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Illinois 1040ez

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Illinois 1040ez

Illinois 1040ez Publication 530 - Main Content Table of Contents What You Can and Cannot DeductHardest Hit Fund and Emergency Homeowners' Loan Programs Real Estate Taxes Sales Taxes Home Mortgage Interest Mortgage Insurance Premiums Mortgage Interest CreditFiguring the Credit BasisFiguring Your Basis Adjusted Basis Keeping Records How To Get Tax HelpLow Income Taxpayer Clinics What You Can and Cannot Deduct To deduct expenses of owning a home, you must file Form 1040, U. Illinois 1040ez S. Illinois 1040ez Individual Income Tax Return, and itemize your deductions on Schedule A (Form 1040). Illinois 1040ez If you itemize, you cannot take the standard deduction. Illinois 1040ez This section explains what expenses you can deduct as a homeowner. Illinois 1040ez It also points out expenses that you cannot deduct. Illinois 1040ez There are four primary discussions: real estate taxes, sales taxes, home mortgage interest, and mortgage insurance premiums. Illinois 1040ez Generally, your real estate taxes, home mortgage interest, and mortgage insurance premiums are included in your house payment. Illinois 1040ez Your house payment. Illinois 1040ez   If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. Illinois 1040ez Your house payment may include several costs of owning a home. Illinois 1040ez The only costs you can deduct are real estate taxes actually paid to the taxing authority, interest that qualifies as home mortgage interest, and mortgage insurance premiums. Illinois 1040ez These are discussed in more detail later. Illinois 1040ez   Some nondeductible expenses that may be included in your house payment include: Fire or homeowner's insurance premiums, and The amount applied to reduce the principal of the mortgage. Illinois 1040ez Minister's or military housing allowance. Illinois 1040ez   If you are a minister or a member of the uniformed services and receive a housing allowance that is not taxable, you still can deduct your real estate taxes and your home mortgage interest. Illinois 1040ez You do not have to reduce your deductions by your nontaxable allowance. Illinois 1040ez For more information see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers, and Publication 3, Armed Forces' Tax Guide. Illinois 1040ez Nondeductible payments. Illinois 1040ez   You cannot deduct any of the following items. Illinois 1040ez Insurance (other than mortgage insurance premiums), including fire and comprehensive coverage, and title insurance. Illinois 1040ez Wages you pay for domestic help. Illinois 1040ez Depreciation. Illinois 1040ez The cost of utilities, such as gas, electricity, or water. Illinois 1040ez Most settlement costs. Illinois 1040ez See Settlement or closing costs under Cost as Basis, later, for more information. Illinois 1040ez Forfeited deposits, down payments, or earnest money. Illinois 1040ez Hardest Hit Fund and Emergency Homeowners' Loan Programs You can use a special method to compute your deduction for mortgage interest and real estate taxes on your main home if you meet the following two conditions. Illinois 1040ez You received assistance under: A State Housing Finance Agency (State HFA) Hardest Hit Fund program in which program payments could be used to pay mortgage interest, or An Emergency Homeowners' Loan Program administered by the Department of Housing and Urban Development (HUD) or a state. Illinois 1040ez You meet the rules to deduct all of the mortgage interest on your loan and all of the real estate taxes on your main home. Illinois 1040ez If you meet these tests, then you can deduct all of the payments you actually made during the year to your mortgage servicer, the State HFA, or HUD on the home mortgage (including the amount shown on box 3 of Form 1098-MA, Mortgage Assistance Payments), but not more than the sum of the amounts shown on Form 1098, Mortgage Interest Statement, in box 1 (mortgage interest received), box 4 (mortgage insurance premiums) and box 5 (real property taxes). Illinois 1040ez However, you are not required to use this special method to compute your deduction for mortgage interest and real estate taxes on your main home. Illinois 1040ez Real Estate Taxes Most state and local governments charge an annual tax on the value of real property. Illinois 1040ez This is called a real estate tax. Illinois 1040ez You can deduct the tax if it is assessed uniformly at a like rate on all real property throughout the community. Illinois 1040ez The proceeds must be for general community or governmental purposes and not be a payment for a special privilege granted or service rendered to you. Illinois 1040ez Deductible Real Estate Taxes You can deduct real estate taxes imposed on you. Illinois 1040ez 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. Illinois 1040ez If you own a cooperative apartment, see Special Rules for Cooperatives , later. Illinois 1040ez Where to deduct real estate taxes. Illinois 1040ez   Enter the amount of your deductible real estate taxes on Schedule A (Form 1040), line 6. Illinois 1040ez Real estate taxes paid at settlement or closing. Illinois 1040ez   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. Illinois 1040ez Your share of these taxes is fully deductible if you itemize your deductions. Illinois 1040ez Division of real estate taxes. Illinois 1040ez   For federal income tax purposes, the seller is treated as paying the property taxes up to, but not including, the date of sale. Illinois 1040ez You (the buyer) are treated as paying the taxes beginning with the date of sale. Illinois 1040ez This applies regardless of the lien dates under local law. Illinois 1040ez Generally, this information is included on the settlement statement you get at closing. Illinois 1040ez   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. Illinois 1040ez You each can deduct your own share, if you itemize deductions, for the year the property is sold. Illinois 1040ez Example. Illinois 1040ez You bought your home on September 1. Illinois 1040ez The property tax year (the period to which the tax relates) in your area is the calendar year. Illinois 1040ez The tax for the year was $730 and was due and paid by the seller on August 15. Illinois 1040ez You owned your new home during the property tax year for 122 days (September 1 to December 31, including your date of purchase). Illinois 1040ez You figure your deduction for real estate taxes on your home as follows. Illinois 1040ez 1. Illinois 1040ez Enter the total real estate taxes for the real property tax year $730 2. Illinois 1040ez Enter the number of days in the property tax year that you owned the property 122 3. Illinois 1040ez Divide line 2 by 365 . Illinois 1040ez 3342 4. Illinois 1040ez Multiply line 1 by line 3. Illinois 1040ez This is your deduction. Illinois 1040ez Enter it on Schedule A (Form 1040), line 6 $244   You can deduct $244 on your return for the year if you itemize your deductions. Illinois 1040ez 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. Illinois 1040ez Delinquent taxes. Illinois 1040ez   Delinquent taxes are unpaid taxes that were imposed on the seller for an earlier tax year. Illinois 1040ez If you agree to pay delinquent taxes when you buy your home, you cannot deduct them. Illinois 1040ez You treat them as part of the cost of your home. Illinois 1040ez See Real estate taxes , later, under Basis. Illinois 1040ez Escrow accounts. Illinois 1040ez   Many monthly house payments include an amount placed in escrow (put in the care of a third party) for real estate taxes. Illinois 1040ez You may not be able to deduct the total you pay into the escrow account. Illinois 1040ez You can deduct only the real estate taxes that the lender actually paid from escrow to the taxing authority. Illinois 1040ez Your real estate tax bill will show this amount. Illinois 1040ez Refund or rebate of real estate taxes. Illinois 1040ez   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. Illinois 1040ez 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. Illinois 1040ez For more information, see Recoveries in Publication 525, Taxable and Nontaxable Income. Illinois 1040ez Items You Cannot Deduct as Real Estate Taxes The following items are not deductible as real estate taxes. Illinois 1040ez Charges for services. Illinois 1040ez   An itemized charge for services to specific property or people is not a tax, even if the charge is paid to the taxing authority. Illinois 1040ez 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). Illinois 1040ez    You must look at your real estate tax bill to decide if any nondeductible itemized charges, such as those listed above, are included in the bill. Illinois 1040ez If your taxing authority (or lender) does not furnish you a copy of your real estate tax bill, ask for it. Illinois 1040ez Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. Illinois 1040ez Assessments for local benefits. Illinois 1040ez   You cannot deduct amounts you pay for local benefits that tend to increase the value of your property. Illinois 1040ez Local benefits include the construction of streets, sidewalks, or water and sewer systems. Illinois 1040ez You must add these amounts to the basis of your property. Illinois 1040ez   You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. Illinois 1040ez An example is a charge to repair an existing sidewalk and any interest included in that charge. Illinois 1040ez   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. Illinois 1040ez If you cannot show what part of the assessment is for maintenance, repair, or interest charges, you cannot deduct any of it. Illinois 1040ez   An assessment for a local benefit may be listed as an item in your real estate tax bill. Illinois 1040ez If so, use the rules in this section to find how much of it, if any, you can deduct. Illinois 1040ez Transfer taxes (or stamp taxes). Illinois 1040ez   You cannot deduct transfer taxes and similar taxes and charges on the sale of a personal home. Illinois 1040ez If you are the buyer and you pay them, include them in the cost basis of the property. Illinois 1040ez If you are the seller and you pay them, they are expenses of the sale and reduce the amount realized on the sale. Illinois 1040ez Homeowners association assessments. Illinois 1040ez   You cannot deduct these assessments because the homeowners association, rather than a state or local government, imposes them. Illinois 1040ez 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. Illinois 1040ez As an owner of a cooperative apartment, you own shares of stock in a corporation that owns or leases housing facilities. Illinois 1040ez You can deduct your share of the corporation's deductible real estate taxes if the cooperative housing corporation meets the following conditions: The corporation has only one class of stock outstanding, Each stockholder, solely because of ownership of the stock, can live in a house, apartment, or house trailer owned or leased by the corporation, No stockholder can receive any distribution out of capital, except on a partial or complete liquidation of the corporation, and At least one of the following: At least 80% of the corporation's gross income for the tax year was paid by the tenant-stockholders. Illinois 1040ez For this purpose, gross income means all income received during the entire tax year, including any received before the corporation changed to cooperative ownership. Illinois 1040ez At least 80% of the total square footage of the corporation's property must be available for use by the tenant-stockholders during the entire tax year. Illinois 1040ez At least 90% of the expenditures paid or incurred by the corporation were used for the acquisition, construction, management, maintenance, or care of the property for the benefit of the tenant-shareholders during the entire tax year. Illinois 1040ez Tenant-stockholders. Illinois 1040ez   A tenant-stockholder can be any entity (such as a corporation, trust, estate, partnership, or association) as well as an individual. Illinois 1040ez The tenant-stockholder does not have to live in any of the cooperative's dwelling units. Illinois 1040ez The units that the tenant-stockholder has the right to occupy can be rented to others. Illinois 1040ez Deductible taxes. Illinois 1040ez   You figure your share of real estate taxes in the following way. Illinois 1040ez Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Illinois 1040ez Multiply the corporation's deductible real estate taxes by the number you figured in (1). Illinois 1040ez This is your share of the real estate taxes. Illinois 1040ez   Generally, the corporation will tell you your share of its real estate tax. Illinois 1040ez This is the amount you can deduct if it reasonably reflects the cost of real estate taxes for your dwelling unit. Illinois 1040ez Refund of real estate taxes. Illinois 1040ez   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. Illinois 1040ez Your deduction for real estate taxes the corporation paid this year is reduced by your share of the refund the corporation received. Illinois 1040ez Sales Taxes Generally, you can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). Illinois 1040ez Deductible sales taxes may include sales taxes paid on your home (including mobile and prefabricated), or home building materials if the tax rate was the same as the general sales tax rate. Illinois 1040ez For information on figuring your deduction, see the Instructions for Schedule A (Form 1040). Illinois 1040ez If you elect to deduct the sales taxes paid on your home, or home building materials, you cannot include them as part of your cost basis in the home. Illinois 1040ez 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. Illinois 1040ez Most home buyers take out a mortgage (loan) to buy their home. Illinois 1040ez They then make monthly payments to either the mortgage holder or someone collecting the payments for the mortgage holder. Illinois 1040ez Usually, you can deduct the entire part of your payment that is for mortgage interest, if you itemize your deductions on Schedule A (Form 1040). Illinois 1040ez 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. Illinois 1040ez If either of these situations applies to you, see Publication 936 for more information. Illinois 1040ez Also see Publication 936 if you later refinance your mortgage or buy a second home. Illinois 1040ez Refund of home mortgage interest. Illinois 1040ez   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. Illinois 1040ez For more information, see Recoveries in Publication 525. Illinois 1040ez The amount of the refund will usually be shown on the mortgage interest statement you receive from your mortgage lender. Illinois 1040ez See Mortgage Interest Statement , later. Illinois 1040ez Deductible Mortgage Interest To be deductible, the interest you pay must be on a loan secured by your main home or a second home. Illinois 1040ez The loan can be a first or second mortgage, a home improvement loan, or a home equity loan. Illinois 1040ez Prepaid interest. Illinois 1040ez   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. Illinois 1040ez Generally, you can deduct in each year only the interest that qualifies as home mortgage interest for that year. Illinois 1040ez An exception (discussed later) applies to points. Illinois 1040ez Late payment charge on mortgage payment. Illinois 1040ez   You can deduct as home mortgage interest a late payment charge if it was not for a specific service in connection with your mortgage loan. Illinois 1040ez Mortgage prepayment penalty. Illinois 1040ez   If you pay off your home mortgage early, you may have to pay a penalty. Illinois 1040ez 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. Illinois 1040ez Ground rent. Illinois 1040ez   In some states (such as Maryland), you may buy your home subject to a ground rent. Illinois 1040ez A ground rent is an obligation you assume to pay a fixed amount per year on the property. Illinois 1040ez Under this arrangement, you are leasing (rather than buying) the land on which your home is located. Illinois 1040ez Redeemable ground rents. Illinois 1040ez   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct the payments as mortgage interest. Illinois 1040ez The ground rent is a redeemable ground rent only if all of the following are true. Illinois 1040ez Your lease, including renewal periods, is for more than 15 years. Illinois 1040ez You can freely assign the lease. Illinois 1040ez 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. Illinois 1040ez The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. Illinois 1040ez   Payments made to end the lease and buy the lessor's entire interest in the land are not redeemable ground rents. Illinois 1040ez You cannot deduct them. Illinois 1040ez Nonredeemable ground rents. Illinois 1040ez   Payments on a nonredeemable ground rent are not mortgage interest. Illinois 1040ez You can deduct them as rent only if they are a business expense or if they are for rental property. Illinois 1040ez Cooperative apartment. Illinois 1040ez   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 . Illinois 1040ez In addition, you can treat as home mortgage interest your share of the corporation's deductible mortgage interest. Illinois 1040ez Figure your share of mortgage interest the same way that is shown for figuring your share of real estate taxes in the Example under Division of real estate taxes, earlier. Illinois 1040ez For more information on cooperatives, see Special Rule for Tenant-Stockholders in Cooperative Housing Corporations in Publication 936. Illinois 1040ez Refund of cooperative's mortgage interest. Illinois 1040ez   You must reduce your mortgage interest deduction by your share of any cash portion of a patronage dividend that the cooperative receives. Illinois 1040ez The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. Illinois 1040ez   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. Illinois 1040ez Mortgage Interest Paid at Settlement One item that normally appears on a settlement or closing statement is home mortgage interest. Illinois 1040ez You can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). Illinois 1040ez This amount should be included in the mortgage interest statement provided by your lender. Illinois 1040ez See the discussion under Mortgage Interest Statement , later. Illinois 1040ez Also, if you pay interest in advance, see Prepaid interest , earlier, and Points , next. Illinois 1040ez Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Illinois 1040ez Points also may be called loan origination fees, maximum loan charges, loan discount, or discount points. Illinois 1040ez A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. Illinois 1040ez See Points paid by the seller , later. Illinois 1040ez General rule. Illinois 1040ez   You cannot deduct the full amount of points in the year paid. Illinois 1040ez They are prepaid interest, so you generally must deduct them over the life (term) of the mortgage. Illinois 1040ez Exception. Illinois 1040ez   You can deduct the full amount of points in the year paid if you meet all the following tests. Illinois 1040ez Your loan is secured by your main home. Illinois 1040ez (Generally, your main home is the one you live in most of the time. Illinois 1040ez ) Paying points is an established business practice in the area where the loan was made. Illinois 1040ez The points paid were not more than the points generally charged in that area. Illinois 1040ez You use the cash method of accounting. Illinois 1040ez This means you report income in the year you receive it and deduct expenses in the year you pay them. Illinois 1040ez Most individuals use this method. Illinois 1040ez 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 taxes. Illinois 1040ez The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. Illinois 1040ez The funds you provided are not required to have been applied to the points. Illinois 1040ez They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. Illinois 1040ez You cannot have borrowed these funds. Illinois 1040ez You use your loan to buy or build your main home. Illinois 1040ez The points were computed as a percentage of the principal amount of the mortgage. Illinois 1040ez The amount is clearly shown on the settlement statement (such as the Uniform Settlement Statement, Form HUD-1) as points charged for the mortgage. Illinois 1040ez The points may be shown as paid from either your funds or the seller's. Illinois 1040ez Note. Illinois 1040ez 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. Illinois 1040ez 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. Illinois 1040ez Home improvement loan. Illinois 1040ez   You can also fully deduct in the year paid points paid on a loan to improve your main home, if you meet the first six tests listed earlier. Illinois 1040ez Refinanced loan. Illinois 1040ez   If you use part of the refinanced mortgage proceeds to improve your main home and you meet the first six tests listed earlier, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. Illinois 1040ez You can deduct the rest of the points over the life of the loan. Illinois 1040ez Points not fully deductible in year paid. Illinois 1040ez    If you do not qualify under the exception to deduct the full amount of points in the year paid (or choose not to do so), see Points in Publication 936 for the rules on when and how much you can deduct. Illinois 1040ez Figure A. Illinois 1040ez   You can use Figure A, next, as a quick guide to see whether your points are fully deductible in the year paid. Illinois 1040ez    Please click here for the text description of the image. Illinois 1040ez Figure A. Illinois 1040ez Are my points fully deductible this year? Amounts charged for services. Illinois 1040ez   Amounts charged by the lender for specific services connected to the loan are not interest. Illinois 1040ez Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. Illinois 1040ez You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. Illinois 1040ez For information about the tax treatment of these amounts and other settlement fees and closing costs, see Basis , later. Illinois 1040ez Points paid by the seller. Illinois 1040ez   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Illinois 1040ez Treatment by seller. Illinois 1040ez   The seller cannot deduct these fees as interest. Illinois 1040ez However, they are a selling expense that reduces the seller's amount realized. Illinois 1040ez See Publication 523 for more information. Illinois 1040ez Treatment by buyer. Illinois 1040ez   The buyer treats seller-paid points as if he or she had paid them. Illinois 1040ez If all the tests listed earlier under Exception are met, the buyer can deduct the points in the year paid. Illinois 1040ez If any of those tests are not met, the buyer must deduct the points over the life of the loan. Illinois 1040ez   The buyer must also reduce the basis of the home by the amount of the seller-paid points. Illinois 1040ez For more information about the basis of your home, see Basis , later. Illinois 1040ez Funds provided are less than points. Illinois 1040ez   If you meet all the tests listed earlier under 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. Illinois 1040ez In addition, you can deduct any points paid by the seller. Illinois 1040ez Example 1. Illinois 1040ez When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). Illinois 1040ez You meet all the tests for deducting points in the year paid (see Exception , earlier), except the only funds you provided were a $750 down payment. Illinois 1040ez Of the $1,000 you were charged for points, you can deduct $750 in the year paid. Illinois 1040ez You spread the remaining $250 over the life of the mortgage. Illinois 1040ez Example 2. Illinois 1040ez 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. Illinois 1040ez In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). Illinois 1040ez You spread the remaining $250 over the life of the mortgage. Illinois 1040ez You must reduce the basis of your home by the $1,000 paid by the seller. Illinois 1040ez Excess points. Illinois 1040ez   If you meet all the tests under Exception , earlier, except that the points paid were more than are generally charged in your area (test 3), you can deduct in the year paid only the points that are generally charged. Illinois 1040ez You must spread any additional points over the life of the mortgage. Illinois 1040ez Mortgage ending early. Illinois 1040ez   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. Illinois 1040ez A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Illinois 1040ez Example. Illinois 1040ez Dan paid $3,000 in points in 2006 that he had to spread out over the 15-year life of the mortgage. Illinois 1040ez He had deducted $1,400 of these points through 2012. Illinois 1040ez Dan prepaid his mortgage in full in 2013. Illinois 1040ez He can deduct the remaining $1,600 of points in 2013. Illinois 1040ez Exception. Illinois 1040ez   If you refinance the mortgage with the same lender, you cannot deduct any remaining points for the year. Illinois 1040ez Instead, deduct them over the term of the new loan. Illinois 1040ez Form 1098. Illinois 1040ez   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. Illinois 1040ez See Mortgage Interest Statement , later. Illinois 1040ez Where To Deduct Home Mortgage Interest Enter on Schedule A (Form 1040), line 10, the home mortgage interest and points reported to you on Form 1098 (discussed next). Illinois 1040ez If you did not receive a Form 1098, enter your deductible interest on line 11, and any deductible points on line 12. Illinois 1040ez See Table 1 below for a summary of where to deduct home mortgage interest and real estate taxes. Illinois 1040ez 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. Illinois 1040ez The seller must give you this number and you must give the seller your SSN. Illinois 1040ez Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Illinois 1040ez Failure to meet either of these requirements may result in a $50 penalty for each failure. Illinois 1040ez Table 1. Illinois 1040ez Where To Deduct Interest and Taxes Paid on Your Home See the text for information on what expenses are eligible. Illinois 1040ez IF you are eligible to deduct . Illinois 1040ez . Illinois 1040ez . Illinois 1040ez THEN report the amount  on Schedule A (Form 1040) . Illinois 1040ez . Illinois 1040ez . Illinois 1040ez real estate taxes line 6. Illinois 1040ez home mortgage interest and points reported on Form 1098 line 10. Illinois 1040ez home mortgage interest not reported on  Form 1098 line 11. Illinois 1040ez points not reported on Form 1098 line 12. Illinois 1040ez qualified mortgage insurance premiums line 13. Illinois 1040ez Mortgage Interest Statement If you paid $600 or more of mortgage interest (including certain points and mortgage insurance premiums) 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 or similar statement from the mortgage holder. Illinois 1040ez The statement will show the total interest paid on your mortgage during the year. Illinois 1040ez If you bought a main home during the year, it also will show the deductible points you paid and any points you can deduct that were paid by the person who sold you your home. Illinois 1040ez See Points , earlier. Illinois 1040ez The interest you paid at settlement should be included on the statement. Illinois 1040ez 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. Illinois 1040ez Put the total on Schedule A (Form 1040), line 10, and attach a statement to your return explaining the difference. Illinois 1040ez Write “See attached” to the right of line 10. Illinois 1040ez A mortgage holder can be a financial institution, a governmental unit, or a cooperative housing corporation. Illinois 1040ez If a statement comes from a cooperative housing corporation, it generally will show your share of interest. Illinois 1040ez Your mortgage interest statement for 2013 should be provided or sent to you by January 31, 2014. Illinois 1040ez If it is mailed, you should allow adequate time to receive it before contacting the mortgage holder. Illinois 1040ez A copy of this form will be sent to the IRS also. Illinois 1040ez Example. Illinois 1040ez You bought a new home on May 3. Illinois 1040ez You paid no points on the purchase. Illinois 1040ez During the year, you made mortgage payments which included $4,480 deductible interest on your new home. Illinois 1040ez The settlement sheet for the purchase of the home included interest of $620 for 29 days in May. Illinois 1040ez The mortgage statement you receive from the lender includes total interest of $5,100 ($4,480 + $620). Illinois 1040ez You can deduct the $5,100 if you itemize your deductions. Illinois 1040ez Refund of overpaid interest. Illinois 1040ez   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. Illinois 1040ez Generally, you must include the refund in income in the year you receive it. Illinois 1040ez See Refund of home mortgage interest , earlier, under Home Mortgage Interest. Illinois 1040ez More than one borrower. Illinois 1040ez   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. Illinois 1040ez Show how much of the interest each of you paid, and give the name and address of the person who received the form. Illinois 1040ez Deduct your share of the interest on Schedule A (Form 1040), line 11, and write “See attached” to the right of that line. Illinois 1040ez Mortgage Insurance Premiums You may be able to take an itemized deduction on Schedule A (Form 1040), line 13, for premiums you pay or accrue during 2013 for qualified mortgage insurance in connection with home acquisition debt on your qualified home. Illinois 1040ez Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as an itemized deduction. Illinois 1040ez Qualified Mortgage Insurance Qualified mortgage insurance is mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, or the Rural Housing Administration, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). Illinois 1040ez Prepaid mortgage insurance premiums. Illinois 1040ez   If you paid premiums that are allocable to periods after 2013, you must allocate them over the shorter of: The stated term of the mortgage, or 84 months, beginning with the month the insurance was obtained. Illinois 1040ez The premiums are treated as paid in the year to which they were allocated. Illinois 1040ez If the mortgage is satisfied before its term, no deduction is allowed for the unamortized balance. Illinois 1040ez See Publication 936 for details. Illinois 1040ez Exception for certain mortgage insurance. Illinois 1040ez   The allocation rules, explained above, do not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or Rural Housing Service. Illinois 1040ez Home Acquisition Debt Home acquisition debt is a mortgage you took out after October 13, 1987, to buy, build, or substantially improve a qualified home. Illinois 1040ez It also must be secured by that home. Illinois 1040ez If the amount of your mortgage is more than the cost of the home plus the cost of any substantial improvements, only the debt that is not more than the cost of the home plus improvements qualifies as home acquisition debt. Illinois 1040ez Home acquisition debt limit. Illinois 1040ez   The total amount you can treat as home acquisition debt at any time on your home cannot be more than $1 million ($500,000 if married filing separately). Illinois 1040ez Discharges of qualified principal residence indebtedness. Illinois 1040ez   You can exclude from gross income any discharges of qualified principal residence indebtedness made after 2006 and before 2014. Illinois 1040ez You must reduce the basis of your principal residence (but not below zero) by the amount you exclude. Illinois 1040ez Principal residence. Illinois 1040ez   Your principal residence is the home where you ordinarily live most of the time. Illinois 1040ez You can have only one principal residence at any one time. Illinois 1040ez Qualified principal residence indebtedness. Illinois 1040ez   This is a mortgage that you took out to buy, build, or substantially improve your principal residence and that is secured by that residence. Illinois 1040ez If the amount of your original mortgage is more than the cost of your principal residence plus the cost of substantial improvements, qualified principal residence indebtedness cannot be more than the cost of your principal residence plus improvements. Illinois 1040ez   Any debt secured by your principal residence that you use to refinance qualified principal residence indebtedness is qualified principal residence indebtedness up to the amount of your old mortgage principal just before the refinancing. Illinois 1040ez Additional debt incurred to substantially improve your principal residence is also qualified principal residence indebtedness. Illinois 1040ez Amount you can exclude. Illinois 1040ez   You can only exclude debt discharged after 2006 and before 2014. Illinois 1040ez The most you can exclude is $2 million ($1 million if married filing separately). Illinois 1040ez You cannot exclude any amount that was discharged because of services performed for the lender or on account of any other factor not directly related either to a decline in the value of your residence or to your financial condition. Illinois 1040ez Ordering rule. Illinois 1040ez   If only a part of a loan is qualified principal residence indebtedness, you can exclude only the amount of the discharge that is more than the amount of the loan (immediately before the discharge) that is not qualified principal residence indebtedness. Illinois 1040ez Qualified Home This means your main home or your second home. Illinois 1040ez A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. Illinois 1040ez Main home. Illinois 1040ez   You can have only one main home at any one time. Illinois 1040ez This is the home where you ordinarily live most of the time. Illinois 1040ez Second home and other special situations. Illinois 1040ez   If you have a second home, use part of your home for other than residential living (such as a home office), rent out part of your home, or are having your home constructed, see Qualified Home in Publication 936. Illinois 1040ez Limit on Deduction If your adjusted gross income (AGI) on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are deductible is reduced and may be eliminated. Illinois 1040ez See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. Illinois 1040ez If your AGI is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. Illinois 1040ez Form 1098. Illinois 1040ez   The amount of mortgage insurance premiums you paid during 2013 should be reported in box 4. Illinois 1040ez See Form 1098, Mortgage Interest Statement in Publication 936. Illinois 1040ez Mortgage Interest Credit The mortgage interest credit is intended to help lower-income individuals afford home ownership. Illinois 1040ez If you qualify, you can claim the credit on Form 8396 each year for part of the home mortgage interest you pay. Illinois 1040ez Who qualifies. Illinois 1040ez   You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate (MCC) from your state or local government. Illinois 1040ez Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. Illinois 1040ez The MCC will show the certificate credit rate you will use to figure your credit. Illinois 1040ez It also will show the certified indebtedness amount. Illinois 1040ez Only the interest on that amount qualifies for the credit. Illinois 1040ez See Figuring the Credit , later. Illinois 1040ez You must contact the appropriate government agency about getting an MCC before you get a mortgage and buy your home. Illinois 1040ez Contact your state or local housing finance agency for information about the availability of MCCs in your area. Illinois 1040ez How to claim the credit. Illinois 1040ez   To claim the credit, complete Form 8396 and attach it to your Form 1040 or Form 1040NR, U. Illinois 1040ez S. Illinois 1040ez Nonresident Alien Income Tax Return. Illinois 1040ez Include the credit in your total for Form 1040, line 53, or Form 1040NR, line 50; be sure to check box c and write “Form 8396” on that line. Illinois 1040ez Reducing your home mortgage interest deduction. Illinois 1040ez   If you itemize your deductions on Schedule A (Form 1040), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on Form 8396, line 3. Illinois 1040ez You must do this even if part of that amount is to be carried forward to 2014. Illinois 1040ez Selling your home. Illinois 1040ez   If you purchase a home after 1990 using an MCC, and you sell that home within 9 years, you may have to recapture (repay) all or part of the benefit you received from the MCC program. Illinois 1040ez For additional information, see Recapturing (Paying Back) a Federal Mortgage Subsidy, in Publication 523. Illinois 1040ez Figuring the Credit Figure your credit on Form 8396. Illinois 1040ez Mortgage not more than certified indebtedness. Illinois 1040ez   If your mortgage loan amount is equal to (or smaller than) the certified indebtedness amount shown on your MCC, enter on Form 8396, line 1, all the interest you paid on your mortgage during the year. Illinois 1040ez Mortgage more than certified indebtedness. Illinois 1040ez   If your mortgage loan amount is larger than the certified indebtedness amount shown on your MCC, you can figure the credit on only part of the interest you paid. Illinois 1040ez To find the amount to enter on line 1, multiply the total interest you paid during the year on your mortgage by the following fraction. Illinois 1040ez Certified indebtedness amount on your MCC Original amount of your mortgage   The fraction will not change as long as you are entitled to take the mortgage interest credit. Illinois 1040ez Example. Illinois 1040ez Emily bought a home this year. Illinois 1040ez Her mortgage loan is $125,000. Illinois 1040ez The certified indebtedness amount on her MCC is $100,000. Illinois 1040ez She paid $7,500 interest this year. Illinois 1040ez Emily figures the interest to enter on Form 8396, line 1, as follows:   $100,000 = 80% (. Illinois 1040ez 80)       $125,000       $7,500 x . Illinois 1040ez 80 = $6,000   Emily enters $6,000 on Form 8396, line 1. Illinois 1040ez In each later year, she will figure her credit using only 80% of the interest she pays for that year. Illinois 1040ez Limits Two limits may apply to your credit. Illinois 1040ez A limit based on the credit rate, and A limit based on your tax. Illinois 1040ez Limit based on credit rate. Illinois 1040ez   If the certificate credit rate is higher than 20%, the credit you are allowed cannot be more than $2,000. Illinois 1040ez Limit based on tax. Illinois 1040ez   After applying the limit based on the credit rate, your credit generally cannot be more than your tax liability. Illinois 1040ez See the Credit Limit Worksheet in the Form 8396 instructions to calculate the limit based on tax. Illinois 1040ez Dividing the Credit If two or more persons (other than a married couple filing a joint return) hold an interest in the home to which the MCC relates, the credit must be divided based on the interest held by each person. Illinois 1040ez Example. Illinois 1040ez John and his brother, George, were issued an MCC. Illinois 1040ez They used it to get a mortgage on their main home. Illinois 1040ez John has a 60% ownership interest in the home, and George has a 40% ownership interest in the home. Illinois 1040ez John paid $5,400 mortgage interest this year and George paid $3,600. Illinois 1040ez The MCC shows a credit rate of 25% and a certified indebtedness amount of $130,000. Illinois 1040ez The loan amount (mortgage) on their home is $120,000. Illinois 1040ez The credit is limited to $2,000 because the credit rate is more than 20%. Illinois 1040ez John figures the credit by multiplying the mortgage interest he paid this year ($5,400) by the certificate credit rate (25%) for a total of $1,350. Illinois 1040ez His credit is limited to $1,200 ($2,000 × 60%). Illinois 1040ez George figures the credit by multiplying the mortgage interest he paid this year ($3,600) by the certificate credit rate (25%) for a total of $900. Illinois 1040ez His credit is limited to $800 ($2,000 × 40%). Illinois 1040ez Carryforward If your allowable credit is reduced because of the limit based on your tax, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first. Illinois 1040ez Example. Illinois 1040ez You receive a mortgage credit certificate from State X. Illinois 1040ez This year, your regular tax liability is $1,100, you owe no alternative minimum tax, and your mortgage interest credit is $1,700. Illinois 1040ez You claim no other credits. Illinois 1040ez Your unused mortgage interest credit for this year is $600 ($1,700 − $1,100). Illinois 1040ez You can carry forward this amount to the next 3 years or until used, whichever comes first. Illinois 1040ez Credit rate more than 20%. Illinois 1040ez   If you are subject to the $2,000 limit because your certificate credit rate is more than 20%, you cannot carry forward any amount more than $2,000 (or your share of the $2,000 if you must divide the credit). Illinois 1040ez Example. Illinois 1040ez In the earlier example under Dividing the Credit , John and George used the entire $2,000 credit. Illinois 1040ez The excess   John $1,350 − $1,200 = $150     George $900 − $800 = $100   $150 for John ($1,350 − $1,200) and $100 for George ($900 − $800) cannot be carried forward to future years, despite the respective tax liabilities for John and George. Illinois 1040ez Refinancing If you refinance your original mortgage loan on which you had been given an MCC, you must get a new MCC to be able to claim the credit on the new loan. Illinois 1040ez The amount of credit you can claim on the new loan may change. Illinois 1040ez Table 2 below summarizes how to figure your credit if you refinance your original mortgage loan. Illinois 1040ez Table 2. Illinois 1040ez Effect of Refinancing on Your Credit IF you get a new (reissued) MCC and the amount of your new mortgage is . Illinois 1040ez . Illinois 1040ez . Illinois 1040ez THEN the interest you claim on Form 8396, line 1, is* . Illinois 1040ez . Illinois 1040ez . Illinois 1040ez smaller than or equal to the certified indebtedness amount on the new MCC all the interest paid during the year on your new mortgage. Illinois 1040ez larger than the certified indebtedness amount on the new MCC interest paid during the year on your new mortgage multiplied by the following fraction. Illinois 1040ez         certified indebtedness  amount on your new MCC       original amount of your  mortgage   *The credit using the new MCC cannot be more than the credit using the old MCC. Illinois 1040ez  See New MCC cannot increase your credit above. Illinois 1040ez An issuer may reissue an MCC after you refinance your mortgage. Illinois 1040ez If you did not get a new MCC, you may want to contact the state or local housing finance agency that issued your original MCC for information about whether you can get a reissued MCC. Illinois 1040ez Year of refinancing. Illinois 1040ez   In the year of refinancing, add the applicable amount of interest paid on the old mortgage and the applicable amount of interest paid on the new mortgage, and enter the total on Form 8396, line 1. Illinois 1040ez   If your new MCC has a credit rate different from the rate on the old MCC, you must attach a statement to Form 8396. Illinois 1040ez The statement must show the calculation for lines 1, 2, and 3 for the part of the year when the old MCC was in effect. Illinois 1040ez It must show a separate calculation for the part of the year when the new MCC was in effect. Illinois 1040ez Combine the amounts from both calculations for line 3, enter the total on line 3 of the form, and write “See attached” on the dotted line next to line 2. Illinois 1040ez New MCC cannot increase your credit. Illinois 1040ez   The credit that you claim with your new MCC cannot be more than the credit that you could have claimed with your old MCC. Illinois 1040ez   In most cases, the agency that issues your new MCC will make sure that it does not increase your credit. Illinois 1040ez However, if either your old loan or your new loan has a variable (adjustable) interest rate, you will need to check this yourself. Illinois 1040ez In that case, you will need to know the amount of the credit you could have claimed using the old MCC. Illinois 1040ez   There are two methods for figuring the credit you could have claimed. Illinois 1040ez Under one method, you figure the actual credit that would have been allowed. Illinois 1040ez This means you use the credit rate on the old MCC and the interest you would have paid on the old loan. Illinois 1040ez   If your old loan was a variable rate mortgage, you can use another method to determine the credit that you could have claimed. Illinois 1040ez Under this method, you figure the credit using a payment schedule of a hypothetical self-amortizing mortgage with level payments projected to the final maturity date of the old mortgage. Illinois 1040ez The interest rate of the hypothetical mortgage is the annual percentage rate (APR) of the new mortgage for purposes of the Federal Truth in Lending Act. Illinois 1040ez The principal of the hypothetical mortgage is the remaining outstanding balance of the certified mortgage indebtedness shown on the old MCC. Illinois 1040ez    You must choose one method and use it consistently beginning with the first tax year for which you claim the credit based on the new MCC. Illinois 1040ez    As part of your tax records, you should keep your old MCC and the schedule of payments for your old mortgage. Illinois 1040ez Basis Basis is your starting point for figuring a gain or loss if you later sell your home, or for figuring depreciation if you later use part of your home for business purposes or for rent. Illinois 1040ez While you own your home, you may add certain items to your basis. Illinois 1040ez You may subtract certain other items from your basis. Illinois 1040ez These items are called adjustments to basis and are explained later under Adjusted Basis . Illinois 1040ez It is important that you understand these terms when you first acquire your home because you must keep track of your basis and adjusted basis during the period you own your home. Illinois 1040ez You also must keep records of the events that affect basis or adjusted basis. Illinois 1040ez See Keeping Records , below. Illinois 1040ez Figuring Your Basis How you figure your basis depends on how you acquire your home. Illinois 1040ez If you buy or build your home, your cost is your basis. Illinois 1040ez If you receive your home as a gift, your basis is usually the same as the adjusted basis of the person who gave you the property. Illinois 1040ez If you inherit your home from a decedent, different rules apply depending on the date of the decedent's death. Illinois 1040ez Each of these topics is discussed later. Illinois 1040ez Property transferred from a spouse. Illinois 1040ez   If your home is transferred to you from your spouse, or from your former spouse as a result of a divorce, your basis is the same as your spouse's (or former spouse's) adjusted basis just before the transfer. Illinois 1040ez Publication 504, Divorced or Separated Individuals, fully discusses transfers between spouses. Illinois 1040ez Cost as Basis The cost of your home, whether you purchased it or constructed it, is the amount you paid for it, including any debt you assumed. Illinois 1040ez The cost of your home includes most settlement or closing costs you paid when you bought the home. Illinois 1040ez If you built your home, your cost includes most closing costs paid when you bought the land or settled on your mortgage. Illinois 1040ez See Settlement or closing costs , later. Illinois 1040ez If you elect to deduct the sales taxes on the purchase or construction of your home as an itemized deduction on Schedule A (Form 1040), you cannot include the sales taxes as part of your cost basis in the home. Illinois 1040ez Purchase. Illinois 1040ez   The basis of a home you bought is the amount you paid for it. Illinois 1040ez This usually includes your down payment and any debt you assumed. Illinois 1040ez The basis of a cooperative apartment is the amount you paid for your shares in the corporation that owns or controls the property. Illinois 1040ez This amount includes any purchase commissions or other costs of acquiring the shares. Illinois 1040ez Construction. Illinois 1040ez   If you contracted to have your home built on land that you own, your basis in the home is your basis in the land plus the amount you paid to have the home built. Illinois 1040ez This includes the cost of labor and materials, the amount you paid the contractor, any architect's fees, building permit charges, utility meter and connection charges, and legal fees that are directly connected with building your home. Illinois 1040ez If you built all or part of your home yourself, your basis is the total amount it cost you to build it. Illinois 1040ez You cannot include in basis the value of your own labor or any other labor for which you did not pay. Illinois 1040ez Real estate taxes. Illinois 1040ez   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. Illinois 1040ez See the earlier discussion of Real estate taxes paid at settlement or closing , under Real Estate Taxes, earlier, to figure the real estate taxes you paid or are considered to have paid. Illinois 1040ez   If you pay any part of the seller's share of the real estate taxes (the taxes up to the date of sale), and the seller did not reimburse you, add those taxes to your basis in the home. Illinois 1040ez You cannot deduct them as taxes paid. Illinois 1040ez   If the seller paid any of your share of the real estate taxes (the taxes beginning with the date of sale), you can still deduct those taxes. Illinois 1040ez Do not include those taxes in your basis. Illinois 1040ez If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Illinois 1040ez Example 1. Illinois 1040ez You bought your home on September 1. Illinois 1040ez The property tax year in your area is the calendar year, and the tax is due on August 15. Illinois 1040ez The real estate taxes on the home you bought were $1,275 for the year and had been paid by the seller on August 15. Illinois 1040ez You did not reimburse the seller for your share of the real estate taxes from September 1 through December 31. Illinois 1040ez You must reduce the basis of your home by the $426 [(122 ÷ 365) × $1,275] the seller paid for you. Illinois 1040ez You can deduct your $426 share of real estate taxes on your return for the year you purchased your home. Illinois 1040ez Example 2. Illinois 1040ez You bought your home on May 3, 2013. Illinois 1040ez The property tax year in your area is the calendar year. Illinois 1040ez The taxes for the previous year are assessed on January 2 and are due on May 31 and November 30. Illinois 1040ez Under state law, the taxes become a lien on May 31. Illinois 1040ez You agreed to pay all taxes due after the date of sale. Illinois 1040ez The taxes due in 2013 for 2012 were $1,375. Illinois 1040ez The taxes due in 2014 for 2013 will be $1,425. Illinois 1040ez You cannot deduct any of the taxes paid in 2013 because they relate to the 2012 property tax year and you did not own the home until 2013. Illinois 1040ez Instead, you add the $1,375 to the cost (basis) of your home. Illinois 1040ez You owned the home in 2013 for 243 days (May 3 to December 31), so you can take a tax deduction on your 2014 return of $949 [(243 ÷ 365) × $1,425] paid in 2014 for 2013. Illinois 1040ez You add the remaining $476 ($1,425 − $949) of taxes paid in 2014 to the cost (basis) of your home. Illinois 1040ez Settlement or closing costs. Illinois 1040ez   If you bought your home, you probably paid settlement or closing costs in addition to the contract price. Illinois 1040ez These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. Illinois 1040ez If you built your home, you probably paid these costs when you bought the land or settled on your mortgage. Illinois 1040ez   The only settlement or closing costs you can deduct are home mortgage interest and certain real estate taxes. Illinois 1040ez You deduct them in the year you buy your home if you itemize your deductions. Illinois 1040ez You can add certain other settlement or closing costs to the basis of your home. Illinois 1040ez Items added to basis. Illinois 1040ez   You can include in your basis the settlement fees and closing costs you paid for buying your home. Illinois 1040ez A fee is for buying the home if you would have had to pay it even if you paid cash for the home. Illinois 1040ez   The following are some of the settlement fees and closing costs that you can include in the original basis of your home. Illinois 1040ez Abstract fees (abstract of title fees). Illinois 1040ez Charges for installing utility services. Illinois 1040ez Legal fees (including fees for the title search and preparation of the sales contract and deed). Illinois 1040ez Recording fees. Illinois 1040ez Surveys. Illinois 1040ez Transfer or stamp taxes. Illinois 1040ez Owner's title insurance. Illinois 1040ez Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions. Illinois 1040ez   If the seller actually paid for any item for which you are liable and for which you can take a deduction (such as your share of the real estate taxes for the year of sale), you must reduce your basis by that amount unless you are charged for it in the settlement. Illinois 1040ez Items not added to basis and not deductible. Illinois 1040ez   Here are some settlement and closing costs that you cannot deduct or add to your basis. Illinois 1040ez Fire insurance premiums. Illinois 1040ez Charges for using utilities or other services related to occupancy of the home before closing. Illinois 1040ez Rent for occupying the home before closing. Illinois 1040ez Charges connected with getting or refinancing a mortgage loan, such as: Loan assumption fees, Cost of a credit report, and Fee for an appraisal required by a lender. Illinois 1040ez Points paid by seller. Illinois 1040ez   If you bought your home after April 3, 1994, you must reduce your basis by any points paid for your mortgage by the person who sold you your home. Illinois 1040ez   If you bought your home after 1990 but before April 4, 1994, you must reduce your basis by seller-paid points only if you deducted them. Illinois 1040ez See Points , earlier, for the rules on deducting points. Illinois 1040ez Gift To figure the basis of property you receive as a gift, you must know its adjusted basis (defined later) to the donor just before it was given to you, its fair market value (FMV) at the time it was given to you, and any gift tax paid on it. Illinois 1040ez Fair market value. Illinois 1040ez   Fair market value (FMV) is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and who both have a reasonable knowledge of all the necessary facts. Illinois 1040ez Donor's adjusted basis is more than FMV. Illinois 1040ez   If someone gave you your home and the donor's adjusted basis, when it was given to you, was more than the FMV, your basis at the time of receipt is the same as the donor's adjusted basis. Illinois 1040ez Disposition basis. Illinois 1040ez   If the donor's adjusted basis at the time of the gift is more than the FMV, your basis (plus or minus any required adjustments, see Adjusted Basis , later) when you dispose of the property will depend on whether you have a gain or a loss. Illinois 1040ez Your basis for figuring a gain is the same as the donor's adjusted basis. Illinois 1040ez Your basis for figuring a loss is the FMV when you received the gift. Illinois 1040ez If you use the donor's adjusted basis to figure a gain and it results in a loss, then you must use the FMV (at the time of the gift) to refigure the loss. Illinois 1040ez However, if using the FMV results in a gain, then you neither have a gain nor a loss. Illinois 1040ez Example 1. Illinois 1040ez Andrew received a house as a gift from Ishmael (the donor). Illinois 1040ez At the time of the gift, the home had an FMV of $80,000. Illinois 1040ez Ishmael's adjusted basis was $100,000. Illinois 1040ez After he received the house, no events occurred to increase or decrease the basis. Illinois 1040ez If Andrew sells the house for $120,000, he will have a $20,000 gain because he must use the donor's adjusted basis ($100,000) at the time of the gift as his basis to figure the gain. Illinois 1040ez Example 2. Illinois 1040ez Same facts as Example 1 , except this time Andrew sells the house for $70,000. Illinois 1040ez He will have a loss of $10,000 because he must use the FMV ($80,000) at the time of the gift as his basis to figure the loss. Illinois 1040ez Example 3. Illinois 1040ez Same facts as Example 1 , except this time Andrew sells the house for $90,000. Illinois 1040ez Initially, he figures the gain using Ishmael's adjusted basis ($100,000), which results in a loss of $10,000. Illinois 1040ez Since it is a loss, Andrew must now recalculate the loss using the FMV ($80,000), which results in a gain of $10,000. Illinois 1040ez So in this situation, Andrew will neither have a gain nor a loss. Illinois 1040ez Donor's adjusted basis equal to or less than the FMV. Illinois 1040ez   If someone gave you your home after 1976 and the donor's adjusted basis, when it was given to you, was equal to or less than the FMV, your basis at the time of receipt is the same as the donor's adjusted basis, plus the part of any federal gift tax paid that is due to the net increase in value of the home. Illinois 1040ez Part of federal gift tax due to net increase in value. Illinois 1040ez   Figure the part of the federal gift tax paid that is due to the net increase in value of the home by multiplying the total federal gift tax paid by a fraction. Illinois 1040ez The numerator (top part) of the fraction is the net increase in the value of the home, and the denominator (bottom part) is the value of the home for gift tax purposes after reduction for any annual exclusion and marital or charitable deduction that applies to the gift. Illinois 1040ez The net increase in the value of the home is its FMV minus the adjusted basis of the donor. Illinois 1040ez Publication 551 gives more information, including examples, on figuring your basis when you receive property as a gift. Illinois 1040ez Inheritance Your basis in a home you inherited is generally the fair market value of the home on the date of the decedent's death or on the alternative valuation date if the personal representative for the estate chooses to use alternative valuation. Illinois 1040ez If an estate tax return was filed, your basis is generally the value of the home listed on the estate tax return. Illinois 1040ez If an estate tax return was not filed, your basis is the appraised value of the home at the decedent's date of death for state inheritance or transmission taxes. Illinois 1040ez Publication 551 and Publication 559, Survivors, Executors, and Administrators, have more information on the basis of inherited property. Illinois 1040ez If you inherited your home from someone who died in 2010, and the executor of the decedent's estate made the election to file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Illinois 1040ez Adjusted Basis While you own your home, various events may take place that can change the original basis of your home. Illinois 1040ez These events can increase or decrease your original basis. Illinois 1040ez The result is called adjusted basis. Illinois 1040ez See Table 3, on this page, for a list of some of the items that can adjust your basis. Illinois 1040ez Table 3. Illinois 1040ez Adjusted Basis This table lists examples of some items that generally will increase or decrease your basis in your home. Illinois 1040ez It is not intended to be all-inclusive. Illinois 1040ez Increases to Basis Decreases to Basis Improvements: Putting an addition on your home Replacing an entire roof Paving your driveway Installing central air conditioning Rewiring your home Assessments for local improvements (see Assessments for local benefits , under What You Can and Cannot Deduct, earlier) Amounts spent to restore damaged property Insurance or other reimbursement for casualty losses Deductible casualty loss not covered by insurance Payments received for easement or right-of-way granted Depreciation allowed or allowable if home is used for business or rental purposes Value of subsidy for energy conservation measure excluded from income Improvements. Illinois 1040ez   An improvement materially adds to the value of your home, considerably prolongs its useful life, or adapts it to new uses. Illinois 1040ez You must add the cost of any improvements to the basis of your home. Illinois 1040ez You cannot deduct these costs. Illinois 1040ez   Improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, and paving your driveway. Illinois 1040ez Amount added to basis. Illinois 1040ez   The amount you add to your basis for improvements is your actual cost. Illinois 1040ez This includes all costs for material and labor, except your own labor, and all expenses related to the improvement. Illinois 1040ez For example, if you had your lot surveyed to put up a fence, the cost of the survey is a part of the cost of the fence. Illinois 1040ez   You also must add to your basis state and local assessments for improvements such as streets and sidewalks if they increase the value of the property. Illinois 1040ez These assessments are discussed earlier under Real Estate Taxes . Illinois 1040ez Improvements no longer part of home. Illinois 1040ez    Your home's adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home. Illinois 1040ez Example. Illinois 1040ez You put wall-to-wall carpeting in your home 15 years ago. Illinois 1040ez Later, you replaced that carpeting with new wall-to-wall carpeting. Illinois 1040ez The cost of the old carpeting you replaced is no longer part of your home's adjusted basis. Illinois 1040ez Repairs versus improvements. Illinois 1040ez   A repair keeps your home in an ordinary, efficient operating condition. Illinois 1040ez It does not add to the value of your home or prolong its life. Illinois 1040ez Repairs include repainting your home inside or outside, fixing your gutters or floors, fixing leaks or plastering, and replacing broken window panes. Illinois 1040ez You cannot deduct repair costs and generally cannot add them to the basis of your home. Illinois 1040ez   However, repairs that are done as part of an extensive remodeling or restoration of your home are considered improvements. Illinois 1040ez You add them to the basis of your home. Illinois 1040ez Records to keep. Illinois 1040ez   You can use Table 4 (at the end of the publication) as a guide to help you keep track of improvements to your home. Illinois 1040ez Also see Keeping Records , below. Illinois 1040ez Energy conservation subsidy. Illinois 1040ez   If a public utility gives you (directly or indirectly) a subsidy for the purchase or installation of an energy conservation measure for your home, do not include the value of that subsidy in your income. Illinois 1040ez You must reduce the basis of your home by that value. Illinois 1040ez   An energy conservation measure is an installation or modification primarily designed to reduce consumption of electricity or natural gas or to improve the management of energy demand. Illinois 1040ez Keeping Records Keeping full and accurate records is vital to properly report your income and expenses, to support your deductions and credits, and to know the basis or adjusted basis of your home. Illinois 1040ez These records include your purchase contract and settlement papers if you bought the property, or other objective evidence if you acquired it by gift, inheritance, or similar means. Illinois 1040ez You should keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis. Illinois 1040ez In addition, you should keep track of any decreases to the basis such as those listed in Table 3, earlier. Illinois 1040ez How to keep records. Illinois 1040ez   How you keep records is up to you, but they must be clear and accurate and must be available to the IRS. Illinois 1040ez How long to keep records. Illinois 1040ez   You must keep your records for as long as they are important for meeting any provision of the federal tax law. Illinois 1040ez   Keep records that support an item of income, a deduction, or a credit appearing on a return until the period of limitations for the return runs out. Illinois 1040ez (A period of limitations is the period of time after which no legal action can be brought. Illinois 1040ez ) For assessment of tax you owe, this is generally 3 years from the date you filed the return. Illinois 1040ez For filing a claim for credit or refund, this is generally 3 years from the date you filed the original return, or 2 years from the date you paid the tax, whichever is later. Illinois 1040ez Returns filed before the due date are treated as filed on the due date. Illinois 1040ez   You may need to keep records relating to the basis of property (discussed earlier) for longer than the period of limitations. Illinois 1040ez Keep those records as long as they are important in figuring the basis of the original or replacement property. Illinois 1040ez Generally, this means for as long as you own the property and, after you dispose of it, for the period of limitations that applies to you. Illinois 1040ez Table 4. Illinois 1040ez Record of Home Improvements Keep this for your records. Illinois 1040ez Also, keep receipts or other proof of improvements. Illinois 1040ez Remove from this record any improvements that are no longer part of your main home. Illinois 1040ez For example, if you put wall-to-wall carpeting in your home and later replace it with new wall-to-wall carpeting, remove the cost of the first carpeting. Illinois 1040ez (a) Type of Improvement (b) Date (c) Amount   (a) Type of Improvement (b) Date (c) Amount Additions:       Heating & Air  Conditioning:     Bedroom       Heating system     Bathroom       Central air conditioning     Deck       Furnace     Garage       Duct work     Porch       Central humidifier     Patio       Filtration system     Storage shed       Other     Fireplace       Electrical:     Other           Lawn & Grounds:       Lighting fixtures           Wiring upgrades     Landscaping       Other     Driveway       Plumbing:     Walkway           Fences       Water heater     Retaining wall       Soft water system     Sprinkler system       Filtration system     Swimming pool       Other     Exterior lighting       Insulation:     Other           Communications:       Attic           Walls     Satellite dish       Floors     Intercom       Pipes and duct work     Security system       Other     Other             Miscellaneous:       Interior  Improvements:     Storm windows and doors       Built-in appliances     Roof       Kitchen modernization     Central vacuum       Bathroom modernization     Other       Flooring             Wall-to-wall carpeting             Other     How To
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IRS Seeks Applications for the Electronic Tax Administration Advisory Committee

IR-2014-25 March 7, 2014

WASHINGTON — The Internal Revenue Service is opening the nomination and application process for membership on the Electronic Tax Administration Advisory Committee (ETAAC). The deadline for submitting applications is April 21, 2014.

ETAAC was established as required by the Internal Revenue Service Restructuring and Reform Act of 1998. The purpose of the ETAAC is to provide continued input into the development and implementation of the agency’s strategy for electronic tax administration as well as to provide an organized public forum for the discussion of issues in electronic tax administration.

Nominations of qualified individuals may be made by letter and received from individuals or professional associations. Applicants should complete the ETAAC application including a short statement of interest and a resume. Be sure to describe and document your qualifications, past and current affiliations, and dealings in electronic tax administration. A notice published in the Federal Register contains more details about the ETAAC and the application process.

Members are approved by Treasury to serve three-year terms, beginning in the fall of 2014. Members must pass an IRS tax compliance check and Federal Bureau of Investigation (FBI) background investigation and may not be federally registered lobbyists.

Questions about the application process can be sent to etaac@irs.gov.

 

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Page Last Reviewed or Updated: 07-Mar-2014

The Illinois 1040ez

Illinois 1040ez 2. Illinois 1040ez   Foreclosures and Repossessions Table of Contents Amount realized and ordinary income on a recourse debt. Illinois 1040ez Amount realized on a nonrecourse debt. Illinois 1040ez If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Illinois 1040ez The foreclosure or repossession is treated as a sale from which you may realize gain or loss. Illinois 1040ez This is true even if you voluntarily return the property to the lender. Illinois 1040ez If the outstanding loan balance was more than the FMV of the property and the lender cancels all or part of the remaining loan balance, you also may realize ordinary income from the cancellation of debt. Illinois 1040ez You must report this income on your return unless certain exceptions or exclusions apply. Illinois 1040ez See chapter 1 for more details. Illinois 1040ez Borrower's gain or loss. Illinois 1040ez    You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale. Illinois 1040ez The gain is the difference between the amount realized and your adjusted basis in the transferred property (amount realized minus adjusted basis). Illinois 1040ez The loss is the difference between your adjusted basis in the transferred property and the amount realized (adjusted basis minus amount realized). Illinois 1040ez For more information on figuring gain or loss from the sale of property, see Gain or Loss From Sales and Exchanges in Publication 544. Illinois 1040ez You can use Table 1-1 to figure your ordinary income from the cancellation of debt and your gain or loss from a foreclosure or repossession. Illinois 1040ez Amount realized and ordinary income on a recourse debt. Illinois 1040ez    If you are personally liable for the debt, the amount realized on the foreclosure or repossession includes the smaller of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The FMV of the transferred property. Illinois 1040ez The amount realized also includes any proceeds you received from the foreclosure sale. Illinois 1040ez If the FMV of the transferred property is less than the total outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, the difference is ordinary income from the cancellation of debt. Illinois 1040ez You must report this income on your return unless certain exceptions or exclusions apply. Illinois 1040ez See chapter 1 for more details. Illinois 1040ez       Example 1. Illinois 1040ez Tara bought a new car for $15,000. Illinois 1040ez She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. Illinois 1040ez Tara is personally liable for the loan (recourse debt) and the car is pledged as security for the loan. Illinois 1040ez On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. Illinois 1040ez The balance due after taking into account the payments Tara made was $10,000. Illinois 1040ez The FMV of the car when it was repossessed was $9,000. Illinois 1040ez On November 15, 2013, the credit company forgave the remaining $1,000 balance on the loan due to insufficient assets. Illinois 1040ez In this case, the amount Tara realizes is $9,000. Illinois 1040ez This is the smaller of: The $10,000 outstanding debt immediately before the repossession reduced by the $1,000 for which she remains personally liable immediately after the repossession ($10,000 − $1,000 = $9,000), or The $9,000 FMV of the car. Illinois 1040ez Tara figures her gain or loss on the repossession by comparing the $9,000 amount realized with her $15,000 adjusted basis. Illinois 1040ez She has a $6,000 nondeductible loss. Illinois 1040ez After the cancellation of the remaining balance on the loan in November, Tara also has ordinary income from cancellation of debt in the amount of $1,000 (the remaining balance on the $10,000 loan after the $9,000 amount satisfied by the FMV of the repossessed car). Illinois 1040ez Tara must report this $1,000 on her return unless one of the exceptions or exclusions described in chapter 1 applies. Illinois 1040ez Example 2. Illinois 1040ez Lili paid $200,000 for her home. Illinois 1040ez She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. Illinois 1040ez Lili is personally liable for the mortgage loan and the house secures the loan. Illinois 1040ez In 2013, the bank foreclosed on the mortgage because Lili stopped making payments. Illinois 1040ez When the bank foreclosed the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. Illinois 1040ez At the time of the foreclosure, the bank forgave $2,000 of the $10,000 debt in excess of the FMV ($180,000 minus $170,000). Illinois 1040ez She remained personally liable for the $8,000 balance. Illinois 1040ez In this case, Lili has ordinary income from the cancellation of debt in the amount of $2,000. Illinois 1040ez The $2,000 income from the cancellation of debt is figured by subtracting the $170,000 FMV of the house from the $172,000 difference between her total outstanding debt immediately before the transfer of property and the amount for which she remains personally liable immediately after the transfer ($180,000 minus $8,000). Illinois 1040ez She is able to exclude the $2,000 of canceled debt from her income under the qualified principal residence indebtedness rules discussed earlier. Illinois 1040ez Lili must also determine her gain or loss from the foreclosure. Illinois 1040ez In this case, the amount that she realizes is $170,000. Illinois 1040ez This is the smaller of: (a) the $180,000 outstanding debt immediately before the transfer reduced by the $8,000 for which she remains personally liable immediately after the transfer ($180,000 − $8,000 = $172,000) or (b) the $170,000 FMV of the house. Illinois 1040ez Lili figures her gain or loss on the foreclosure by comparing the $170,000 amount realized with her $175,000 adjusted basis. Illinois 1040ez She has a $5,000 nondeductible loss. Illinois 1040ez Table 1-1. Illinois 1040ez Worksheet for Foreclosures and Repossessions Part 1. Illinois 1040ez Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). Illinois 1040ez Otherwise, go to Part 2. Illinois 1040ez 1. Illinois 1040ez Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property   2. Illinois 1040ez Enter the fair market value of the transferred property   3. Illinois 1040ez Ordinary income from the cancellation of debt upon foreclosure or repossession. Illinois 1040ez * Subtract line 2 from line 1. Illinois 1040ez If less than zero, enter zero. Illinois 1040ez Next, go to Part 2   Part 2. Illinois 1040ez Gain or loss from foreclosure or repossession. Illinois 1040ez   4. Illinois 1040ez Enter the smaller of line 1 or line 2. Illinois 1040ez If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property   5. Illinois 1040ez Enter any proceeds you received from the foreclosure sale   6. Illinois 1040ez Add line 4 and line 5   7. Illinois 1040ez Enter the adjusted basis of the transferred property   8. Illinois 1040ez Gain or loss from foreclosure or repossession. Illinois 1040ez Subtract line 7 from line 6   * The income may not be taxable. Illinois 1040ez See chapter 1 for more details. Illinois 1040ez Amount realized on a nonrecourse debt. Illinois 1040ez    If you are not personally liable for repaying the debt secured by the transferred property, the amount you realize includes the full amount of the outstanding debt immediately before the transfer. Illinois 1040ez This is true even if the FMV of the property is less than the outstanding debt immediately before the transfer. Illinois 1040ez Example 1. Illinois 1040ez Tara bought a new car for $15,000. Illinois 1040ez She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. Illinois 1040ez Tara is not personally liable for the loan (nonrecourse), but pledged the new car as security for the loan. Illinois 1040ez On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. Illinois 1040ez The balance due after taking into account the payments Tara made was $10,000. Illinois 1040ez The FMV of the car when it was repossessed was $9,000. Illinois 1040ez The amount Tara realized on the repossession is $10,000. Illinois 1040ez That is the outstanding amount of debt immediately before the repossession, even though the FMV of the car is less than $10,000. Illinois 1040ez Tara figures her gain or loss on the repossession by comparing the $10,000 amount realized with her $15,000 adjusted basis. Illinois 1040ez Tara has a $5,000 nondeductible loss. Illinois 1040ez Example 2. Illinois 1040ez Lili paid $200,000 for her home. Illinois 1040ez She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. Illinois 1040ez She is not personally liable for the loan, but grants the bank a mortgage. Illinois 1040ez The bank foreclosed on the mortgage because Lili stopped making payments. Illinois 1040ez When the bank foreclosed on the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. Illinois 1040ez The amount Lili realized on the foreclosure is $180,000, the outstanding debt immediately before the foreclosure. Illinois 1040ez She figures her gain or loss by comparing the $180,000 amount realized with her $175,000 adjusted basis. Illinois 1040ez Lili has a $5,000 realized gain. Illinois 1040ez See Publication 523 to figure and report any taxable amount. Illinois 1040ez Forms 1099-A and 1099-C. Illinois 1040ez    A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A, Acquisition or Abandonment of Secured Property, showing information you need to figure your gain or loss. Illinois 1040ez However, if the lender also cancels part of your debt and must file Form 1099-C, the lender can include the information about the foreclosure or repossession on that form instead of on Form 1099-A. Illinois 1040ez The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Illinois 1040ez For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. Illinois 1040ez Prev  Up  Next   Home   More Online Publications