To deduct expenses of owning a home, you must file Form 1040 and
itemize your deductions on Schedule A (Form 1040). If you itemize, you
cannot take the standard deduction. See the Form 1040 instructions if
you have questions about whether to itemize your deductions or claim
the standard deduction.
This section explains what expenses you can deduct as a homeowner.
It also points out expenses that you cannot deduct. There are two
primary discussions: real estate taxes and home mortgage interest.
Generally, your real estate taxes and home mortgage interest are
included in your house payment.
Your house payment.
If you took out a mortgage (loan) to finance the purchase of your
home, you probably have to make monthly house payments. Your house
payment may include several costs of owning a home. The only costs you
can deduct are real estate taxes actually paid to the taxing authority
and interest that qualifies as home mortgage interest. These are
discussed in more detail later.
Here are some items, which may be included in your house payment,
that cannot be deducted.
- Fire or homeowner's insurance premiums.
- FHA mortgage insurance premiums.
- The amount applied to reduce the principal of the
Minister's or military housing allowance.
If you are a minister or a member of the uniformed services and
receive a housing allowance that is not taxable, you can still deduct
your real estate taxes and your home mortgage interest. You do not
have to reduce your deductions by your nontaxable allowance.
You cannot deduct any of the following items.
including fire and comprehensive
coverage, and title and mortgage insurance.
- Wages you pay for domestic help.
- The cost of utilities, such as gas, electricity, or
- Most settlement costs. See Settlement or closing
costs, under Cost as Basis, later, for more
Real Estate Taxes
Most state and local governments charge an annual tax on the value
of real property. This is called a real estate tax. You can
deduct the tax if it is based on the assessed value of the real
property and the taxing authority charges a uniform rate on all
property in its jurisdiction. The tax must be for the welfare of the
general public and not be a payment for a special privilege granted or
service rendered to you.
You can deduct real estate taxes imposed on you. You must have paid
them either at settlement or closing, or to a taxing authority (either
directly or through an escrow account) during the year. If you own a
cooperative apartment, see Special Rules for Cooperatives,
Where to deduct real estate taxes.
Enter the amount of your deductible real estate taxes on line 6 of
Schedule A (Form 1040).
Real estate taxes paid at settlement or closing.
Real estate taxes are generally divided so that you and the seller
each pay taxes for the part of the property tax year you owned the
home. Your share of these taxes is fully deductible, if you itemize
Division of real estate taxes.
For federal income tax purposes, the seller is treated as paying
the property taxes up to, but not including, the date of sale. You
(the buyer) are treated as paying the taxes beginning with the date of
sale. This applies regardless of the lien dates under local law.
Generally, this information is included on the settlement statement
you get at closing.
You and the seller each are considered to have paid your own share
of the taxes, even if one or the other paid the entire amount. You can
each deduct your own share, if you itemize deductions, for the year
the property is sold.
You bought your home on September 1. The property tax year (the
period to which the tax relates) in your area is the calendar year.
The tax for the year was $730 and was due and paid by the seller on
You owned your new home during the real property tax year for 122
days (September 1 to December 31, including your date of purchase).
You figure your deduction for real estate taxes on your home as
||Enter the total real estate taxes for the real
property tax year
||Enter the number of days in the real property
tax year that you owned the property
||Divide line 2 by 366
||Multiply line 1 by line 3. This is your
deduction. Enter it on line 6 of Schedule A (Form 1040)
You can deduct $243 on your return for the year if you itemize your
deductions. You are considered to have paid this amount and can deduct
it on your return even if, under the contract, you did not have to
reimburse the seller.
Delinquent taxes are unpaid taxes that were imposed on the seller
for an earlier tax year. If you agree to pay delinquent taxes when you
buy your home, you cannot deduct them. You treat them as part of the
cost of your home. See Real estate taxes, later, under
Cost as Basis.
Many monthly house payments include an amount placed in escrow (put
in the care of a third party) for real estate taxes. You may not be
able to deduct the total you pay into the escrow account. You can
deduct only the real estate taxes that the lender actually paid from
escrow to the taxing authority. Your real estate tax bill will show
Refund or rebate of real estate taxes.
If you receive a refund or rebate of real estate taxes this year
for amounts you paid this year, you must reduce your real estate tax
deduction by the amount refunded to you. If the refund or rebate was
for real estate taxes paid for a prior year, you may have to include
some or all of the refund in your income. For more information, see
Recoveries in Publication 525,
Taxable and Nontaxable
Real Estate Items You
The following items are not deductible as real estate taxes.
Charges for services.
An itemized charge for services to specific property or people is
not a tax, even if the charge is paid to the taxing authority. You
cannot deduct the charge as a real estate tax if it is:
- A unit fee for the delivery of a service (such as a $5 fee
charged for every 1,000 gallons of water you use),
- A periodic charge for a residential service (such as a $20
per month or $240 annual fee charged for trash collection), or
- A flat fee charged for a single service provided by your
local government (such as a $30 charge for mowing your lawn because it
had grown higher than permitted under a local ordinance).
You must look at your real estate tax bill to decide if any
nondeductible itemized charges, such as those just listed, are
included in the bill. If your taxing authority (or lender) does not
furnish you a copy of your real estate tax bill, ask for it.
Assessments for local benefits.
You cannot deduct amounts you pay for local benefits that tend to
increase the value of your property. Local benefits include the
construction of streets, sidewalks, or water and sewer systems. You
must add these amounts to the basis of your property.
You can, however, deduct assessments (or taxes) for local benefits
if they are for maintenance, repair, or interest charges related to
those benefits. An example is a charge to repair an existing sidewalk
and any interest included in that charge.
If only a part of the assessment is for maintenance, repair, or
interest charges, you must be able to show the amount of that part to
claim the deduction. If you cannot show what part of the assessment is
for maintenance, repair, or interest charges, you cannot deduct any of
An assessment for a local benefit may be listed as an item in your
real estate tax bill. If so, use the rules in this section to find how
much of it, if any, you can deduct.
Transfer taxes (or stamp taxes).
You cannot deduct transfer taxes and similar taxes and charges on
the sale of a personal home. If you are the buyer and you pay them,
include them in the cost basis of the property. If you are the seller
and you pay them, they are expenses of the sale and reduce the amount
realized on the sale.
Homeowners association assessments.
You cannot deduct these assessments because the homeowners
association, rather than a state or local government, imposes them.
Special Rules for Cooperatives
If you own a cooperative apartment, some special rules
apply to you, though you generally receive the same tax treatment as
other homeowners. As an owner of a cooperative apartment, you own
shares of stock in a corporation that owns or leases housing
facilities. You can deduct your share of the corporation's deductible
real estate taxes if the cooperative housing corporation
meets all of the following conditions.
- The corporation has only one class of stock
- Each stockholder, solely because of ownership of the stock,
can live in a house, apartment, or house trailer owned or leased by
- No stockholder can receive any distribution out of capital,
except on a partial or complete liquidation of the corporation.
- The tenant-stockholders pay at least 80% of the
corporation's gross income for the tax year. For this purpose, gross
income means all income received during the entire tax year, including
any received before the corporation changed to cooperative
A tenant-stockholder can be any entity (such as a corporation,
trust, estate, partnership, or association) as well as an individual.
The tenant-stockholder does not have to live in any of the
cooperative's dwelling units. The units that the tenant-stockholder
has the right to occupy can be rented to others.
You figure your share of real estate taxes in the following way.
- Divide the number of your shares of stock by the total
number of shares outstanding, including any shares held by the
- Multiply the corporation's deductible real estate taxes by
the number you figured in (1). This is your share of the real estate
Generally, the corporation will tell you your share of its real
estate tax. This is the amount you can deduct, if it reasonably
reflects the cost of real estate taxes for your dwelling unit.
Refund of real estate taxes.
If the corporation receives a refund of real estate taxes it paid
in an earlier year, it must reduce the amount of real estate taxes
paid this year when it allocates the tax expense to you. Your
deduction for real estate taxes the corporation paid this year is
reduced by your share of the refund the corporation received.
Home Mortgage Interest
This section of the publication gives you basic information about
home mortgage interest, including information on interest paid at
settlement, points, and Form 1098, Mortgage Interest Statement.
Most home buyers take out a mortgage (loan) to buy their home. They
then make monthly house payments to either the mortgage holder or
someone collecting the payments for the mortgage holder. (See
Your house payment, earlier, under What You Can and
Usually, you can deduct the entire part of your house payment that
is for mortgage interest, if you itemize your deductions on Schedule A
(Form 1040). However, your deduction may be limited if:
- Your total mortgage balance is more than $1 million
($500,000 if married filing separately), or
- You took out a mortgage for reasons other than to buy,
build, or improve your home.
If either of these situations applies to you, you will need to
get Publication 936.
You may also need Publication 936
if you later
refinance your mortgage or buy a second home.
Refund of home mortgage interest.
If you receive a refund of home mortgage interest that you deducted
in an earlier year and that reduced your tax, you generally must
include the refund in income in the year you receive it. For more
information, see Recoveries in Publication 525.
of the refund will usually be shown on the mortgage interest statement
you receive from your mortgage lender. See Mortgage Interest
Deductible Mortgage Interest
To be deductible, the interest you pay must be on a loan secured by
your main home or a second home. The loan can be a first or second
mortgage, a home improvement loan, or a home equity loan.
If you pay interest in advance for a period that goes beyond the
end of the tax year, you must spread this interest over the tax years
to which it applies. You can deduct in each year only the interest
that qualifies as home mortgage interest for that year. However, there
is an exception that applies to points, discussed later.
Late payment charge on mortgage payment.
You can deduct as home mortgage interest a late payment charge if
it was not for a specific service in connection with your mortgage
Mortgage prepayment penalty.
If you pay off your home mortgage early, you may have to pay a
penalty. You can deduct that penalty as home mortgage interest
provided the penalty is not for a specific service performed or cost
incurred in connection with your mortgage loan.
In some states (such as Maryland), you may buy your home subject to
a ground rent. A ground rent is an obligation you assume to pay a
fixed amount per year on the property. Under this arrangement, you are
leasing (rather than buying) the land on which your home is located.
Redeemable ground rents.
If you make annual or periodic rental payments on a redeemable
ground rent, you can deduct the payments as mortgage interest. The
ground rent is a redeemable ground rent only if all of the following
- Your lease, including renewal periods, is for more than 15
- You can freely assign the lease.
- You have a present or future right (under state or local
law) to end the lease and buy the lessor's entire interest in the land
by paying a specified amount.
- The lessor's interest in the land is primarily a security
interest to protect the rental payments to which he or she is
Payments made to end the lease and to buy the lessor's entire
interest are not redeemable ground rents. You cannot deduct them.
Nonredeemable ground rents.
Payments on a nonredeemable ground rent are not mortgage interest.
You can deduct them as rent if they are a business expense or if they
are for rental property.
You can usually treat the interest on a loan you took out to buy
stock in a cooperative housing corporation as home mortgage interest
if you own a cooperative apartment and the cooperative housing
corporation meets the conditions described earlier under Special
Rules for Cooperatives. In addition, you can treat as home
mortgage interest your share of the corporation's deductible mortgage
interest. Figure your share of mortgage interest the same way that is
shown for figuring your share of real estate taxes. For more
information on cooperatives, see Special Rule for
Tenant-Stockholders in Cooperative Housing Corporations in
Refund of cooperative's mortgage interest.
You must reduce your mortgage interest deduction by your share of
any cash portion of a patronage dividend that the cooperative
receives. The patronage dividend is a partial refund to the
cooperative housing corporation of mortgage interest it paid in a
If you receive a Form 1098 from the cooperative housing
corporation, the form should show only the amount you can deduct.
Paid at Settlement
One item that normally appears on a settlement or closing statement
is home mortgage interest.
You can deduct the interest that you pay at settlement if you
itemize your deductions on Schedule A (Form 1040). This amount should
be included in the mortgage interest statement provided by your
lender. See the discussion under Mortgage Interest Statement,
later. Also, if you pay interest in advance, see Prepaid
interest, earlier, and Points, next.
The term "points" is used to describe certain charges paid, or
treated as paid, by a borrower to obtain a home mortgage. Points may
also be called loan origination fees, maximum loan charges, loan
discount, or discount points.
A borrower is treated as paying any points that a home seller pays
for the borrower's mortgage. See Points paid by the seller,
You cannot deduct the full amount of points in the year paid.
Because they are prepaid interest, you generally must deduct them over
the life (term) of the mortgage.
You can fully deduct points in the year paid if you meet all the
- Your loan is secured by your main home. (Your main home is
the one you live in most of the time.)
- Paying points is an established business practice in the
area where the loan was made.
- The points paid were not more than the points generally
charged in that area.
- You use the cash method of accounting. This means you report
income in the year you receive it and deduct expenses in the year you
pay them. Most individuals use this method.
- The points were not paid in place of amounts that ordinarily
are stated separately on the settlement statement, such as appraisal
fees, inspection fees, title fees, attorney fees, and property
- The funds you provided at or before closing, plus any points
the seller paid, were at least as much as the points charged. The
funds you provided do not have to have been applied to the points.
They can include a down payment, an escrow deposit, earnest money, and
other funds you paid at or before closing for any purpose. You cannot
have borrowed these funds from your lender or mortgage broker.
- You use your loan to buy or build your main home.
- The points were computed as a percentage of the principal
amount of the mortgage.
- The amount is clearly shown on the settlement statement
(such as the Uniform Settlement Statement, Form HUD-1) as points
charged for the mortgage. The points may be shown as paid from either
your funds or the seller's.
If you meet all of the tests listed above and you itemize your
deductions in the year you get the loan, you can either deduct the
full amount of points in the year paid or deduct them over the life of
the loan, beginning in the year you get the loan. If you do not
itemize your deductions in the year you get the loan, you can spread
the points over the life of the loan and deduct the appropriate amount
in each future year, if any, when you do itemize your deductions.
Home improvement loan.
You can also fully deduct in the year paid points paid on a loan to
improve your main home, if tests (1) through (6) are met.
Points not fully deductible in year paid.
If you do not qualify under the exception to deduct the full
amount of points in the year paid, see Points in chapter 5
of Publication 535,
Business Expenses, for the rules on
when and how much you can deduct.
You can use Figure A as a quick guide to see whether
your points are fully deductible in the year paid.
Amounts charged for services.
Amounts charged by the lender for specific services connected to
the loan are not interest. Examples of these charges are:
- Appraisal fees,
- Notary fees,
- Preparation costs for the mortgage note or deed of
- Mortgage insurance premiums, and
- VA funding fees.
You cannot deduct these amounts as points either in the year
paid or over the life of the mortgage. For information about the tax
treatment of these amounts and other settlement fees and closing
costs, see Basis, later.
Points paid by the seller.
The term "points" includes loan placement fees that the seller
pays to the lender to arrange financing for the buyer.
Treatment by seller.
The seller cannot deduct these fees as interest. But
they are a selling expense that reduces the seller's amount realized.
See Publication 523
for more information.
Treatment by buyer.
The buyer treats seller-paid points as if he or she had paid them.
If all the tests under the Exception are met, the buyer can
deduct the points in the year paid. If any of those tests is not met,
the buyer deducts the points over the life of the loan.
The buyer also reduces the basis of the home by the amount of the
seller-paid points. For more information about the basis of your home,
see Basis, later.
Funds provided are less than points.
If you meet all the tests in the Exception except that
the funds you provided were less than the points charged to you (test
6), you can deduct the points in the year paid up to the amount of
funds you provided. In addition, you can deduct any points paid by the
When you took out a $100,000 mortgage loan to buy your home in
December, you were charged one point ($1,000). You meet all the tests
for deducting points in the Exception, except the only
funds you provided were a $750 down payment. Of the $1,000 you were
charged for points, you can deduct $750 in the year paid. You spread
the remaining $250 over the life of the mortgage.
The facts are the same as in Example 1, except that the
person who sold you your home also paid one point ($1,000) to help you
get your mortgage. In the year paid, you can deduct $1,750 ($750 of
the amount you were charged plus the $1,000 paid by the seller). You
must reduce the basis of your home by the $1,000 paid by the seller.
Figure A. Are my points fully deductible this year?
If you meet all the tests in the Exception except that
the points paid were more than are generally paid in your area (test
3), you can deduct in the year paid only the points that are generally
charged. You must spread any additional points over the life of the
Mortgage ending early.
If you spread your deduction for points over the life of the
mortgage, you can deduct any remaining balance in the year the
mortgage ends. A mortgage may end early due to a prepayment,
refinancing, foreclosure, or similar event.
Dan paid $3,000 in points in 1993 that he had to spread out over
the 15-year life of the mortgage. He had deducted $1,400 of these
points through 1999.
Dan prepaid his mortgage in full in 2000. He can deduct the
remaining $1,600 of points in 2000.
If you refinance the mortgage with the same lender, you cannot
deduct any remaining points for the year. Instead, deduct them over
the term of the new loan.
The mortgage interest statement you receive should show not only
the total interest paid during the year, but also your deductible
points paid during the year. See Mortgage Interest Statement,
Where To Deduct
Home Mortgage Interest
Enter on line 10 of your Schedule A (Form 1040) the home mortgage
interest and points reported to you on Form 1098 (discussed next). If
you did not receive a Form 1098, enter your deductible interest on
line 11, and any deductible points on line 12. See Table 1
for a summary of where to deduct home mortgage interest and real
If you paid home mortgage interest to the person from whom you
bought your home, show that person's name, address, and social
security number (SSN) or employer identification number (EIN) on the
dotted lines next to line 11. The seller must give you this number and
you must give the seller your SSN; Form W-9, Request for Taxpayer
Identification Number and Certification, can be used for this
purpose. Failure to meet either of these requirements may result in a
$50 penalty for each failure.
Table 1. Where To Deduct Interest and Taxes Paid on Your Home
Mortgage Interest Statement
If you paid $600 or more of mortgage interest (including certain
points) during the year on any one mortgage to a mortgage holder in
the course of that holder's trade or business, you should receive a
Form 1098, Mortgage Interest Statement, or
similar statement from the mortgage holder. The statement will show
the total interest paid on your mortgage during the year. If you
bought a main home during the year, it will also show the deductible
points you paid and any points you can deduct that were paid by the
person who sold you your home. See Points, earlier.
The interest you paid at settlement should be included on the
statement. If it is not, add the interest from the settlement sheet
that qualifies as home mortgage interest to the total shown on Form
1098 or similar statement. Put the total on line 10 of Schedule A
(Form 1040) and attach a statement to your return explaining the
difference. Write "See attached" next to line 10.
A mortgage holder can be a financial institution, a governmental
unit, or a cooperative housing corporation. If a statement comes from
a cooperative housing corporation, it will generally show your share
You should receive your mortgage interest statement for each year
by January 31 of the following year. A copy of this form will also be
sent to the IRS.
You bought a new home on May 3. You paid no points on the purchase.
During the year, you made mortgage payments which included $1,872
deductible interest on your new home. The settlement sheet for the
purchase of the home included interest of $232 for 29 days in May. The
mortgage statement you receive from the lender includes total interest
of $2,104 ($1,872 + $232). You can deduct the $2,104 if you itemize
Refund of overpaid interest.
If you receive a refund of mortgage interest you overpaid in a
prior year, you generally will receive a Form 1098 showing the refund
in box 3. Generally, you must include the refund in income in the year
you receive it. See Refund of home mortgage interest,
earlier, under Home Mortgage Interest.
More than one borrower.
If you and at least one other person (other than your spouse if you
file a joint return) were liable for and paid interest on a mortgage
that was for your home, and the other person received a Form 1098
showing the interest that was paid during the year, attach a statement
to your return explaining this. Show how much of the interest each of
you paid, and give the name and address of the person who received the
form. Deduct your share of the interest on line 11 of Schedule A (Form
1040), and write "See attached" next to the line.
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