3.6 Itemized Deductions/Standard Deductions: 6. Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses)
I just bought a home. What can I deduct from the settlement statement?
If you bought your home, you probably paid settlement or closing costs
in addition to the contract price. These costs are divided between you and
the seller according to the sales contract, local custom, or understanding
of the parties. If you built your home, you probably paid these costs when
you bought the land or settled on your mortgage.
The only settlement or closing costs you can deduct are home mortgage interest,
points that represent interest and certain real estate taxes. You may, deduct
them in the year you buy your home if you itemize your deductions. Real estate
taxes are usually divided so that you and the seller each pay taxes for the
part of the property tax year that each owned the home.
You add certain other settlement or closing costs to the basis of your
home. You include in your basis the settlement fees and closing costs that
are for buying your home. A fee is for buying the home if you would have had
to pay it even if you paid cash for the home
There are some settlement or closing costs that you cannot deduct or add
to the basis of your home. These include fees and costs that are for getting
a mortgage loan. For more information refer to Publication 530, Tax
Information for First Time-Homeowners, and Publication 936, Home
Mortgage Interest Deduction.
References:
4.5 Interest/Dividends/Other Types of Income: Alimony, Child Support, Court Awards, Damages
I received damages for emotional distress suffered as a result of
employment discrimination. Is the money I received taxable?
Emotional distress is not considered a physical injury or physical sickness;
therefore, damages for emotional distress are includible in income except
to the extent they are paid for medical care attributable to emotional distress.
References:
Because of my age, my employer wanted to terminate my employment.
I signed a statement not to sue and received a lump-sum payment from my employer
for age discrimination. Is this payment taxable?
A lump-sum payment for cancellation of your employment is taxable income
in the year you receive it and must be reported with your other salary and
wages. This is true even if the payment was received (by suit or agreement)
as settlement under the Age Discrimination in Employment Act.
Refer to Publication 525, Taxable and Nontaxable Income, for
more details.
References:
- Publication 525, Taxable and Nontaxable Income
- Tax Topic 422, Nontaxable Income
- Revenue Ruling 96-65 and Commissioner v. Schleier, 515 US 323 (1995)
Is the money received from my settlement taxable?
For court awards and damages, to determine if settlement amounts you receive
by compromise or judgment must be included in your income, you must consider
the item which the settlement replaces. Include the following as ordinary
income:
Interest on any award.
Compensation for lost wages or lost profits in cases other than those
where the payments are for wages lost as a result of physical injury.
Punitive damages. (But see below)
Amounts received in settlement of pension rights (if you did not contribute
to the plan).
Damages for: (A) Patent or copyright infringement. (B) Breach of contract.
(C) Interference with business operations.
Any recovery under the Age Discrimination in Employment Act.
Injury to your reputation .
Alienation of affection.
Do not include in your income compensatory damages for personal physical
injury or physical sickness (whether received in a lump sum or installments).
Damages for emotional distress due to a physical injury or physical sickness
are not taxable.
Punitive damages are taxable. It does not matter if they relate to a physical
injury or a physical sickness.
For additional information, refer to Publication 525, Taxable and
Nontaxable Income, or Tax Topic 422, Nontaxable Income.
References:
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