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Publication 530 Cat. No. 15058K Contents

What’s New ...... 1 Department of the Tax Reminders ...... 1 Treasury Internal Introduction ...... 2 Revenue Information for Service What You Can and Can’t Deduct ..... 2 State and Local Real Estate Homeowners Taxes ...... 3 Sales Taxes ...... 4 Home Mortgage Interest ...... 4 For use in preparing Mortgage Interest Credit ...... 8 Figuring the Credit ...... 9 2020 Returns Basis ...... 10 Figuring Your Basis ...... 10 Adjusted Basis ...... 12

Keeping Records ...... 12

How To Get Tax Help ...... 13

Index ...... 16

What’s New Extended tax benefits. Certain tax benefits, including the following, that were set to expire have been extended. • The itemized deduction for mortgage insur- ance premiums has been extended through 2021. • The credit for nonbusiness energy property has been extended through 2021. • The exclusion from income of discharges of qualified principal residence indebted- ness has been extended through 2026.

Reminders Future developments. For the latest informa- tion about developments related to Pub. 530, such as legislation enacted after it was pub- lished, go to IRS.gov/Pub530. Home Affordable Modification Program (HAMP). If you benefit from Pay-for-Perform- ance Success Payments, the payments aren’t taxable under HAMP. Repayment of first-time homebuyer credit. Generally, you must repay any credit you claimed for a home you bought if you bought the home in 2008. See Form 5405 and its in- structions for details and for exceptions to the repayment rule. Home equity loan interest. No matter when the indebtedness was incurred, you can no lon- ger deduct the interest from a loan secured by your home to the extent the loan proceeds weren't used to buy, build, or substantially im- prove your home. Get forms and other information faster and easier at: Modified and amplified safe harbor method • IRS.gov (English) • IRS.gov/Korean (한국어) for participants in the Hardest Hit Fund and • IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский) Emergency Homeowners' Loan Programs. • IRS.gov/Chinese (中文) • IRS.gov/Vietnamese (TiếngViệt) If you are a homeowner who received assis- tance under a State Housing Finance Agency

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Hardest Hit Fund program or an Emergency You can send us comments through Homeowners' Loan Program, you may be able IRS.gov/FormComments. Or, you can write to to deduct all of the payments you made on your the Internal Revenue Service, Tax Forms and What You Can and Can’t mortgage during the year. Notice 2018-63 ex- Publications, 1111 Constitution Ave. NW, Deduct tends and preserves application of the Hardest IR-6526, Washington, DC 20224. Hit Fund safe harbor to homeowners who may Although we can’t respond individually to To deduct expenses of owning a home, you be affected by the new limitation on the deduc- each comment received, we do appreciate your must file Form 1040, U.S. Individual Income tion for state and local taxes. For details, see feedback and will consider your comments and Tax Return, or Form 1040-SR, U.S. Income Tax Hardest Hit Fund and Emergency Homeowners' suggestions as we revise our tax forms, instruc- Return for Seniors, and itemize your deductions Loan Programs under What You Can and Can't not send tax ques- tions, and publications. Do on Schedule A (Form 1040). If you itemize, you Deduct, later, and Notice 2018-63 for additional tions, tax returns, or payments to the above ad- can’t take the standard deduction. guidance. Notice 2018-63 is available at dress. IRS.gov/IRB/2018-34_IRB#NOT-2018-63. Getting answers to your tax questions. This section explains what expenses you Discharge of qualified principal residence If you have a tax question not answered by this can deduct as a homeowner. It also points out indebtedness before 2027. Qualified princi- publication or the How To Get Tax Help section expenses that you can’t deduct. There are four pal residence indebtedness can be excluded at the end of this publication, go to the IRS In- primary discussions: state and local real estate from income for discharges before January 1, teractive Tax Assistant page at IRS.gov/ taxes, sales taxes, home mortgage interest, 2027. Help/ITA where you can find topics by using the and mortgage insurance premiums. search feature or viewing the categories listed. Residential energy credits. You may be able Generally, your real estate taxes and home to take a credit if you made energy saving im- Getting tax forms, instructions, and pub- mortgage interest are included in your house provements to your home located in the United lications. Visit IRS.gov/Forms to download payment. States in 2020. See Form 5695, Residential En- current and prior-year forms, instructions, and ergy Credits, for more information. publications. Your house payment. If you took out a mort- gage (loan) to finance the purchase of your Mortgage debt forgiveness. You can ex- Ordering tax forms, instructions, and home, you probably have to make monthly clude from gross income any discharges of publications. Go to IRS.gov/OrderForms to house payments. Your house payment may in- qualified principal residence indebtedness order current forms, instructions, and publica- clude several costs of owning a home. The only made after 2006 and in most cases before tions; call 800-829-3676 to order prior-year costs you can deduct are state and local real 2026. You must reduce the basis of your princi- forms and instructions. The IRS will process estate taxes actually paid to the taxing authority pal residence (but not below zero) by the your order for forms and publications as soon and interest that qualifies as home mortgage in- amount you exclude. See Discharges of quali- as possible. Do not resubmit requests you’ve terest, and mortgage insurance premiums. fied principal residence indebtedness, later, already sent us. You can get forms and publica- These are discussed in more detail later. and Form 982, Reduction of Tax Attributes Due tions faster online. to Discharge of Indebtedness (and Section Some nondeductible expenses that may be 1082 Basis Adjustment), for more information. included in your house payment include: Useful Items • Fire or homeowner's insurance premiums, Photographs of missing children. The IRS is You may want to see: and a proud partner with the National Center for • The amount applied to reduce the principal Missing & Exploited Children® (NCMEC). Pho- Publication of the mortgage. tographs of missing children selected by the

Center may appear in this publication on pages 4681 4681 Canceled Debts, Foreclosures, Minister's or military housing allowance. If that would otherwise be blank. You can help Repossessions, and Abandonments you are a minister or a member of the uni- bring these children home by looking at the formed services and receive a housing allow- photographs and calling 1-800-THE-LOST 523 523 Selling Your Home ance that isn’t taxable, you still can deduct your (1-800-843-5678) if you recognize a child. real estate taxes and your home mortgage in-

525 525 Taxable and Nontaxable Income terest. You don’t have to reduce your deduc-

527 527 Residential Rental Property tions by your nontaxable allowance. For more Introduction information, see Pub. 517, Social Security and

This publication provides tax information for 547 547 Casualties, Disasters, and Thefts Other Information for Members of the Clergy homeowners. Your home may be a house, con- and Religious Workers, and Pub. 3, Armed 551 551 Basis of Assets dominium, cooperative apartment, mobile Forces' Tax Guide.

home, houseboat, or house trailer that contains 555 555 Community Property sleeping space and toilet and cooking facilities. Nondeductible payments. You can’t deduct

This publication explains how you treat 587 587 Business Use of Your Home any of the following items. items such as settlement and closing costs, real • Insurance (other than mortgage insurance estate taxes, sales taxes, home mortgage inter- 936 936 Home Mortgage Interest Deduction premiums), including fire and comprehen- est, and repairs. sive coverage, and title insurance. Form (and Instructions) The following topics are explained. • Wages you pay for domestic help. What you can and can’t deduct on your tax • Depreciation. • Schedule A (Form 1040) Schedule A (Form 1040) Itemized • The cost of utilities, such as gas, electric- return. Deductions • The tax credit you can claim if you re- ity, or water. Most settlement costs. See Settlement or ceived a mortgage credit certificate when 5405 5405 Repayment of the First-Time • you bought your home. Homebuyer Credit closing costs under Cost as Basis, later, • Why you should keep track of adjustments for more information. to the basis of your home. (Your home's 5695 5695 Residential Energy Credits • Forfeited deposits, down payments, or ear- basis generally is what it cost; adjustments nest money. 8396 8396 Mortgage Interest Credit include the cost of any improvements you

might make.) 982 982 Reduction of Tax Attributes Due to Hardest Hit Fund and • What records you should keep as proof of Discharge of Indebtedness (and the basis and adjusted basis. Emergency Homeowners' Section 1082 Basis Adjustment) Loan Programs Comments and suggestions. We welcome See How To Get Tax Help, near the end of this your comments about this publication and sug- publication, for information about getting publi- You can use a special method to figure your de- gestions for future editions. cations and forms. duction for mortgage interest and real estate

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taxes on your main home if you meet the follow- Where to deduct real estate taxes. Enter the must reduce your real estate tax deduction by ing two conditions. amount of your deductible state and local real the amount refunded to you. If the refund or re- estate taxes on Schedule A (Form 1040), bate was for real estate taxes paid for a prior 1. You received assistance under: line 5b. year, you may have to include some or all of the a. A State Housing Finance Agency refund in your income. For more information, (State HFA) Hardest Hit Fund pro- Real estate taxes paid at settlement or clos- see Recoveries in Pub. 525, Taxable and Non- gram in which program payments ing. Real estate taxes are generally divided so taxable Income. could be used to pay mortgage inter- that you and the seller each pay taxes for the est, or part of the property tax year you owned the Items You Can’t Deduct home. Your share of these taxes is fully deduc- b. An Emergency Homeowners' Loan as Real Estate Taxes tible if you itemize your deductions. Program (EHLP) administered by the Department of Housing and Urban Division of real estate taxes. For federal The following items aren’t deductible as real es- Development (HUD) or a state. income tax purposes, the seller is treated as tate taxes. 2. You meet the rules to deduct all of the paying the property taxes up to, but not includ- ing, the date of sale. You (the buyer) are treated Charges for services. An itemized charge for mortgage interest on your loan and all of services to specific property or people isn’t a the real estate taxes on your main home. as paying the taxes beginning with the date of sale. This applies regardless of the lien dates tax, even if the charge is paid to the taxing au- If you meet these conditions, then you can under local law. Generally, this information is in- thority. You can’t deduct the charge as a real deduct all of the payments you actually made cluded on the settlement statement you get at estate tax if it is: during the year to your mortgage servicer, the closing. • A unit fee for the delivery of a service (such State HFA, or HUD on the home mortgage (in- You and the seller each are considered to as a $5 fee charged for every 1,000 gal- cluding the amount shown in box 3 of Form have paid your own share of the taxes, even if lons of water you use), 1098-MA, Mortgage Assistance Payments), but one or the other paid the entire amount. You • A periodic charge for a residential service not more than the sum of the amounts shown in each can deduct your own share, if you itemize (such as a $20 per month or $240 annual box 1 (mortgage interest received), box 5 (mort- deductions, for the year the property is sold. fee charged to each homeowner for trash gage insurance premiums), and box 10 (real collection), or property taxes) of Form 1098, Mortgage Inter- Example. You bought your home on Sep- • A flat fee charged for a single service pro- est Statement. tember 1. The property tax year (the period to vided by your local government (such as a which the tax relates) in your area is the calen- $30 charge for mowing your lawn because You may first allocate amounts paid to mort- dar year. The tax for the year was $730 and it had grown higher than permitted under a gage interest up to the amount shown on Form was due and paid by the seller on August 15. local ordinance). 1098. You may then use any reasonable You owned your new home during the prop- method to allocate the remaining balance of the You must look at your real estate tax erty tax year for 122 days (September 1 to De- payments to real property taxes. Regardless of bill to decide if any nondeductible item- cember 31, including your date of purchase). how you determine the deductible amount un- ized charges, such as those listed You figure your deduction for real estate taxes der this special safe harbor method, any above, are included in the bill. If your taxing au- on your home as follows. amount allocated to state or local property thority (or lender) doesn’t furnish you a copy of your real estate tax bill, ask for it. Contact the taxes is subject to the limitation on the deduc- 1. Enter the total real estate taxes tion for state and local taxes. However, you taxing authority if you need additional informa- for the real property tax year .... $730 aren’t required to use this special method to fig- tion about a specific charge on your real estate 2. Enter the number of days in the tax bill. ure your deduction for mortgage interest and property tax year that you owned real estate taxes on your main home. the property ...... 122 For additional guidance, see Notice 3. Divide line 2 by 366 ...... 0.3333 Assessments for local benefits. You can’t deduct amounts you pay for local benefits that 2018-63, available at IRS.gov/irb/ 4. Multiply line 1 by line 3. This is tend to increase the value of your property. Lo- 2018-34_IRB#NOT-2018-63. your deduction. Enter it on cal benefits include the construction of streets, Schedule A (Form 1040), sidewalks, or water and sewer systems. You line 5b ...... $243 State and Local Real Estate must add these amounts to the basis of your Taxes You can deduct $243 on your return for the property. year if you itemize your deductions. You are You can, however, deduct assessments (or Most state and local governments charge an considered to have paid this amount and can taxes) for local benefits if they are for mainte- annual tax on the value of real property. This is deduct it on your return even if, under the con- nance, repair, or interest charges related to called a real estate tax. You can deduct the tax tract, you didn’t have to reimburse the seller. those benefits. An example is a charge to repair if it is assessed uniformly at a like rate on all real an existing sidewalk and any interest included property throughout the community. The pro- Delinquent taxes. Delinquent taxes are in that charge. ceeds must be for general community or gov- unpaid taxes that were imposed on the seller for If only a part of the assessment is for main- ernmental purposes and not be a payment for a an earlier tax year. If you agree to pay delin- tenance, repair, or interest charges, you must special privilege granted or special service ren- quent taxes when you buy your home, you can’t be able to show the amount of that part to claim dered to you. deduct them. You treat them as part of the cost the deduction. If you can’t show what part of the of your home. See Real estate taxes, later, un- assessment is for maintenance, repair, or inter- The deduction for state and local taxes, der Basis. ! including real estate taxes, is limited to est charges, you can’t deduct any of it. CAUTION $10,000 ($5,000 if married filing sepa- An assessment for a local benefit may be Escrow accounts. Many monthly house pay- listed as an item in your real estate tax bill. If so, rately). See the Instructions for Schedule A ments include an amount placed in escrow (put (Form 1040) for more information. use the rules in this section to find how much of in the care of a third party) for real estate taxes. it, if any, you can deduct. You may not be able to deduct the total you pay Deductible Real Estate Taxes into the escrow account. You can deduct only Transfer taxes (or stamp taxes). You can't the real estate taxes that the lender actually deduct transfer taxes and similar taxes and You can deduct real estate taxes imposed on paid from escrow to the taxing authority. Your charges on the sale of a personal home. If you you. You must have paid them either at settle- real estate tax bill will show this amount. are the buyer and you pay them, include them ment or closing, or to a taxing authority (either in the cost basis of the property. If you are the directly or through an escrow account) during Refund or rebate of real estate taxes. If you seller and you pay them, they are expenses of the year. If you own a cooperative apartment, receive a refund or rebate of real estate taxes the sale and reduce the amount realized on the see Special Rules for Cooperatives, later. this year for amounts you paid this year, you sale.

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Homeowners’ association assessments. (1). This is your share of the real estate the extent that the loan proceeds from your You can't deduct these assessments because taxes. home mortgage are used to buy, build, or sub- the homeowners’ association, rather than a stantially improve the home securing the loan. state or local government, imposes them. Generally, the corporation will tell you your The only exception to this limit is for loans taken share of its real estate tax. This is the amount out on or before October 13, 1987; the loan pro- Foreign taxes you paid on real estate. You you can deduct if it reasonably reflects the cost ceeds for these loans are treated as having can't deduct foreign taxes you paid on real es- of real estate taxes for your dwelling unit. been used to buy, build, or substantially im- tate. Refund of real estate taxes. If the corpo- prove the home. See Pub. 936 for more infor- ration receives a refund of real estate taxes it mation about loans taken out on or before Octo- Special Rules for Cooperatives paid in an earlier year, it must reduce the ber 13, 1987. amount of real estate taxes paid this year when Limit on loans taken out on or before If you own a cooperative apartment, some spe- it allocates the tax expense to you. Your deduc- December 15, 2017. For qualifying debt taken cial rules apply to you, though you generally re- tion for real estate taxes the corporation paid out on or before December 15, 2017, you can ceive the same tax treatment as other home- this year is reduced by your share of the refund only deduct home mortgage interest on up to $1 owners. As an owner of a cooperative the corporation received. million ($500,000 if you are married filing sepa- apartment, you own shares of stock in a corpo- rately) of that debt. The only exception is for ration that owns or leases housing facilities. Sales Taxes loans taken out on or before October 13, 1987; You can deduct your share of the corporation's see Pub. 936 for more information about loans deductible real estate taxes if the cooperative Generally, you can elect to deduct state and lo- taken out on or before October 13, 1987. housing corporation meets the following condi- See Pub. 936 to figure your deduction if you tions. cal general sales taxes instead of state and lo- cal income taxes as an itemized deduction on have loans taken out on or before December 1. The corporation has only one class of Schedule A (Form 1040). You must check the 15, 2017, that exceed $1 million ($500,000 if stock outstanding. box on Schedule A (Form 1040), line 5a, if you you are married filing separately). 2. Each stockholder, solely because of own- elect this option. Deductible sales taxes may in- Limit on loans taken out after December ership of the stock, can live in a house, clude sales taxes paid on your home (including 15, 2017. For qualifying debt taken out after apartment, or house trailer owned or mobile and prefabricated), or home building December 15, 2017, you can only deduct home leased by the corporation. materials if the tax rate was the same as the mortgage interest on up to $750,000 ($375,000 general sales tax rate. For information on figur- 3. No stockholder can receive any distribu- if you are married filing separately) of that debt. ing your deduction, see the Instructions for If you also have qualifying debt subject to the $1 tion out of capital, except on a partial or Schedule A (Form 1040). complete liquidation of the corporation. million limitation discussed under Limit on loans The deduction for state and local taxes, taken out on or before December 15, 2017, ear- 4. At least one of the following. ! including general sales taxes, if elected lier, the $750,000 limit for debt taken out after a. At least 80% of the corporation's CAUTION instead of income taxes, is limited to December 15, 2017, is reduced by the amount gross income for the tax year was $10,000 ($5,000 if married filing separately). of your qualifying debt subject to the $1 million paid by the tenant-stockholders. For See the Instructions for Schedule A (Form limit. An exception exists for certain loans taken this purpose, gross income means all 1040) for more information. out after December 15, 2017, but before April 1, income received during the entire tax 2018. If the exception applies, your loan may be year, including any received before If you elect to deduct the sales taxes treated in the same manner as a loan taken out the corporation changed to coopera- paid on your home, or home building on or before December 15, 2017. See Pub. 936 tive ownership. materials, you can't include them as for more information about this exception. part of your cost basis in the home. See Pub. 936 to figure your deduction if you b. At least 80% of the total square foot- have loans taken out after October 13, 1987 age of the corporation's property must that exceed $750,000 ($375,000 or less if you be available for use by the ten- Home Mortgage Interest are married filing separately). ant-stockholders during the entire tax Limit when loans exceed the fair market year. This section of the publication gives you basic value of the home. If the total amount of all information about home mortgage interest, in- c. At least 90% or more of the expendi- mortgages is more than the fair market value of cluding information on interest paid at settle- tures paid or incurred by the corpora- the home, see Pub. 936 to figure your deduc- ment, points, and Form 1098, Mortgage Interest tion were used for the acquisition, tion. construction, management, mainte- Statement. nance, or care of the corporation’s Most home buyers take out a mortgage Refund of home mortgage interest. If you property for the benefit of the ten- (loan) to buy their home. They then make receive a refund of home mortgage interest that ant-shareholders during the entire tax monthly payments to either the mortgage holder you deducted in an earlier year and that re- year. or someone collecting the payments for the duced your tax, you generally must include the mortgage holder. refund in income in the year you receive it. For Tenant-stockholders. A tenant-stockholder more information, see Recoveries in Pub. 525. can be any entity (such as a company or corpo- Usually, you can deduct the entire part of The amount of the refund will usually be shown ration, trust, estate, partnership, or association) your payment that is for mortgage interest if you on the mortgage interest statement you receive as well as an individual. The tenant-stockholder itemize your deductions on Schedule A (Form from your mortgage lender. See Mortgage Inter- doesn't have to live in any of the cooperative's 1040). However, your deduction may be limited. est Statement, later. dwelling units. The units that the tenant-stock- See Limits on home mortgage interest next for holder has the right to occupy can be rented to more information. others. Deductible Mortgage Interest Limits on home mortgage interest. Your de- To be deductible, the interest you pay must be Deductible taxes. You figure your share of duction for home mortgage interest is subject to real estate taxes in the following way. on a loan secured by your main home or a sec- a number of limits. If one or more of the follow- ond home, regardless of how the loan is la- 1. Divide the number of your shares of stock ing limits applies, see Pub. 936 to figure your beled. The loan can be a first or second mort- by the total number of shares outstanding, deduction. Also see Pub. 936 if you later refi- gage, a home improvement loan, a home equity including any shares held by the corpora- nance your mortgage or buy a second home. loan, or a refinanced mortgage. tion. Limit for loan proceeds not used to buy, 2. Multiply the corporation's deductible real build, or substantially improve your home. estate taxes by the number you figured in You can only deduct home mortgage interest to

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Interest paid on home mortgage pro- your share of the corporation's deductible mort- 3. The points paid weren't more than the ! ceeds is only deductible to the extent gage interest. Figure your share of mortgage in- points generally charged in that area. CAUTION the loan proceeds were used to buy, terest the same way that is shown for figuring 4. You use the cash method of accounting. build, or substantially improve your home. your share of real estate taxes in the Example This means you report income in the year under Division of real estate taxes, earlier. For you receive it and deduct expenses in the more information on cooperatives, see Special Prepaid interest. If you pay interest in ad- year you pay them. Most individuals use Rule for Tenant-Stockholders in Cooperative vance for a period that goes beyond the end of this method. the tax year, you must spread this interest over Housing Corporations in Pub. 936. 5. The points weren't paid in place of the tax years to which it applies. Generally, you Refund of cooperative's mortgage inter- can deduct in each year only the interest that amounts that ordinarily are stated sepa- est. You must reduce your mortgage interest rately on the settlement statement, such qualifies as home mortgage interest for that deduction by your share of any cash portion of year. An exception (discussed later) applies to as appraisal fees, inspection fees, title a patronage dividend that the cooperative re- fees, attorney fees, and property taxes. points. ceives. The patronage dividend is a partial re- fund to the cooperative housing corporation of 6. The funds you provided at or before clos- Late payment charge on mortgage pay- mortgage interest it paid in a prior year. ing, plus any points the seller paid, were at ment. You can deduct as home mortgage in- If you receive a Form 1098 from the cooper- least as much as the points charged. The terest a late payment charge if it wasn't for a ative housing corporation, the form should show funds you provided aren't required to have specific service in connection with your mort- only the amount you can deduct. been applied to the points. They can in- gage loan. clude a down payment, an escrow de- SBA disaster home loans. Interest paid on posit, earnest money, and other funds you Mortgage prepayment penalty. If you pay off disaster home loans from the Small Business paid at or before closing for any purpose. your home mortgage early, you may have to Administration (SBA) is deductible as mortgage You can't have borrowed these funds. pay a penalty. You can deduct that penalty as interest if the requirements discussed earlier 7. You use your loan to buy or build your home mortgage interest, provided the penalty under Home Mortgage Interest are met. isn't for a specific service performed or cost in- main home. curred in connection with your mortgage loan. Mortgage Interest Paid 8. The points were figured as a percentage of the principal amount of the mortgage. Ground rent. In some states (such as Mary- at Settlement land), you may buy your home subject to a 9. The amount is clearly shown on the settle- ground rent. A ground rent is an obligation you One item that normally appears on a settlement ment statement (such as the Uniform Set- assume to pay a fixed amount per year on the or closing statement is home mortgage interest. tlement Statement, Form HUD-1) as property. Under this arrangement, you are leas- points charged for the mortgage. The ing (rather than buying) the land on which your You can deduct the interest that you pay at points may be shown as paid from either home is located. settlement if you itemize your deductions on your funds or the seller's. Schedule A (Form 1040). This amount should Redeemable ground rents. If you make be included in the mortgage interest statement Note. If you meet all of the tests listed annual or periodic rental payments on a re- provided by your lender. See the discussion un- above and you itemize your deductions in the deemable ground rent, you can deduct the pay- der Mortgage Interest Statement, later. Also, if year you get the loan, you can either deduct the ments as mortgage interest. The ground rent is you pay interest in advance, see Prepaid inter- full amount of points in the year paid or deduct a redeemable ground rent only if all of the fol- est, earlier, and Points next. them over the life of the loan, beginning in the lowing are true. year you get the loan. If you do not itemize your • Your lease, including renewal periods, is Points deductions in the year you get the loan, you can for more than 15 years. spread the points over the life of the loan and • You can freely assign the lease. The term “points” is used to describe certain deduct the appropriate amount in each future • You have a present or future right (under charges paid, or treated as paid, by a borrower year, if any, when you do itemize your deduc- state or local law) to end the lease and buy to obtain a home mortgage. Points may also be tions. the lessor's entire interest in the land by called loan origination fees, maximum loan Home improvement loan. You can also paying a specified amount. charges, loan discount, or discount points. • The lessor's interest in the land is primarily fully deduct in the year paid points paid on a loan to substantially improve your main home if a security interest to protect the rental pay- A borrower is treated as paying any points you meet the first six tests listed earlier. ments to which he or she is entitled. that a home seller pays for the borrower's mort- Payments made to end the lease and buy gage. See Points paid by the seller, later. Refinanced loan. If you use part of the refi- the lessor's entire interest in the land aren't re- nanced mortgage proceeds to substantially im- deemable ground rents. You can't deduct them. General rule. You can't deduct the full amount prove your main home and you meet the first six of points in the year paid. They are prepaid in- tests listed earlier, you can fully deduct the part Nonredeemable ground rents. Payments terest, so you generally must deduct them over of the points related to the improvement in the on a nonredeemable ground rent aren't mort- the life (term) of the mortgage. year you paid them with your own funds. You gage interest. You can deduct them as rent only Exception. You can deduct the full amount can deduct the rest of the points over the life of if they are a business expense or if they are for the loan. rental property. of points in the year paid if you meet all the fol- lowing tests. Points not fully deductible in year paid. Cooperative apartment. You can usually treat 1. Your loan is secured by your main home. If you don’t qualify under the exception to de- the interest on a loan you took out to buy stock (Generally, your main home is the one you duct the full amount of points in the year paid in a cooperative housing corporation as home live in most of the time.) (or choose not to do so), see Points in Pub. 936 mortgage interest if you own a cooperative for the rules on when and how much you can apartment, and the cooperative housing corpo- 2. Paying points is an established business deduct. ration meets the conditions described earlier practice in the area where the loan was under Special Rules for Cooperatives. In addi- made. Figure A. You can use Figure A as a quick tion, you can treat as home mortgage interest guide to see whether your points are fully de- ductible in the year paid.

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Figure A. Are My Points Fully Deductible This Year?

Start Here: No Is the loan secured by your main home?

Yes

Is the payment of points an established business practice in your No area?

Yes

Were the points paid more than the amount generally charged in Yes your area?

No

No Do you use the cash method of accounting?

Yes

Were the points paid in place of amounts that ordinarily are Yes separately stated on the settlement sheet?

No

Were the funds you provided (other than those you borrowed from No your lender or mortgage broker), plus any points the seller paid, at least as much as the points charged?*

Yes

Yes Did you take out the loan to substantially improve your main home?

No

No Did you take out the loan to buy or build your main home?

Yes

Were the points computed as a percentage of the principal amount No of the mortgage?

Yes

Is the amount paid clearly shown as points on the settlement No statement?

Yes

You can fully deduct the points this year on Schedule A (Form 1040). You cannot fully deduct the points this year. See the discussion on Points.

* The funds you provided are not required 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.

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Amounts charged for services. Amounts Example 2. The facts are the same as in home mortgage interest, state and local real es- charged by the lender for specific services con- Example 1, except that the person who sold you tate taxes, and qualified mortgage insurance nected to the loan aren't interest. Examples of your home also paid one point ($1,000) to help premiums. these charges are: you get your mortgage. In the year paid, you • Appraisal fees, can deduct $1,750 ($750 of the amount you If you paid home mortgage interest to the • Notary fees, and were charged plus the $1,000 paid by the person from whom you bought your home, • Preparation costs for the mortgage note or seller). You spread the remaining $250 over the show that person's name, address, and social deed of trust. life of the mortgage. You must reduce the basis security number (SSN) or employer identifica- You can't deduct these amounts as points ei- of your home by the $1,000 paid by the seller. tion number (EIN) on the dotted lines next to ther in the year paid or over the life of the mort- line 8b. The seller must give you this number Excess points. If you meet all the tests under gage. For information about the tax treatment of and you must give the seller your SSN. Form Exception, earlier, except that the points paid these amounts and other settlement fees and W-9, Request for Taxpayer Identification Num- were more than are generally charged in your closing costs, see Basis, later. ber and Certification, can be used for this pur- area (test 3), you can deduct in the year paid pose. Failure to meet either of these require- Points paid by the seller. The term “points” only the points that are generally charged. You ments may result in a $50 penalty for each includes loan placement fees that the seller must spread any additional points over the life failure. pays to the lender to arrange financing for the of the mortgage. buyer. Mortgage ending early. If you spread your Mortgage Interest Statement Treatment by seller. The seller can't de- deduction for points over the life of the mort- If you paid $600 or more of mortgage interest duct these fees as interest. However, they are a gage, you can deduct any remaining balance in (including certain points and mortgage insur- selling expense that reduces the seller's the year the mortgage ends. A mortgage may ance premiums) during the year on any one amount realized. See Pub. 523 for more infor- end early due to a prepayment, refinancing, mortgage to a mortgage holder in the course of mation. foreclosure, or similar event. that holder's trade or business, you should re- Treatment by buyer. The buyer treats Example. Dan paid $3,000 in points in ceive a Form 1098 or similar statement from the seller-paid points as if he or she had paid them. 2012 that he had to spread out over the 15-year mortgage holder. The statement will show the If all the tests listed earlier under Exception are life of the mortgage. He had deducted $1,600 of total interest paid on your mortgage during the met, the buyer can deduct the points in the year these points through 2019. year. If you bought a main home during the paid. If any of those tests aren't met, the buyer Dan prepaid his mortgage in full in 2020. He year, it will also show the deductible points you must deduct the points over the life of the loan. can deduct the remaining $1,400 of points in paid and any points you can deduct that were The buyer must also reduce the basis of the 2020. paid by the person who sold you your home. home by the amount of the seller-paid points. See Points, earlier. For more information about the basis of your Exception. If you refinance the mortgage home, see Basis, later. with the same lender, you can't deduct any re- The interest you paid at settlement should maining points for the year. Instead, deduct be included on the statement. If it isn't, add the Funds provided are less than points. If you them over the term of the new loan. interest from the settlement sheet that qualifies meet all the tests listed earlier under Exception as home mortgage interest to the total shown except that the funds you provided were less Form 1098. The mortgage interest statement on Form 1098 or similar statement. Put the total than the points charged to you (test 6), you can you receive should show not only the total inter- on Schedule A (Form 1040), line 8a, and attach deduct the points in the year paid up to the est paid during the year, but also your deducti- a statement to your return explaining the differ- amount of funds you provided. In addition, you ble points paid during the year. See Mortgage ence. Write “See attached” to the right of can deduct any points paid by the seller. Interest Statement, later. line 8a.

Example 1. When you took out a $100,000 Where To Deduct A mortgage holder can be a financial institu- mortgage loan to buy your home in December, Home Mortgage Interest tion, a governmental unit, or a cooperative you were charged one point ($1,000). You meet housing corporation. If a statement comes from all the tests for deducting points in the year paid Enter on Schedule A (Form 1040), line 8a, the a cooperative housing corporation, it generally (see Exception, earlier), except the only funds home mortgage interest and points reported to will show your share of interest. you provided were a $750 down payment. Of you on Form 1098 (discussed next). If you the $1,000 you were charged for points, you didn't receive a Form 1098, enter your deducti- can deduct $750 in the year paid. You spread ble interest on line 8b, and any deductible Your mortgage interest statement for 2020 the remaining $250 over the life of the mort- points on line 8c. Deduct mortgage insurance should be provided or sent to you by February gage. premiums on Schedule A (Form 1040), line 8d. 1, 2021. If it is mailed, you should allow ade- quate time to receive it before contacting the See Table 1 for a summary of where to deduct mortgage holder. A copy of this form will also be sent to the IRS. Table 1. Where To Deduct Interest and Taxes Paid on Your Home Example. You bought a new home on May See the text for information on what expenses are eligible. 3. You paid no points on the purchase. During the year, you made mortgage payments that in- IF you are eligible to deduct . . . THEN report the amount cluded $4,480 deductible interest on your new on Schedule A (Form 1040) . . . home. The settlement sheet for the purchase of the home included interest of $620 for 29 days state and local real estate taxes line 5b. in May. The mortgage statement you receive from the lender includes total interest of $5,100 home mortgage interest and points reported on line 8a. ($4,480 + $620). You can deduct the $5,100 if Form 1098 you itemize your deductions.

home mortgage interest not reported on line 8b. Refund of overpaid interest. If you receive a Form 1098 refund of mortgage interest you overpaid in a prior year, you generally will receive a Form points not reported on Form 1098 line 8c. 1098 showing the refund in box 4. Generally, you must include the refund in income in the qualified mortgage insurance premiums line 8d.

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year you receive it. See Refund of home mort- provided by the Department of Veterans Affairs cooperative, mobile home, house trailer, boat, gage interest, earlier, under Home Mortgage In- or Rural Housing Service. or similar property that has sleeping, cooking, terest. and toilet facilities. Home Acquisition Debt More than one borrower. If you and at least Main home. You can have only one main one other person (other than your spouse if you Home acquisition debt is a mortgage you took home at any one time. This is the home where file a joint return) were liable for and paid inter- out after October 13, 1987, to buy, build, or sub- you ordinarily live most of the time. est on a mortgage that was for your home, and stantially improve a qualified home. It must also the other person received a Form 1098 showing be secured by that home. Second home and other special situations. the interest that was paid during the year, at- If you have a second home, use part of your tach a statement to your paper return explaining home for other than residential living (such as a If the amount of your mortgage is more than this. Show how much of the interest each of you home office), rent out part of your home, or are the cost of the home plus the cost of any sub- paid, and give the name and address of the per- having your home constructed, see Qualified stantial improvements, only the debt that is not son who received the form. Deduct your share Home in Pub. 936. more than the cost of the home plus improve- of the interest on Schedule A (Form 1040), ments qualifies as home acquisition debt. line 8b, and write “See attached” to the right of Limit on Deduction that line. Also, deduct your share of any quali- Home acquisition debt limit. The total fied mortgage insurance premiums on Sched- amount you can treat as home acquisition debt If your adjusted gross income (AGI) on Form ule A (Form 1040), line 8d. at any time on your home cannot be more than 1040 or 1040-SR, line 11, is more than $1 million ($500,000 if married filing sepa- $100,000 ($50,000 if your filing status is mar- Mortgage Insurance rately). ried filing separately), the amount of your mort- Premiums gage insurance premiums that are deductible is Discharges of qualified principal residence reduced and may be eliminated. See Line 8d in indebtedness. You can exclude from gross in- the Instructions for Schedule A (Form 1040) You may be able to take an itemized deduction come any discharges of qualified principal resi- and complete the Mortgage Insurance Premi- on Schedule A (Form 1040), line 8d, for premi- dence indebtedness made after 2006 and in ums Deduction Worksheet to figure the amount ums you pay or accrue during 2020 for qualified most cases before 2026. You must reduce the you can deduct. If your adjusted gross income mortgage insurance in connection with home basis of your principal residence (but not below is more than $109,000 ($54,500 if married filing acquisition debt on your qualified home. zero) by the amount you exclude. separately), you can't deduct your mortgage in- surance premiums. Mortgage insurance premiums you paid or Principal residence. Your principal resi- accrued on any mortgage insurance contract is- dence is the home where you ordinarily live Form 1098. The amount of mortgage insur- sued before January 1, 2007, are not deductible most of the time. You can have only one princi- ance premiums you paid during 2020 may be as an itemized deduction. pal residence at any one time. shown in box 5 of Form 1098. See Form 1098, Mortgage Interest Statement in Pub. 936. Qualified principal residence indebted- Qualified Mortgage Insurance ness. This indebtedness is a mortgage that you took out to buy, build, or substantially im- Qualified mortgage insurance is mortgage in- prove your principal residence and that is se- Mortgage Interest Credit surance provided by the Veterans Administra- cured by that residence. If the amount of your tion, the Federal Housing Administration, or the original mortgage is more than the cost of your The mortgage interest credit is intended to help Rural Housing Administration, and private mort- principal residence plus the cost of substantial lower-income individuals afford home owner- gage insurance (as defined in section 2 of the improvements, qualified principal residence in- ship. If you qualify, you can claim the credit on Homeowners Protection Act of 1998, as in ef- debtedness can’t be more than the cost of your Form 8396 each year for part of the home mort- fect on December 20, 2006). principal residence plus improvements. gage interest you pay. Any debt secured by your principal resi- Mortgage insurance provided by the Depart- dence that you use to refinance qualified princi- Who qualifies. You may be eligible for the ment of Veterans Affairs is commonly known as pal residence indebtedness is qualified princi- credit if you were issued a qualified Mortgage a funding fee. If provided by the Rural Housing pal residence indebtedness up to the amount of Credit Certificate (MCC) from your state or local Service, it is commonly known as a guarantee your old mortgage principal just before the refi- government. Generally, an MCC is issued only fee. The funding fee and guarantee fee can ei- nancing. Additional debt incurred to substan- in connection with a new mortgage for the pur- ther be included in the amount of the loan or tially improve your principal residence is also chase of your main home. paid in full at the time of closing. These fees can qualified principal residence indebtedness. be deducted fully in 2020 if the mortgage insur- The MCC will show the certificate credit rate ance contract was issued in 2020. Contact the Amount you can exclude. You can only you will use to figure your credit. It will also mortgage insurance issuer to determine the de- exclude debt discharged after 2006 and in most show the certified indebtedness amount. Only ductible amount if it is not reported in box 5 of cases before 2026. The most you can exclude the interest on that amount qualifies for the Form 1098. is $750,000 ($375,000 if married filing sepa- credit. See Figuring the Credit, later. rately). You can’t exclude any amount that was You must contact the appropriate gov- discharged because of services performed for Prepaid mortgage insurance premiums. If TIP ernment agency about getting an MCC the lender or on account of any other factor not you paid premiums that are allocable to periods before you get a mortgage and buy directly related either to a decline in the value of after the close of the tax year, you must allocate your home. Contact your state or local housing your residence or to your financial condition. them over the shorter of: finance agency for information about the availa- • The stated term of the mortgage; or bility of MCCs in your area. • 84 months, beginning with the month the Ordering rule. If only a part of a loan is insurance was obtained. qualified principal residence indebtedness, you can exclude only the amount of the discharge How to claim the credit. To claim the credit, The premiums are treated as paid in the year to that is more than the amount of the loan (imme- complete Form 8396 and attach it to your Form which they were allocated. If the mortgage is diately before the discharge) that is not qualified 1040, 1040-SR, or 1040-NR. Include the credit satisfied before its term, no deduction is al- principal residence indebtedness. in your total for Schedule 3 (Form 1040), line 6; lowed for the unamortized balance. See Pub. be sure to check box c and write “8396” on that 936 for details. Qualified Home line. Exception for certain mortgage insur- ance. The allocation rules, explained above, This means your main home or your second Reducing your home mortgage interest de- do not apply to qualified mortgage insurance home. A home includes a house, condominium, duction. If you itemize your deductions on

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Schedule A (Form 1040), you must reduce your Credit Limit Worksheet in the Form 8396 in- credit rate is more than 20%, you can't carry for- home mortgage interest deduction by the structions to figure the limit based on tax. ward any amount more than $2,000 (or your amount of the mortgage interest credit shown share of the $2,000 if you must divide the on Form 8396, line 3. You must do this even if Dividing the Credit credit). part of that amount is to be carried forward to 2020. If two or more persons (other than a married Example. In the earlier example under Di- couple filing a joint return) hold an interest in the viding the Credit, John and George used the Selling your home. If you purchase a home home to which the MCC relates, the credit must entire $2,000 credit. The excess after 1990 using an MCC, and you sell that be divided based on the interest held by each home within 9 years, you may have to recapture person. John $1,350 − $1,200 = $150 (repay) all or part of the benefit you received George $900 − $800 = $100 from the MCC program. For additional informa- Example. John and his brother, George, tion, see Paying Back Credits and Subsidies in were issued an MCC. They used it to get a $150 for John ($1,350 − $1,200) and $100 for Pub. 523. mortgage on their main home. John has a 60% George ($900 − $800) can't be carried forward ownership interest in the home, and George to future years, despite the respective tax liabili- Figuring the Credit has a 40% ownership interest in the home. ties for John and George. John paid $5,400 mortgage interest this year Figure your credit on Form 8396. and George paid $3,600. Refinancing The MCC shows a credit rate of 25% and a Mortgage not more than certified indebted- certified indebtedness amount of $130,000. If you refinance your original mortgage loan on ness. If your mortgage loan amount is equal to The loan amount (mortgage) on their home is which you had been given an MCC, you must (or smaller than) the certified indebtedness $120,000. The credit is limited to $2,000 be- get a new MCC to be able to claim the credit on amount shown on your MCC, enter on Form cause the credit rate is more than 20%. the new loan. The amount of credit you can 8396, line 1, all the interest you paid on your John figures the credit by multiplying the claim on the new loan may change. Table 2 mortgage during the year. mortgage interest he paid this year ($5,400) by summarizes how to figure your credit if you refi- the certificate credit rate (25%) for a total of nance your original mortgage loan. Mortgage more than certified indebtedness. $1,350. His credit is limited to $1,200 ($2,000 × If your mortgage loan amount is larger than the 60% (0.60)). An issuer may reissue an MCC after you re- certified indebtedness amount shown on your George figures the credit by multiplying the finance your mortgage. If you didn't get a new MCC, you can figure the credit on only part of mortgage interest he paid this year ($3,600) by MCC, you may want to contact the state or local the interest you paid. To find the amount to en- the certificate credit rate (25%) for a total of housing finance agency that issued your origi- ter on line 1, multiply the total interest you paid $900. His credit is limited to $800 ($2,000 × nal MCC for information about whether you can during the year on your mortgage by the follow- 40% (0.40)). get a reissued MCC. ing fraction. Carryforward Year of refinancing. In the year of refinancing, Mortgage Larger than Certified add the applicable amount of interest paid on Indebtedness If your allowable credit is reduced because of the old mortgage and the applicable amount of the limit based on your tax, you can carry for- interest paid on the new mortgage, and enter Certified indebtedness amount on your MCC ward the unused portion of the credit to the next the total on Form 8396, line 1. Original amount of your mortgage 3 years or until used, whichever comes first. If your new MCC has a credit rate different from the rate on the old MCC, you must attach a The fraction won’t change as long as you Example. You receive a mortgage credit statement to Form 8396. The statement must are entitled to take the mortgage interest credit. certificate from State X. This year, your regular show the calculation for lines 1, 2, and 3 for the tax liability is $1,100, you owe no alternative part of the year when the old MCC was in effect. Example. Emily bought a home this year. minimum tax, and your mortgage interest credit It must show a separate calculation for the part Her mortgage loan is $125,000. The certified in- is $1,700. You claim no other credits. Your un- of the year when the new MCC was in effect. debtedness amount on her MCC is $100,000. used mortgage interest credit for this year is Combine the amounts from both calculations for She paid $7,500 interest this year. Emily figures $600 ($1,700 − $1,100). You can carry forward line 3, enter the total on line 3 of the form, and the interest to enter on Form 8396, line 1, as fol- this amount to the next 3 years or until used, write “See attached” on the dotted line next to lows: whichever comes first. line 2.

$100,000 Credit rate more than 20%. If you are subject = 80% (0.80) New MCC can't increase your credit. The $125,000 to the $2,000 limit because your certificate credit that you claim with your new MCC can't $7,500 x 0.80 = $6,000

Emily enters $6,000 on Form 8396, line 1. In Table 2. Effect of Refinancing on Your each later year, she will figure her credit using Credit Keep for Your Records only 80% of the interest she pays for that year. IF you get a new (reissued) MCC and the THEN the interest you claim on Form 8396, amount of your new mortgage is... line 1, is*... Limits smaller than or equal to the certified all the interest paid during the year on your new Two limits may apply to your credit. indebtedness amount on the new MCC mortgage. A limit based on the credit rate. • larger than the certified indebtedness amount interest paid during the year on your new A limit based on your tax. • on the new MCC mortgage multiplied by the following fraction. Limit based on credit rate. If the certificate credit rate is higher than 20%, the credit you are Certified indebtedness allowed can't be more than $2,000. amount on your new MCC Original amount of your Limit based on tax. After applying the limit mortgage based on the credit rate, your credit generally can't be more than your tax liability. See the * The credit using the new MCC can't be more than the credit using the old MCC. See New MCC can't increase your credit, later.

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be more than the credit that you could have Property transferred from a spouse. If your area is the calendar year, and the tax is due on claimed with your old MCC. home is transferred to you from your spouse, or August 15. The real estate taxes on the home In most cases, the agency that issues your from your former spouse as a result of a di- you bought were $1,275 for the year and had new MCC will make sure that it doesn't increase vorce, your basis is the same as your spouse's been paid by the seller on August 15. You didn't your credit. However, if either your old loan or (or former spouse's) adjusted basis just before reimburse the seller for your share of the real your new loan has a variable (adjustable) inter- the transfer. Pub. 504, Divorced or Separated estate taxes from September 1 through Decem- est rate, you will need to check this yourself. In Individuals, fully discusses transfers between ber 31. You must reduce the basis of your home that case, you will need to know the amount of spouses. by the $425 [(122 ÷ 366) × $1,275] the seller the credit you could have claimed using the old paid for you. You can deduct your $425 share MCC. Cost as Basis of real estate taxes on your return for the year There are two methods for figuring the credit you purchased your home. you could have claimed. Under one method, The cost of your home, whether you purchased you figure the actual credit that would have it or constructed it, is the amount you paid for it, Example 2. You bought your home on May been allowed. This means you use the credit including any debt you assumed. 3, 2020. The property tax year in your area is rate on the old MCC and the interest you would the calendar year. The taxes for the previous year are assessed on January 2 and are due on have paid on the old loan. The cost of your home includes most settle- May 31 and November 30. Under state law, the If your old loan was a variable rate mort- ment or closing costs you paid when you taxes become a lien on May 31. You agreed to gage, you can use another method to deter- bought the home. If you built your home, your pay all taxes due after the date of sale. The mine the credit that you could have claimed. cost includes most closing costs paid when you taxes due in 2020 for 2019 were $1,375. The Under this method, you figure the credit using a bought the land or settled on your mortgage. taxes due in 2021 for 2020 will be $1,425. payment schedule of a hypothetical self-amor- See Settlement or closing costs, later. tizing mortgage with level payments projected You can't deduct any of the taxes paid in to the final maturity date of the old mortgage. If you elect to deduct the sales taxes 2020 because they relate to the 2019 property The interest rate of the hypothetical mortgage is on the purchase or construction of your tax year and you didn't own the home until the annual percentage rate (APR) of the new home as an itemized deduction on 2020. Instead, you add the $1,375 to the cost mortgage for purposes of the Federal Truth in Schedule A (Form 1040), you can't include the (basis) of your home. Lending Act. The principal of the hypothetical sales taxes as part of your cost basis in the You owned the home in 2020 for 243 days mortgage is the remaining outstanding balance home. (May 3 to December 31), so you can take a tax of the certified mortgage indebtedness shown deduction on your 2021 return of $946 [(243 ÷ on the old MCC. Purchase. The basis of a home you bought is 366) × $1,425] paid in 2021 for 2020. You add the amount you paid for it. This usually includes the remaining $479 ($1,425 − $946) of taxes You must choose one method and use your down payment and any debt you as- paid in 2021 to the cost (basis) of your home. it consistently beginning with the first ! sumed. The basis of a cooperative apartment is CAUTION tax year for which you claim the credit Settlement or closing costs. If you bought the amount you paid for your shares in the cor- based on the new MCC. your home, you probably paid settlement or poration that owns or controls the property. This closing costs in addition to the contract price. amount includes any purchase commissions or As part of your tax records, you should These costs are divided between you and the other costs of acquiring the shares. TIP keep your old MCC and the schedule seller according to the sales contract, local cus- of payments for your old mortgage. Construction. If you contracted to have your tom, or understanding of the parties. If you built home built on land that you own, your basis in your home, you probably paid these costs when the home is your basis in the land plus the you bought the land or settled on your mort- Basis amount you paid to have the home built. This in- gage. cludes the cost of labor and materials, the The only settlement or closing costs you can deduct are home mortgage interest and certain Basis is your starting point for figuring a gain or amount you paid the contractor, any architect's real estate taxes. You deduct them in the year loss if you later sell your home, or for figuring fees, building permit charges, utility meter and you buy your home if you itemize your deduc- depreciation if you later use part of your home connection charges, and legal fees that are di- tions. You can add certain other settlement or for business purposes or for rent. rectly connected with building your home. If you built all or part of your home yourself, your basis closing costs to the basis of your home. While you own your home, you may add cer- is the total amount it cost you to build it. You Items added to basis. You can include in tain items to your basis. You may subtract cer- can't include in basis the value of your own la- your basis the settlement fees and closing costs tain other items from your basis. These items bor or any other labor for which you didn't pay. you paid for buying your home. A fee is for buy- are called adjustments to basis and are ex- ing the home if you would have had to pay it plained later under Adjusted Basis. Real estate taxes. Real estate taxes are usu- even if you paid cash for the home. ally divided so that you and the seller each pay The following are some of the settlement It is important that you understand these taxes for the part of the property tax year that fees and closing costs that you can include in terms when you first acquire your home be- each owned the home. See the discussion of the original basis of your home. cause you must keep track of your basis and Real estate taxes paid at settlement or closing • Abstract fees (abstract of title fees). adjusted basis during the period you own your under State and Local Real Estate Taxes, ear- • Charges for installing utility services. home. You must also keep records of the lier, to figure the real estate taxes you paid or • Legal fees (including fees for the title events that affect basis or adjusted basis. See are considered to have paid. search and preparation of the sales con- Keeping Records, later. If you pay any part of the seller's share of the tract and deed). real estate taxes (the taxes up to the date of • Recording fees. Figuring Your Basis sale), and the seller didn't reimburse you, add • Surveys. those taxes to your basis in the home. You can't • Transfer or stamp taxes. deduct them as taxes paid. • Owner's title insurance. How you figure your basis depends on how you If the seller paid any of your share of the real • Any amount the seller owes that you agree acquire your home. If you buy or build your estate taxes (the taxes beginning with the date to pay, such as back taxes or interest, re- home, your cost is your basis. If you receive of sale), you can still deduct those taxes. Don’t cording or mortgage fees, cost for im- your home as a gift, your basis is usually the include those taxes in your basis. If you didn't provements or repairs, and sales commis- same as the adjusted basis of the person who reimburse the seller, you must reduce your ba- sions. gave you the property. If you inherit your home sis by the amount of those taxes. from a decedent, different rules apply depend- If the seller actually paid for any item for ing on the date of the decedent's death. Each of Example 1. You bought your home on Sep- which you are liable and for which you can take these topics is discussed later. tember 1, 2020. The property tax year in your a deduction (such as your share of the real

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estate taxes for the year of sale), you must re- Disposition basis. If the donor's adjusted gift tax paid that is due to the net increase in duce your basis by that amount unless you are basis at the time of the gift is more than the value of the home by multiplying the total fed- charged for it in the settlement. FMV, your basis (plus or minus any required eral gift tax paid by a fraction. The numerator adjustments; see Adjusted Basis, later) when (top part) of the fraction is the net increase in Items not added to basis and not deduc- you dispose of the property will depend on the value of the home, and the denominator tible. Here are some settlement and closing whether you have a gain or a loss. (bottom part) is the value of the home for gift tax costs that you can't deduct or add to your basis. • Your basis for figuring a gain is the same purposes after reduction for any annual exclu- 1. Fire insurance premiums. as the donor's adjusted basis. sion and marital or charitable deduction that ap- • Your basis for figuring a loss is the FMV plies to the gift. The net increase in the value of 2. Charges for using utilities or other services when you received the gift. the home is its FMV minus the adjusted basis of related to occupancy of the home before the donor. closing. If you use the donor's adjusted basis to figure a gain and it results in a loss, then you must use 3. Rent for occupying the home before clos- the FMV (at the time of the gift) to refigure the Pub. 551 gives more information, including ing. loss. However, if using the FMV results in a examples, on figuring your basis when you re- ceive property as a gift. 4. Charges connected with getting or refi- gain, then you have neither a gain nor a loss. nancing a mortgage loan, such as: Example 1. Andrew received a house as a Inheritance a. Loan assumption fees, gift from Ishmael (the donor). At the time of the b. Cost of a credit report, and gift, the home had an FMV of $80,000. Ish- Your basis in a home you inherited is generally mael's adjusted basis was $100,000. After he the fair market value of the home on the date of c. Fee for an appraisal required by a received the house, no events occurred to in- the decedent's death or on the alternative valu- lender. crease or decrease the basis. If Andrew sells ation date if the personal representative for the the house for $120,000, he will have a $20,000 estate chooses to use alternative valuation. Points paid by seller. If you bought your gain because he must use the donor's adjusted home after April 3, 1994, you must reduce your basis ($100,000) at the time of the gift as his basis by any points paid for your mortgage by If an estate tax return was filed, your basis is basis to figure the gain. the person who sold you your home. generally the value of the home listed on the es- If you bought your home after 1990 but be- tate tax return. If you received a Schedule A Example 2. Same facts as Example 1, ex- fore April 4, 1994, you must reduce your basis (Form 8971) statement from an executor of an cept this time Andrew sells the house for by seller-paid points only if you deducted them. estate or other person required to file an estate $70,000. He will have a loss of $10,000 be- See Points, earlier, for the rules on deducting tax return after July 2015, you may be required cause he must use the FMV ($80,000) at the points. to report a basis consistent with the estate tax time of the gift as his basis to figure the loss. value of the property.

Gift Example 3. Same facts as Example 1, ex- If an estate tax return wasn't filed, your basis cept this time Andrew sells the house for is the appraised value of the home at the dece- To figure the basis of property you receive as a $90,000. Initially, he figures the gain using Ish- dent's date of death for state inheritance or gift, you must know its adjusted basis (defined mael's adjusted basis ($100,000), which results transmission taxes. later) to the donor just before it was given to in a loss of $10,000. Because it is a loss, An- you, its fair market value at the time it was given drew must now recalculate the loss using the For more information on consistent basis re- to you, and any gift tax paid on it. FMV ($80,000), which results in a gain of porting, see Column (e)—Cost or Other Basis in $10,000. So in this situation, Andrew will have the Instructions for Form 8949. For more infor- Fair market value. Fair market value (FMV) is neither a gain nor a loss. the price at which property would change hands mation on basis of inherited property generally, see Pub. 551 and Pub. 559. between a willing buyer and a willing seller, nei- Donor's adjusted basis equal to or less ther being under any compulsion to buy or sell than the FMV. If someone gave you your and who both have a reasonable knowledge of home after 1976 and the donor's adjusted ba- If you inherited your home from someone all the necessary facts. sis, when it was given to you, was equal to or who died in 2010, and the executor of the dece- less than the FMV, your basis at the time of re- dent's estate made the election to file Form Donor's adjusted basis is more than FMV. If ceipt is the same as the donor's adjusted basis, 8939, Allocation of Increase in Basis for Prop- someone gave you your home and the donor's plus the part of any federal gift tax paid that is erty Acquired From a Decedent, refer to the in- adjusted basis, when it was given to you, was due to the net increase in value of the home. formation provided by the executor or see Pub. more than the FMV, your basis at the time of re- 4895, Tax Treatment of Property Acquired ceipt is the same as the donor's adjusted basis. Part of federal gift tax due to net in- From a Decedent Dying in 2010, available at crease in value. Figure the part of the federal IRS.gov/Pub/IRS-Prior/p4895-2011.pdf.

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Table 3. Adjusted Basis reduce consumption of electricity or natural gas or to improve the management of energy de- This table lists examples of some items that generally will increase or decrease your basis in your mand. home. It isn't intended to be all-inclusive. Increases to Basis Decreases to Basis Adoption tax benefits. If you claim an adop- tion credit for the cost of improvements you • Improvements: • Insurance or other reimbursement added to the basis of your home, decrease the – Putting an addition on your home for casualty losses basis of your home by the credit allowed. This – Replacing an entire roof • Deductible casualty loss not covered also applies to amounts you received under an – Paving your driveway by insurance employer's adoption assistance program and – Installing central air conditioning • Payments received for easement or excluded from income. For more information, – Rewiring your home right-of-way granted see Form 8839, Qualified Adoption Expenses. • Assessments for local improvements • Depreciation allowed or allowable if (see Assessments for local benefits home is used for business or rental under What You Can and Can't Deduct, purposes Keeping Records earlier) • Value of subsidy for energy Keeping full and accurate records is vi- • Amounts spent to restore damaged conservation measure excluded tal to properly report your income and property from income RECORDS expenses, to support your deductions • Adoption tax benefits and credits, and to know the basis or adjusted basis of your home. These records include your Adjusted Basis cost of any improvements that are replaced and purchase contract and settlement papers if you are no longer part of the home. bought the property, or other objective evidence While you own your home, various events may if you acquired it by gift, inheritance, or similar take place that can change the original basis of Example. You put wall-to-wall carpeting in means. You should keep any receipts, can- your home. These events can increase or de- your home 15 years ago. Later, you replaced celed checks, and similar evidence for improve- crease your original basis. The result is called that carpeting with new wall-to-wall carpeting. ments or other additions to the basis. In addi- adjusted basis. See Table 3 for a list of some of The cost of the old carpeting you replaced is no tion, you should keep track of any decreases to the items that can adjust your basis. longer part of your home's adjusted basis. the basis such as those listed in Table 3. Repairs versus improvements. A repair Improvements. An improvement materially keeps your home in an ordinary, efficient oper- How to keep records. How you keep records adds to the value of your home, considerably ating condition. It doesn't add to the value of is up to you, but they must be clear and accu- prolongs its useful life, or adapts it to new uses. your home or prolong its life. Repairs include re- rate and must be available to the IRS. You must add the cost of any improvements to painting your home inside or outside, fixing your the basis of your home. You can't deduct these gutters or floors, fixing leaks or plastering, and How long to keep records. You must keep costs. replacing broken window panes. You can't de- your records for as long as they are important Improvements include putting a recreation duct repair costs and generally can't add them for meeting any provision of the federal tax law. room in your unfinished basement, adding an- to the basis of your home. Keep records that support an item of in- other bathroom or bedroom, putting up a fence, However, repairs that are done as part of an come, a deduction, or a credit appearing on a putting in new plumbing or wiring, installing a extensive remodeling or restoration of your return until the period of limitations for the return new roof, and paving your driveway. home are considered improvements. You add runs out. (A period of limitations is the period of them to the basis of your home. time after which no legal action can be brought.) Amount added to basis. The amount you For assessment of tax you owe, this is generally add to your basis for improvements is your ac- Records to keep. You can use Table 4 as 3 years from the date you filed the return. For fil- tual cost. This includes all costs for material and a guide to help you keep track of improvements ing a claim for credit or refund, this is generally labor, except your own labor, and all expenses to your home. Also see Keeping Records be- 3 years from the date you filed the original re- related to the improvement. For example, if you low. turn, or 2 years from the date you paid the tax, had your lot surveyed to put up a fence, the cost whichever is later. Returns filed before the due of the survey is a part of the cost of the fence. Energy conservation subsidy. If a public util- date are treated as filed on the due date. You must also add to your basis state and ity gives you (directly or indirectly) a subsidy for You may need to keep records relating to local assessments for improvements such as the purchase or installation of an energy con- the basis of property (discussed earlier) for lon- streets and sidewalks if they increase the value servation measure for your home, don’t include ger than the period of limitations. Keep those of the property. These assessments are dis- the value of that subsidy in your income. You records as long as they are important in figuring cussed earlier under State and Local Real Es- must reduce the basis of your home by that the basis of the original or replacement prop- tate Taxes. value. erty. Generally, this means for as long as you An energy conservation measure is an in- own the property and, after you dispose of it, for Improvements no longer part of home. stallation or modification primarily designed to Your home's adjusted basis doesn't include the the period of limitations that applies to you.

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Table 4. Record of Home Improvements Keep this for your records. Also, keep receipts or other proof of improvements. Keep for Your Records Remove from this record any improvements that are no longer part of your main home. For example, if you put wall-to-wall ! CAUTION carpeting in your home and later replace it with new wall-to-wall carpeting, remove the cost of the first carpeting.

(a) (b) (c) (a) (b) (c) Type of Improvement Date Amount Type of Improvement Date Amount

Heating & Air Additions: Conditioning: Bedroom Heating system Bathroom Central air conditioning Deck Furnace Garage Duct work Porch Central humidifier Patio Filtration system Storage shed Other Fireplace Other Electrical: Lighting fixtures Lawn & Grounds: Wiring upgrades Landscaping Other Driveway Walkway Plumbing: Fences Water heater Retaining wall Soft water system Sprinkler system Filtration system Swimming pool Other Exterior lighting Other Insulation: Attic Communications: Walls Satellite dish Floors Intercom Pipes and duct work Security system Other Other Interior Miscellaneous: Improvements: Storm windows and Built-in appliances doors Roof Kitchen modernization Central vacuum Bathroom modernization Other Flooring Wall-to-wall carpeting Other

download free publications, forms, or instruc- ments (Form W-2, W-2G, 1099-R, 1099-MISC, tions, go to IRS.gov and find resources that can 1099-NEC, etc.); unemployment compensation How To Get Tax Help help you right away. statements (by mail or in a digital format) or other government payment statements (Form If you have questions about a tax issue, need Preparing and filing your tax return. After 1099-G); and interest, dividend, and retirement help preparing your tax return, or want to receiving all your wage and earnings state- statements from banks and investment firms

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(Forms 1099), you have several options to – Automatic calculation of taxable social IRS social media. Go to IRS.gov/SocialMedia choose from to prepare and file your tax return. security benefits. to see the various social media tools the IRS You can prepare the tax return yourself, see if • The First Time Homebuyer Credit Account uses to share the latest information on tax you qualify for free tax preparation, or hire a tax Look-up (IRS.gov/HomeBuyer) tool pro- changes, scam alerts, initiatives, products, and professional to prepare your return. vides information on your repayments and services. At the IRS, privacy and security are account balance. paramount. We use these tools to share public Free options for tax preparation. Go to • The Sales Tax Deduction Calculator information with you. Don’t post your SSN or IRS.gov to see your options for preparing and (IRS.gov/SalesTax) figures the amount you other confidential information on social media filing your return online or in your local commun- can claim if you itemize deductions on sites. Always protect your identity when using ity, if you qualify, which include the following. Schedule A (Form 1040). any social networking site. • Free File. This program lets you prepare The following IRS YouTube channels pro- and file your federal individual income tax Getting answers to your tax ques- vide short, informative videos on various tax-re- return for free using brand-name tax-prep- tions. On IRS.gov, you can get lated topics in English, Spanish, and ASL. aration-and-filing software or Free File filla- up-to-date information on current • Youtube.com/irsvideos. ble forms. However, state tax preparation events and changes in tax law. • Youtube.com/irsvideosmultilingua. may not be available through Free File. Go • IRS.gov/Help: A variety of tools to help you • Youtube.com/irsvideosASL. to IRS.gov/FreeFile to see if you qualify for get answers to some of the most common free online federal tax preparation, e-filing, tax questions. Watching IRS videos. The IRS Video portal and direct deposit or payment options. • IRS.gov/ITA: The Interactive Tax Assistant, (IRSVideos.gov) contains video and audio pre- • VITA. The Volunteer Income Tax Assis- a tool that will ask you questions on a num- sentations for individuals, small businesses, tance (VITA) program offers free tax help ber of tax law topics and provide answers. and tax professionals. to people with low-to-moderate incomes, • IRS.gov/Forms: Find forms, instructions, Online tax information in other languages. persons with disabilities, and limited-Eng- and publications. You will find details on You can find information on IRS.gov/ lish-speaking taxpayers who need help 2020 tax changes and hundreds of interac- preparing their own tax returns. Go to MyLanguage if English isn’t your native lan- tive links to help you find answers to your guage. IRS.gov/VITA, download the free IRS2Go questions. app, or call 800-906-9887 for information You may also be able to access tax law in- • Free interpreter service. Multilingual assis- on free tax return preparation. formation in your electronic filing software. • TCE. The Tax Counseling for the Elderly tance, provided by the IRS, is available at Tax- (TCE) program offers free tax help for all payer Assistance Centers (TACs) and other taxpayers, particularly those who are 60 Need someone to prepare your tax return? IRS offices. Over-the-phone interpreter service years of age and older. TCE volunteers There are various types of tax return preparers, is accessible in more than 350 languages. specialize in answering questions about including tax preparers, enrolled agents, certi- pensions and retirement-related issues fied public accountants (CPAs), attorneys, and Getting tax forms and publications. Go to unique to seniors. Go to IRS.gov/TCE, many others who don’t have professional cre- IRS.gov/Forms to view, download, or print all of download the free IRS2Go app, or call dentials. If you choose to have someone pre- the forms, instructions, and publications you 888-227-7669 for information on free tax pare your tax return, choose that preparer may need. You can also download and view return preparation. wisely. A paid tax preparer is: popular tax publications and instructions (in- • MilTax. Members of the U.S. Armed • Primarily responsible for the overall sub- cluding the Instructions for Forms 1040 and Forces and qualified veterans may use Mil- stantive accuracy of your return, 1040-SR) on mobile devices as an eBook at Tax, a free tax service offered by the De- • Required to sign the return, and IRS.gov/eBooks. Or you can go to IRS.gov/ partment of Defense through Military One- • Required to include their preparer tax iden- OrderForms to place an order. Source. tification number (PTIN). Also, the IRS offers Free Fillable Access your online account (individual tax- Forms, which can be completed online and Although the tax preparer always signs the payers only). Go to IRS.gov/Account to se- then filed electronically regardless of in- return, you're ultimately responsible for provid- curely access information about your federal tax come. ing all the information required for the preparer account. to accurately prepare your return. Anyone paid • View the amount you owe, pay online, or Using online tools to help prepare your re- to prepare tax returns for others should have a set up an online payment agreement. turn. Go to IRS.gov/Tools for the following. thorough understanding of tax matters. For • Access your tax records online. • The Earned Income Tax Credit Assistant more information on how to choose a tax pre- • Review your payment history. (IRS.gov/EITCAssistant) determines if parer, go to Tips for Choosing a Tax Preparer • Go to IRS.gov/SecureAccess to review the you’re eligible for the earned income credit on IRS.gov. required identity authentication process. (EIC). • The Online EIN Application (IRS.gov/EIN) Coronavirus. Go to IRS.gov/Coronavirus for Using direct deposit. The fastest way to re- helps you get an employer identification links to information on the impact of the corona- ceive a tax refund is to file electronically and number (EIN). virus, as well as tax relief available for individu- choose direct deposit, which securely and elec- • The Tax Withholding Estimator (IRS.gov/ als and families, small and large businesses, tronically transfers your refund directly into your W4App) makes it easier for everyone to and tax-exempt organizations. financial account. Direct deposit also avoids the pay the correct amount of tax during the possibility that your check could be lost, stolen, year. The tool is a convenient, online way Tax reform. Tax reform legislation affects indi- or returned undeliverable to the IRS. Eight in 10 to check and tailor your withholding. It’s viduals, businesses, and tax-exempt and gov- taxpayers use direct deposit to receive their re- more user-friendly for taxpayers, including ernment entities. Go to IRS.gov/TaxReform for funds. The IRS issues more than 90% of re- retirees and self-employed individuals. The information and updates on how this legislation funds in less than 21 days. features include the following. affects your taxes. – Easy to understand language. Getting a transcript of your return. The – The ability to switch between screens, Employers can register to use Business quickest way to get a copy of your tax transcript correct previous entries, and skip Services Online. The Social Security Adminis- is to go to IRS.gov/Transcripts. Click on either screens that don’t apply. tration (SSA) offers online service at SSA.gov/ “Get Transcript Online” or “Get Transcript by – Tips and links to help you determine if employer for fast, free, and secure online W-2 Mail” to order a free copy of your transcript. If you qualify for tax credits and deduc- filing options to CPAs, accountants, enrolled you prefer, you can order your transcript by call- tions. agents, and individuals who process Form W-2, ing 800-908-9946. – A progress tracker. Wage and Tax Statement, and Form W-2c, – A self-employment tax feature. Corrected Wage and Tax Statement.

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Reporting and resolving your tax-related • Same-Day Wire: You may be able to do How Can You Learn About Your identity theft issues. same-day wire from your financial institu- Taxpayer Rights? • Tax-related identity theft happens when tion. Contact your financial institution for someone steals your personal information availability, cost, and cut-off times. The Taxpayer Bill of Rights describes 10 basic to commit tax fraud. Your taxes can be af- rights that all taxpayers have when dealing with fected if your SSN is used to file a fraudu- What if I can’t pay now? Go to IRS.gov/ the IRS. Go to TaxpayerAdvocate.IRS.gov to lent return or to claim a refund or credit. Payments for more information about your op- help you understand what these rights mean to tions. • The IRS doesn’t initiate contact with tax- you and how they apply. These are your rights. Apply for an online payment agreement payers by email, text messages, telephone • Know them. Use them. (IRS.gov/OPA) to meet your tax obligation calls, or social media channels to request in monthly installments if you can’t pay personal or financial information. This in- What Can TAS Do For You? your taxes in full today. Once you complete cludes requests for personal identification the online process, you will receive imme- numbers (PINs), passwords, or similar in- TAS can help you resolve problems that you diate notification of whether your agree- formation for credit cards, banks, or other can’t resolve with the IRS. And their service is ment has been approved. financial accounts. free. If you qualify for their assistance, you will • Use the Offer in Compromise Pre-Qualifier • Go to IRS.gov/IdentityTheft, the IRS Iden- be assigned to one advocate who will work with to see if you can settle your tax debt for tity Theft Central webpage, for information you throughout the process and will do every- less than the full amount you owe. For on identity theft and data security protec- thing possible to resolve your issue. TAS can more information on the Offer in Compro- tion for taxpayers, tax professionals, and help you if: mise program, go to IRS.gov/OIC. businesses. If your SSN has been lost or • Your problem is causing financial difficulty stolen or you suspect you’re a victim of for you, your family, or your business; Filing an amended return. You can now file tax-related identity theft, you can learn • You face (or your business is facing) an Form 1040-X electronically with tax filing soft- what steps you should take. immediate threat of adverse action; or ware to amend 2019 Forms 1040 and 1040-SR. Get an Identity Protection PIN (IP PIN). IP • You’ve tried repeatedly to contact the IRS • To do so, you must have e-filed your original PINs are six-digit numbers assigned to eli- but no one has responded, or the IRS 2019 return. Amended returns for all prior years gible taxpayers to help prevent the misuse hasn’t responded by the date promised. must be mailed. See Tips for taxpayers who of their SSNs on fraudulent federal income need to file an amended tax return and go to tax returns. When you have an IP PIN, it IRS.gov/Form1040X for information and up- How Can You Reach TAS? prevents someone else from filing a tax re- dates. turn with your SSN. To learn more, go to TAS has offices in every state, the District of IRS.gov/IPPIN. Checking the status of your amended re- Columbia, and Puerto Rico. Your local advo- turn. Go to IRS.gov/WMAR to track the status cate’s number is in your local directory and at Checking on the status of your refund. of Form 1040-X amended returns. Please note TaxpayerAdvocate.IRS.gov/Contact-Us. You Go to IRS.gov/Refunds. • that it can take up to 3 weeks from the date you can also call them at 877-777-4778. The IRS can’t issue refunds before • filed your amended return for it to show up in mid-February 2021 for returns that claimed our system, and processing it can take up to 16 the EIC or the additional child tax credit How Else Does TAS Help weeks. (ACTC). This applies to the entire refund, Taxpayers? not just the portion associated with these Understanding an IRS notice or letter TAS works to resolve large-scale problems that credits. you’ve received. Go to IRS.gov/Notices to affect many taxpayers. If you know of one of • Download the official IRS2Go app to your find additional information about responding to these broad issues, please report it to them at mobile device to check your refund status. an IRS notice or letter. IRS.gov/SAMS. • Call the automated refund hotline at 800-829-1954. Contacting your local IRS office. Keep in TAS for Tax Professionals mind, many questions can be answered on Making a tax payment. The IRS uses the lat- IRS.gov without visiting an IRS Taxpayer Assis- TAS can provide a variety of information for tax est encryption technology to ensure your elec- tance Center (TAC). Go to IRS.gov/LetUsHelp tronic payments are safe and secure. You can professionals, including tax law updates and for the topics people ask about most. If you still guidance, TAS programs, and ways to let TAS make electronic payments online, by phone, need help, IRS TACs provide tax help when a and from a mobile device using the IRS2Go know about systemic problems you’ve seen in tax issue can’t be handled online or by phone. your practice. app. Paying electronically is quick, easy, and All TACs now provide service by appointment, faster than mailing in a check or money order. so you’ll know in advance that you can get the Go to IRS.gov/Payments for information on how service you need without long wait times. Be- Low Income Taxpayer to make a payment using any of the following fore you visit, go to IRS.gov/TACLocator to find options. Clinics (LITCs) the nearest TAC and to check hours, available • IRS Direct Pay: Pay your individual tax bill services, and appointment options. Or, on the LITCs are independent from the IRS. LITCs or estimated tax payment directly from IRS2Go app, under the Stay Connected tab, your checking or savings account at no represent individuals whose income is below a choose the Contact Us option and click on “Lo- certain level and need to resolve tax problems cost to you. cal Offices.” • Debit or Credit Card: Choose an approved with the IRS, such as audits, appeals, and tax payment processor to pay online, by collection disputes. In addition, clinics can pro- phone, or by mobile device. The Taxpayer Advocate vide information about taxpayer rights and re- • Electronic Funds Withdrawal: Offered only sponsibilities in different languages for individu- Service (TAS) Is Here To als who speak English as a second language. when filing your federal taxes using tax re- Help You turn preparation software or through a tax Services are offered for free or a small fee for professional. What Is TAS? eligible taxpayers. To find a clinic near you, visit • Electronic Federal Tax Payment System: TaxpayerAdvocate.IRS.gov/about/LITC or see Best option for businesses. Enrollment is TAS is an independent organization within the IRS Pub. 4134, Low Income Taxpayer Clinic required. IRS that helps taxpayers and protects taxpayer List. • Check or Money Order: Mail your payment rights. Their job is to ensure that every taxpayer to the address listed on the notice or in- is treated fairly and that you know and under- structions. stand your rights under the Taxpayer Bill of • Cash: You may be able to pay your taxes Rights. with cash at a participating retail store.

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To help us develop a more useful index, please let us know if you have ideas for index entries. Index See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

Form: Refund of: A 1098 7 L Mortgage interest 4, 7 Adjusted basis 12 8396 8, 9 Late payment charge 5 Real estate taxes 3 Assessments: Local benefits, assessments Repairs 12 For local benefits 3 for 3 Homeowners association 4 G Assistance (See Tax help) Gift of home 11 S Ground rent 5 M Sales taxes 4 MCC (Mortgage credit SBA Disaster loans 5 B certificate) 8 Settlement or closing costs: Basis 10 H Minister's or military housing Basis of home 10 HFA Hardest Hit Fund 2 allowance 2 Mortgage interest 5 Home: Mortgage credit certificate Real estate taxes 3, 10 C Acquisition debt 8 (MCC) 8 Stamp taxes 3 Certificate, mortgage credit 8 Inherited 11 Mortgage debt forgiveness 8 State and local real estate Construction 10 Mortgage interest 4 Mortgage insurance premiums 8 taxes 3 Cooperatives 4, 5 Purchase of 10 Mortgage interest: Deductible 3 Cost basis 10 Received as gift 11 Credit 8 Paid at settlement or closing 3 Credit: Homeowners association Deduction 4 Refund or rebate 3 Mortgage interest 8 assessments 4 Late payment charge 5 Statement, mortgage interest 7 House payment 2 Paid at settlement 5 Housing allowance, minister or Refund 4, 7 D military 2 Statement 7 T Deduction: Mortgage prepayment penalty 5 Taxes: Home mortgage interest 4 Real estate 4 Real estate taxes 3 I Sales taxes 4 Disaster loans 5 Improvements 12, 13 N State and local real estate 3 Inheritance 11 Nondeductible payments 2, 11 Tax help 13 Insurance 11 Transfer taxes 3 E Interest: Emergency Homeowners' Loan Home mortgage 4 P Program 2 Prepaid 5 Points 5 W Escrow accounts 3 Prepaid interest 5 What you can and can’t deduct 2 Publications (See Tax help) K F Keeping records 12 Fire insurance premiums 11 R Recordkeeping 12

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