loss Workbook.
References:
- Publication 547, Casualties, Disasters, and Thefts
(Business and Non-business)
- Publication 584, Casualty, Disasters, and Theft Loss
Workbook
- Form 1040, Schedule A (PDF), Itemized
Deductions
- Form 4684 (PDF), Casualties
and Thefts
- Tax Topic 507, Casualty Losses
- Tax Topic 515, Disaster Area Losses (Including Flood Losses)
Is personal credit card interest tax deductible?
No. Personal interest is not deductible. For more information, refer to Publication 17, Your Federal Income Tax for Individuals; and Tax Topic 505, Interest
Expense.
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:
I bought a 5th wheel trailer for vacationing. Can I deduct the interest
on the loan for this 5th wheel? Where would it be listed?
You can deduct the interest paid on the loan you took out to purchase the
trailer as acquisition indebtedness interest only if the loan is secured by
the trailer and the trailer meets the requirements of a qualified home. A
qualified home includes a house, condominium, cooperative, mobile home, boat
or similar property that has sleeping, cooking and toilet facilities. You
can only have one principal residence and one qualified second home. Regardless
of whether the trailer qualifies as a home, interest on home equity indebtedness
secured by another qualified home and used to acquire the trailer may also
be deductible. The interest is deducted as mortgage interest on line 11 of Form 1040, Schedule A (PDF), Itemized Deductions.
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:
I refinanced my home and paid closing costs. Are the loan origination
fee, appraisal fee, document prep fee, closing fee, and title insurance or
any of the other expenses deductible? Are any of the fees I paid to the bank
for the loan deductible?
Deductible fees are limited to home mortgage interest and certain real
estate taxes. Points that represent interest on a refinancing are amortized
over the life of the loan.
Fees that are not associated with the acquisition of a loan may only have
effect on the basis of the home. An example would be a transfer tax that would
be charged regardless of whether a loan was involved.
Fees related to the acquisition of a loan are not deductible and are not
basis adjustments. A credit report fee is a good example.
For more information, refer to Publication 936, Home Mortgage
Interest Deduction ; Tax Topic 504, Home Mortgage Points;
and Publication 551, Basis of Assets .
References:
I refinanced my home mortgage and had to pay $2,000.00 worth of
points to get the mortgage. Can I claim these points as a deduction on my
tax return?
Points that represent interest paid for a refinanced mortgage have to be
amortized over the life of the loan. Points charged for specific services,
such as preparation costs for a mortgage note, appraisal fees, or notary fees
are not interest and cannot be deducted. It is possible to deduct a larger
percentage of the points in the first year if a portion of the mortgage proceeds
is used to improve the home and sufficient cash is added to the transaction
to be equal to or greater than the amount of the points. Certain other restrictions
apply. For more information, refer to Publication 936, Home Mortgage
Interest Deduction; and Tax Topic 504, Home Mortgage Points.
References:
If I must deduct points over the life of my mortgage, and I have
a 30 year mortgage, does this mean that I divide the points paid by 30 and
enter that amount on Schedule A?
You need to divide the points by the number of payments over the term of
the loan and deduct points for a year according to the number of payments
made in the year. If the loan ends prematurely, due to payoff or refinance,
for example, then the remaining points are deducted in that year. Points not
included in Form 1098 (PDF) (usually not included
on a refinance) should be entered on line 12 of Form 1040, Schedule A (PDF), Itemized Deductions. For more information,
refer to Publication 936, Home Mortgage Interest Deduction; and Tax Topic 504, Home Mortgage Points.
References:
I refinanced my home once and paid $1,230 in points. On Schedule
A, line 12 (points not reported on Form 1098) I have listed $41 each year.
I refinanced my home again and paid off the entire previous loan. Am I entitled
to include the $984 (remaining points paid off) on Schedule A this year?
If you spread your deduction of the points over the life of the mortgage,
you can deduct any remaining balance of the points in the year the mortgage
ends. A mortgage may end early due to a prepayment, refinancing, foreclosure,
or similar event.
Under the conditions described in the question, the $984 would be deductible
in the year the mortgage ended. You would report the deduction on Form 1040, Schedule A (PDF), Itemized Deductions.
For more information, refer to Publication 936, Home Mortgage Interest
Deduction; and Tax Topic 504, Home Mortgage Points.
References:
3.7 Itemized Deductions/Standard Deductions: 7. Other Deduction Questions
What is itemizing and is it beneficial to me?
Itemization is the process of listing specific deductible personal expenses
you paid during the year including but not limited to medical and dental care,
state and local income taxes, real estate taxes, home mortgage interest, and
gifts to charity. Such a list would appear on Form 1040, Schedule A (PDF), Itemized Deductions.
When you complete your list, you total the amount spent and compare the
total with your standard deduction. Generally the larger of the two deductions,
standard or itemized, will be the deduction to choose, since it will lower
the amount of federal income tax you will owe. For additional information,
refer to Tax Topic 501, Should I Itemize?
References:
My spouse and I are filing separate returns. How can we split our
itemized deductions?
If you and your spouse file separate returns and one of you itemizes deductions,
the other spouse will have a standard deduction of zero. Therefore, the other
spouse should also itemize deductions.
You may be able to claim itemized deductions on a separate return for certain
expenses that you paid separately or jointly with your spouse. Deductible
expenses that are paid out of separate funds, such as medical expenses, are
deductible by the spouse who pays them. If these expenses are paid from community
funds, the deduction may depend on whether or not you live in a community
property state. In a community property state, the deduction is, generally,
divided equally between you and your spouse. For more information refer to Publication 504, Divorced or Separated Individuals; and Publication 555, Community
Property.
References:
I am in a disaster area and heard the IRS could help me. What can
the IRS do?
If you have been impacted by a Presidentially declared disaster, the IRS
may help you by allowing additional time for filing returns and making payments,
and waiving penalties, in some circumstances, if the disaster has caused you
to file or pay late. The IRS may also, provide copies or transcripts of previously
filed returns, free of charge. You may be eligible to file for a casualty
loss deduction on the prior year's tax return, or by amended return (Form
1040X) if you have already filed. For additional information on this subject,
refer to Tax Topic 515, Casualty, Disaster, and Theft Losses,
and Publication 547, Casualties, Disasters, and Theft.
References:
Are expenses for smoking cessation programs deductible?
You can include in medical expenses amounts you pay for a program to stop
smoking. Unreimbursed amounts you pay for participation in a smoking cessation
program and for prescribed drugs designed to alleviate nicotine withdrawal
are expenses for medical care that are deductible subject to the 7.5% of adjusted
gross income limitation if you itemize deductions on Form 1040, Schedule A (PDF), Itemized Deductions. However, you cannot
include in medical expenses amounts you pay for drugs that are designed to
help stop smoking that do not require a prescription, such as nicotine gum
or patches.
For more information, see Publication 502 , Medical
and Dental Expensesor Revenue Ruling 99-28, which explains the
deductibility or smoking-cessation programs. Revenue Ruling 99-28 is
in Internal Revenue Bulletin 1999-25, dated June 21, 1999.
References:
|
|
|
|
