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Irs Forms 2011 1040

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Irs Forms 2011 1040

Irs forms 2011 1040 Internal Revenue Bulletin:  2009-17  April 27, 2009  Rev. Irs forms 2011 1040 Proc. Irs forms 2011 1040 2009-24 Table of Contents SECTION 1. Irs forms 2011 1040 PURPOSE SECTION 2. Irs forms 2011 1040 BACKGROUND SECTION 3. Irs forms 2011 1040 SCOPE SECTION 4. Irs forms 2011 1040 APPLICATION. Irs forms 2011 1040 01 In General. Irs forms 2011 1040 . Irs forms 2011 1040 02 Limitations on Depreciation Deductions for Certain Automobiles. Irs forms 2011 1040 . Irs forms 2011 1040 03 Inclusions in Income of Lessees of Passenger Automobiles. Irs forms 2011 1040 SECTION 5. Irs forms 2011 1040 EFFECTIVE DATE SECTION 6. Irs forms 2011 1040 DRAFTING INFORMATION SECTION 1. Irs forms 2011 1040 PURPOSE . Irs forms 2011 1040 01 This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2009, including a separate table of limitations on depreciation deductions for trucks and vans; and (2) the amounts to be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2009, including a separate table of inclusion amounts for lessees of trucks and vans. Irs forms 2011 1040 . Irs forms 2011 1040 02 The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7) of the Internal Revenue Code. Irs forms 2011 1040 SECTION 2. Irs forms 2011 1040 BACKGROUND . Irs forms 2011 1040 01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year that the passenger automobile is placed in service by the taxpayer and each succeeding year. Irs forms 2011 1040 Section 280F(d)(7) requires the amounts allowable as depreciation deductions to be increased by a price inflation adjustment amount for passenger automobiles placed in service after 1988. Irs forms 2011 1040 The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans. Irs forms 2011 1040 This change reflects the higher rate of price inflation that trucks and vans have been subject to since 1988. Irs forms 2011 1040 . Irs forms 2011 1040 02 Section 168(k)(1)(A) provides a 50 percent additional first year depreciation deduction for certain new property acquired by a taxpayer after December 31, 2007, and before January 1, 2010, if no written binding contract for the acquisition of the property existed before January 1, 2008. Irs forms 2011 1040 Section 168(k)(2)(F)(i) increases the first year depreciation allowed under § 280F(a)(1)(A) by $8,000 for passenger automobiles to which the 50 percent additional first year depreciation deduction applies. Irs forms 2011 1040 . Irs forms 2011 1040 03 Section 168(k)(2)(D)(i) provides that the 50 percent additional first year depreciation deduction does not apply to any property required to be depreciated under the alternative depreciation system of § 168(g), including property described in § 280F(b)(1). Irs forms 2011 1040 Section 168(k)(2)(D)(iii) permits a taxpayer to elect to not claim the 50 percent additional first year depreciation deduction for any class of property. Irs forms 2011 1040 Section 168(k)(4) permits a corporation to elect to not claim the 50 percent additional first year depreciation deduction for all eligible qualified property (that is extension property or that is not extension property, as applicable) and instead to increase the business credit limitation under § 38(c) or the alternative minimum tax credit limitation under § 53(c). Irs forms 2011 1040 Accordingly, this revenue procedure provides tables for passenger automobiles for which the 50 percent additional depreciation deduction applies and tables for passenger automobiles for which the 50 percent additional first year depreciation deduction does not apply, including passenger automobiles in a class of property for which the taxpayer “elects out” of the 50 percent additional first year depreciation deduction or passenger automobiles that are eligible qualified property to which the § 168(k)(4) election applies. Irs forms 2011 1040 . Irs forms 2011 1040 04 For leased passenger automobiles, § 280F(c) requires a reduction in the deduction allowed to the lessee of the passenger automobile. Irs forms 2011 1040 The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. Irs forms 2011 1040 Under § 1. Irs forms 2011 1040 280F-7(a) of the Income Tax Regulations, this reduction requires a lessee to include in gross income an inclusion amount determined by applying a formula to the amount obtained from a table. Irs forms 2011 1040 One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. Irs forms 2011 1040 Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased. Irs forms 2011 1040 SECTION 3. Irs forms 2011 1040 SCOPE . Irs forms 2011 1040 01 The limitations on depreciation deductions in section 4. Irs forms 2011 1040 02(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2009, and continue to apply for each taxable year that the passenger automobile remains in service. Irs forms 2011 1040 . Irs forms 2011 1040 02 The tables in section 4. Irs forms 2011 1040 03 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2009. Irs forms 2011 1040 Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each taxable year during which the passenger automobile is leased. Irs forms 2011 1040 See Rev. Irs forms 2011 1040 Proc. Irs forms 2011 1040 2002-14, 2002-1 C. Irs forms 2011 1040 B. Irs forms 2011 1040 450, for passenger automobiles first leased before January 1, 2003, Rev. Irs forms 2011 1040 Proc. Irs forms 2011 1040 2003-75, 2003-2 C. Irs forms 2011 1040 B. Irs forms 2011 1040 1018, for passenger automobiles first leased during calendar year 2003, Rev. Irs forms 2011 1040 Proc. Irs forms 2011 1040 2004-20, 2004-1 C. Irs forms 2011 1040 B. Irs forms 2011 1040 642, for passenger automobiles first leased during calendar year 2004, Rev. Irs forms 2011 1040 Proc. Irs forms 2011 1040 2005-13, 2005-1 C. Irs forms 2011 1040 B. Irs forms 2011 1040 759, for passenger automobiles first leased during calendar year 2005, Rev. Irs forms 2011 1040 Proc. Irs forms 2011 1040 2006-18, 2006-1 C. Irs forms 2011 1040 B. Irs forms 2011 1040 645, for passenger automobiles first leased during calendar year 2006, Rev. Irs forms 2011 1040 Proc. Irs forms 2011 1040 2007-30, 2007-1 C. Irs forms 2011 1040 B. Irs forms 2011 1040 1104, for passenger automobiles first leased during calendar year 2007, and Rev. Irs forms 2011 1040 Proc. Irs forms 2011 1040 2008-22, 2008-12 I. Irs forms 2011 1040 R. Irs forms 2011 1040 B. Irs forms 2011 1040 658, for passenger automobiles first leased during calendar year 2008. Irs forms 2011 1040 SECTION 4. Irs forms 2011 1040 APPLICATION . Irs forms 2011 1040 01 In General. Irs forms 2011 1040 (1) Limitations on depreciation deductions for certain automobiles. Irs forms 2011 1040 The limitations on depreciation deductions for passenger automobiles placed in service by the taxpayer for the first time during calendar year 2009 are in Tables 1 through 4 in section 4. Irs forms 2011 1040 02(2) of this revenue procedure. Irs forms 2011 1040 (2) Inclusions in income of lessees of passenger automobiles. Irs forms 2011 1040 A taxpayer first leasing a passenger automobile during calendar year 2009 must determine the inclusion amount that is added to gross income using Tables 5 and 6 in section 4. Irs forms 2011 1040 03 of this revenue procedure. Irs forms 2011 1040 In addition, the taxpayer must follow the procedures of § 1. Irs forms 2011 1040 280F-7(a). Irs forms 2011 1040 . Irs forms 2011 1040 02 Limitations on Depreciation Deductions for Certain Automobiles. Irs forms 2011 1040 (1) Amount of the inflation adjustment. Irs forms 2011 1040 (a) Passenger automobiles (other than trucks or vans). Irs forms 2011 1040 Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. Irs forms 2011 1040 The term “CPI automobile component” is defined in § 280F(d)(7)(B)(ii) as the “automobile component” of the Consumer Price Index for all Urban Consumers published by the Department of Labor. Irs forms 2011 1040 The new car component of the CPI was 115. Irs forms 2011 1040 2 for October 1987 and 134. Irs forms 2011 1040 837 for October 2008. Irs forms 2011 1040 The October 2008 index exceeded the October 1987 index by 19. Irs forms 2011 1040 637. Irs forms 2011 1040 The Internal Revenue Service has, therefore, determined that the automobile price inflation adjustment for 2009 for passenger automobiles (other than trucks and vans) is 17. Irs forms 2011 1040 05 percent (19. Irs forms 2011 1040 637/115. Irs forms 2011 1040 2 x 100%). Irs forms 2011 1040 This adjustment is applicable to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2009. Irs forms 2011 1040 The dollar limitations in § 280F(a) therefore must be multiplied by a factor of 0. Irs forms 2011 1040 1705, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than trucks and vans) for calendar year 2009. Irs forms 2011 1040 (b) Trucks and vans. Irs forms 2011 1040 To determine the dollar limitations applicable to trucks and vans first placed in service during calendar year 2009, the new truck component of the CPI is used instead of the new car component. Irs forms 2011 1040 The new truck component of the CPI was 112. Irs forms 2011 1040 4 for October 1987 and 133. Irs forms 2011 1040 640 for October 2008. Irs forms 2011 1040 The October 2008 index exceeded the October 1987 index by 21. Irs forms 2011 1040 24. Irs forms 2011 1040 The Service has, therefore, determined that the automobile price inflation adjustment for 2009 for trucks and vans is 18. Irs forms 2011 1040 90 percent (21. Irs forms 2011 1040 24/112. Irs forms 2011 1040 4 x 100%). Irs forms 2011 1040 This adjustment is applicable to all trucks and vans that are first placed in service in calendar year 2009. Irs forms 2011 1040 The dollar limitations in § 280F(a) therefore must be multiplied by a factor of 0. Irs forms 2011 1040 1890, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to trucks and vans. Irs forms 2011 1040 (2) Amount of the limitation. Irs forms 2011 1040 For passenger automobiles placed in service by the taxpayer in calendar year 2009, Tables 1 through 4 contain the dollar amount of the depreciation limitation for each taxable year. Irs forms 2011 1040 Use Table 1 for a passenger automobile (other than a truck or van) placed in service by the taxpayer in calendar year 2009, for which the 50 percent additional first year depreciation deduction does not apply, including a passenger automobile (other than a truck or van) in a class of property for which the taxpayer elects out of the 50 percent additional first year depreciation deduction or a passenger automobile that is eligible qualified property to which the § 168(k)(4) election applies. Irs forms 2011 1040 Use Table 2 for a passenger automobile (other than a truck or van) placed in service by the taxpayer in calendar year 2009, for which the 50 percent additional first year depreciation deduction applies. Irs forms 2011 1040 Use Table 3 for a truck or van placed in service by the taxpayer in calendar year 2009, for which the 50 percent additional first year depreciation deduction does not apply, including a truck or van in a class of property for which the taxpayer elects out of the 50 percent additional first year depreciation deduction or a truck or van that is eligible qualified property to which the § 168(k)(4) election applies. Irs forms 2011 1040 Use Table 4 for a truck or van placed in service by the taxpayer in calendar year 2009, for which the 50 percent additional first year depreciation deduction applies. Irs forms 2011 1040 REV. Irs forms 2011 1040 PROC. Irs forms 2011 1040 2009-24 TABLE 1 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE BY THE TAXPAYER IN CALENDAR YEAR 2009, FOR WHICH THE 50 PERCENT ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $2,960 2nd Tax Year $4,800 3rd Tax Year $2,850 Each Succeeding Year $1,775 REV. Irs forms 2011 1040 PROC. Irs forms 2011 1040 2009-24 TABLE 2 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE BY THE TAXPAYER IN CALENDAR YEAR 2009, FOR WHICH THE 50 PERCENT ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $10,960 2nd Tax Year $4,800 3rd Tax Year $2,850 Each Succeeding Year $1,775 REV. Irs forms 2011 1040 PROC. Irs forms 2011 1040 2009-24 TABLE 3 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE BY THE TAXPAYER IN CALENDAR YEAR 2009, FOR WHICH THE 50 PERCENT ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,060 2nd Tax Year $4,900 3rd Tax Year $2,950 Each Succeeding Year $1,775 REV. Irs forms 2011 1040 PROC. Irs forms 2011 1040 2009-24 TABLE 4 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE BY THE TAXPAYER IN CALENDAR YEAR 2009, FOR WHICH THE 50 PERCENT ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,060 2nd Tax Year $4,900 3rd Tax Year $2,950 Each Succeeding Year $1,775 . Irs forms 2011 1040 03 Inclusions in Income of Lessees of Passenger Automobiles. Irs forms 2011 1040 The inclusion amounts for passenger automobiles first leased in calendar year 2009 are calculated under the procedures described in § 1. Irs forms 2011 1040 280F-7(a). Irs forms 2011 1040 Lessees of passenger automobiles other than trucks and vans should use Table 5 of this revenue procedure in applying these procedures, while lessees of trucks and vans should use Table 6 of this revenue procedure. Irs forms 2011 1040 REV. Irs forms 2011 1040 PROC. Irs forms 2011 1040 2009-24 TABLE 5 DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2009 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later $18,500 $19,000 9 19 28 34 38 19,000 19,500 10 21 32 38 43 19,500 20,000 11 24 36 42 48 20,000 20,500 12 27 39 46 54 20,500 21,000 13 29 43 51 58 21,000 21,500 15 31 47 55 64 21,500 22,000 16 34 50 60 68 22,000 23,000 17 38 56 66 76 23,000 24,000 20 42 64 75 86 24,000 25,000 22 47 71 84 96 25,000 26,000 24 52 78 93 107 26,000 27,000 26 58 85 101 117 27,000 28,000 29 62 93 110 127 28,000 29,000 31 67 100 119 138 29,000 30,000 33 72 108 128 147 30,000 31,000 35 77 115 137 157 31,000 32,000 38 82 122 146 167 32,000 33,000 40 87 129 155 178 33,000 34,000 42 92 137 163 188 34,000 35,000 44 97 144 172 199 35,000 36,000 47 102 151 181 208 36,000 37,000 49 107 159 189 219 37,000 38,000 51 112 166 199 228 38,000 39,000 53 117 173 208 239 39,000 40,000 56 122 180 216 250 40,000 41,000 58 127 188 225 259 41,000 42,000 60 132 195 234 269 42,000 43,000 62 137 203 242 280 43,000 44,000 65 141 210 252 290 44,000 45,000 67 146 218 260 300 45,000 46,000 69 151 225 269 311 46,000 47,000 71 157 232 278 320 47,000 48,000 74 161 240 286 331 48,000 49,000 76 166 247 296 340 49,000 50,000 78 171 255 304 351 50,000 51,000 80 176 262 313 361 51,000 52,000 83 181 269 322 371 52,000 53,000 85 186 276 331 381 53,000 54,000 87 191 284 339 392 54,000 55,000 89 196 291 349 401 55,000 56,000 92 201 298 357 412 56,000 57,000 94 206 306 365 423 57,000 58,000 96 211 313 375 432 58,000 59,000 98 216 320 384 442 59,000 60,000 101 221 327 393 452 60,000 62,000 104 228 339 406 467 62,000 64,000 109 238 353 424 488 64,000 66,000 113 248 368 441 509 66,000 68,000 118 258 382 459 529 68,000 70,000 122 268 397 476 550 70,000 72,000 127 277 413 493 570 72,000 74,000 131 288 427 511 590 74,000 76,000 136 297 442 529 610 76,000 78,000 140 307 457 546 631 78,000 80,000 145 317 471 564 651 80,000 85,000 152 335 497 595 686 85,000 90,000 164 359 534 639 737 90,000 95,000 175 384 570 683 789 95,000 100,000 186 409 607 727 839 100,000 110,000 203 446 662 793 916 110,000 120,000 226 495 736 881 1,018 120,000 130,000 248 545 809 970 1,119 130,000 140,000 271 594 883 1,058 1,220 140,000 150,000 293 644 956 1,146 1,322 150,000 160,000 316 693 1,030 1,234 1,424 160,000 170,000 338 743 1,103 1,322 1,526 170,000 180,000 361 792 1,177 1,410 1,628 180,000 190,000 383 842 1,250 1,498 1,730 190,000 200,000 406 891 1,324 1,586 1,831 200,000 210,000 428 941 1,397 1,675 1,932 210,000 220,000 451 990 1,471 1,762 2,035 220,000 230,000 473 1,040 1,544 1,851 2,136 230,000 240,000 496 1,089 1,618 1,939 2,238 240,000 And up 518 1,139 1,691 2,027 2,340 REV. Irs forms 2011 1040 PROC. Irs forms 2011 1040 2009-24 TABLE 6 DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2009 Fair Market Value of Electric Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th and Later $18,500 $19,000 8 17 25 30 35 19,000 19,500 9 19 29 35 40 19,500 20,000 10 22 33 38 45 20,000 20,500 11 25 36 43 50 20,500 21,000 12 27 40 48 55 21,000 21,500 13 30 43 52 60 21,500 22,000 15 32 47 56 66 22,000 23,000 16 36 52 64 72 23,000 24,000 18 41 60 72 83 24,000 25,000 21 45 68 81 93 25,000 26,000 23 50 75 90 103 26,000 27,000 25 56 82 98 114 27,000 28,000 27 61 89 107 124 28,000 29,000 30 65 97 116 134 29,000 30,000 32 70 104 125 144 30,000 31,000 34 75 112 134 154 31,000 32,000 36 80 119 143 164 32,000 33,000 39 85 126 151 175 33,000 34,000 41 90 134 160 184 34,000 35,000 43 95 141 169 195 35,000 36,000 45 100 148 178 205 36,000 37,000 48 105 155 187 215 37,000 38,000 50 110 163 195 226 38,000 39,000 52 115 170 204 236 39,000 40,000 55 120 177 213 246 40,000 41,000 57 125 185 221 256 41,000 42,000 59 130 192 231 266 42,000 43,000 61 135 199 240 276 43,000 44,000 64 139 207 249 286 44,000 45,000 66 144 215 257 296 45,000 46,000 68 149 222 266 307 46,000 47,000 70 155 229 274 317 47,000 48,000 73 159 237 283 327 48,000 49,000 75 164 244 292 338 49,000 50,000 77 169 251 301 348 50,000 51,000 79 174 259 310 357 51,000 52,000 82 179 266 318 368 52,000 53,000 84 184 273 328 378 53,000 54,000 86 189 281 336 388 54,000 55,000 88 194 288 345 399 55,000 56,000 91 199 295 354 408 56,000 57,000 93 204 302 363 419 57,000 58,000 95 209 310 371 429 58,000 59,000 97 214 317 381 439 59,000 60,000 100 219 324 389 450 60,000 62,000 103 226 336 402 465 62,000 64,000 107 236 351 420 485 64,000 66,000 112 246 365 438 505 66,000 68,000 116 256 380 455 526 68,000 70,000 121 266 394 473 546 70,000 72,000 125 276 409 491 566 72,000 74,000 130 286 423 509 586 74,000 76,000 134 296 438 526 607 76,000 78,000 139 305 454 543 627 78,000 80,000 143 316 467 561 648 80,000 85,000 151 333 493 592 684 85,000 90,000 163 357 531 635 735 90,000 95,000 174 382 567 680 785 95,000 100,000 185 407 604 724 836 100,000 110,000 202 444 659 790 912 110,000 120,000 225 493 733 878 1,014 120,000 130,000 247 543 806 966 1,116 130,000 140,000 270 592 880 1,054 1,218 140,000 150,000 292 642 953 1,143 1,319 150,000 160,000 315 691 1,027 1,230 1,421 160,000 170,000 337 741 1,100 1,319 1,522 170,000 180,000 360 790 1,174 1,407 1,624 180,000 190,000 382 840 1,247 1,495 1,726 190,000 200,000 405 889 1,321 1,583 1,828 200,000 210,000 427 939 1,394 1,671 1,930 210,000 220,000 450 988 1,468 1,759 2,031 220,000 230,000 472 1,038 1,541 1,847 2,134 230,000 240,000 495 1,087 1,615 1,935 2,235 240,000 and up 517 1,137 1,688 2,024 2,336 SECTION 5. Irs forms 2011 1040 EFFECTIVE DATE This revenue procedure applies to passenger automobiles (other than leased passenger automobiles) that are first placed in service by a taxpayer during calendar year 2009, and to leased passenger automobiles that are first leased by a taxpayer during calendar year 2009. Irs forms 2011 1040 SECTION 6. Irs forms 2011 1040 DRAFTING INFORMATION The principal author of this revenue procedure is Bernard P. Irs forms 2011 1040 Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting). Irs forms 2011 1040 For further information regarding this revenue procedure, contact Mr. Irs forms 2011 1040 Harvey at (202) 622-4930 (not a toll-free call). Irs forms 2011 1040 Prev  Up  Next   Home   More Internal Revenue Bulletins
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The Irs Forms 2011 1040

Irs forms 2011 1040 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. Irs forms 2011 1040 S. Irs forms 2011 1040 Individual Income Tax Return, and itemize your deductions on Schedule A (Form 1040). Irs forms 2011 1040 If you itemize, you cannot take the standard deduction. Irs forms 2011 1040 This section explains what expenses you can deduct as a homeowner. Irs forms 2011 1040 It also points out expenses that you cannot deduct. Irs forms 2011 1040 There are four primary discussions: real estate taxes, sales taxes, home mortgage interest, and mortgage insurance premiums. Irs forms 2011 1040 Generally, your real estate taxes, home mortgage interest, and mortgage insurance premiums are included in your house payment. Irs forms 2011 1040 Your house payment. Irs forms 2011 1040   If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. Irs forms 2011 1040 Your house payment may include several costs of owning a home. Irs forms 2011 1040 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. Irs forms 2011 1040 These are discussed in more detail later. Irs forms 2011 1040   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. Irs forms 2011 1040 Minister's or military housing allowance. Irs forms 2011 1040   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. Irs forms 2011 1040 You do not have to reduce your deductions by your nontaxable allowance. Irs forms 2011 1040 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. Irs forms 2011 1040 Nondeductible payments. Irs forms 2011 1040   You cannot deduct any of the following items. Irs forms 2011 1040 Insurance (other than mortgage insurance premiums), including fire and comprehensive coverage, and title insurance. Irs forms 2011 1040 Wages you pay for domestic help. Irs forms 2011 1040 Depreciation. Irs forms 2011 1040 The cost of utilities, such as gas, electricity, or water. Irs forms 2011 1040 Most settlement costs. Irs forms 2011 1040 See Settlement or closing costs under Cost as Basis, later, for more information. Irs forms 2011 1040 Forfeited deposits, down payments, or earnest money. Irs forms 2011 1040 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. Irs forms 2011 1040 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. Irs forms 2011 1040 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. Irs forms 2011 1040 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). Irs forms 2011 1040 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. Irs forms 2011 1040 Real Estate Taxes Most state and local governments charge an annual tax on the value of real property. Irs forms 2011 1040 This is called a real estate tax. Irs forms 2011 1040 You can deduct the tax if it is assessed uniformly at a like rate on all real property throughout the community. Irs forms 2011 1040 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. Irs forms 2011 1040 Deductible Real Estate Taxes You can deduct real estate taxes imposed on you. Irs forms 2011 1040 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. Irs forms 2011 1040 If you own a cooperative apartment, see Special Rules for Cooperatives , later. Irs forms 2011 1040 Where to deduct real estate taxes. Irs forms 2011 1040   Enter the amount of your deductible real estate taxes on Schedule A (Form 1040), line 6. Irs forms 2011 1040 Real estate taxes paid at settlement or closing. Irs forms 2011 1040   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. Irs forms 2011 1040 Your share of these taxes is fully deductible if you itemize your deductions. Irs forms 2011 1040 Division of real estate taxes. Irs forms 2011 1040   For federal income tax purposes, the seller is treated as paying the property taxes up to, but not including, the date of sale. Irs forms 2011 1040 You (the buyer) are treated as paying the taxes beginning with the date of sale. Irs forms 2011 1040 This applies regardless of the lien dates under local law. Irs forms 2011 1040 Generally, this information is included on the settlement statement you get at closing. Irs forms 2011 1040   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. Irs forms 2011 1040 You each can deduct your own share, if you itemize deductions, for the year the property is sold. Irs forms 2011 1040 Example. Irs forms 2011 1040 You bought your home on September 1. Irs forms 2011 1040 The property tax year (the period to which the tax relates) in your area is the calendar year. Irs forms 2011 1040 The tax for the year was $730 and was due and paid by the seller on August 15. Irs forms 2011 1040 You owned your new home during the property tax year for 122 days (September 1 to December 31, including your date of purchase). Irs forms 2011 1040 You figure your deduction for real estate taxes on your home as follows. Irs forms 2011 1040 1. Irs forms 2011 1040 Enter the total real estate taxes for the real property tax year $730 2. Irs forms 2011 1040 Enter the number of days in the property tax year that you owned the property 122 3. Irs forms 2011 1040 Divide line 2 by 365 . Irs forms 2011 1040 3342 4. Irs forms 2011 1040 Multiply line 1 by line 3. Irs forms 2011 1040 This is your deduction. Irs forms 2011 1040 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. Irs forms 2011 1040 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. Irs forms 2011 1040 Delinquent taxes. Irs forms 2011 1040   Delinquent taxes are unpaid taxes that were imposed on the seller for an earlier tax year. Irs forms 2011 1040 If you agree to pay delinquent taxes when you buy your home, you cannot deduct them. Irs forms 2011 1040 You treat them as part of the cost of your home. Irs forms 2011 1040 See Real estate taxes , later, under Basis. Irs forms 2011 1040 Escrow accounts. Irs forms 2011 1040   Many monthly house payments include an amount placed in escrow (put in the care of a third party) for real estate taxes. Irs forms 2011 1040 You may not be able to deduct the total you pay into the escrow account. Irs forms 2011 1040 You can deduct only the real estate taxes that the lender actually paid from escrow to the taxing authority. Irs forms 2011 1040 Your real estate tax bill will show this amount. Irs forms 2011 1040 Refund or rebate of real estate taxes. Irs forms 2011 1040   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. Irs forms 2011 1040 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. Irs forms 2011 1040 For more information, see Recoveries in Publication 525, Taxable and Nontaxable Income. Irs forms 2011 1040 Items You Cannot Deduct as Real Estate Taxes The following items are not deductible as real estate taxes. Irs forms 2011 1040 Charges for services. Irs forms 2011 1040   An itemized charge for services to specific property or people is not a tax, even if the charge is paid to the taxing authority. Irs forms 2011 1040 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). Irs forms 2011 1040    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. Irs forms 2011 1040 If your taxing authority (or lender) does not furnish you a copy of your real estate tax bill, ask for it. Irs forms 2011 1040 Contact the taxing authority if you need additional information about a specific charge on your real estate tax bill. Irs forms 2011 1040 Assessments for local benefits. Irs forms 2011 1040   You cannot deduct amounts you pay for local benefits that tend to increase the value of your property. Irs forms 2011 1040 Local benefits include the construction of streets, sidewalks, or water and sewer systems. Irs forms 2011 1040 You must add these amounts to the basis of your property. Irs forms 2011 1040   You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. Irs forms 2011 1040 An example is a charge to repair an existing sidewalk and any interest included in that charge. Irs forms 2011 1040   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. Irs forms 2011 1040 If you cannot show what part of the assessment is for maintenance, repair, or interest charges, you cannot deduct any of it. Irs forms 2011 1040   An assessment for a local benefit may be listed as an item in your real estate tax bill. Irs forms 2011 1040 If so, use the rules in this section to find how much of it, if any, you can deduct. Irs forms 2011 1040 Transfer taxes (or stamp taxes). Irs forms 2011 1040   You cannot deduct transfer taxes and similar taxes and charges on the sale of a personal home. Irs forms 2011 1040 If you are the buyer and you pay them, include them in the cost basis of the property. Irs forms 2011 1040 If you are the seller and you pay them, they are expenses of the sale and reduce the amount realized on the sale. Irs forms 2011 1040 Homeowners association assessments. Irs forms 2011 1040   You cannot deduct these assessments because the homeowners association, rather than a state or local government, imposes them. Irs forms 2011 1040 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. Irs forms 2011 1040 As an owner of a cooperative apartment, you own shares of stock in a corporation that owns or leases housing facilities. Irs forms 2011 1040 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. Irs forms 2011 1040 For this purpose, gross income means all income received during the entire tax year, including any received before the corporation changed to cooperative ownership. Irs forms 2011 1040 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. Irs forms 2011 1040 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. Irs forms 2011 1040 Tenant-stockholders. Irs forms 2011 1040   A tenant-stockholder can be any entity (such as a corporation, trust, estate, partnership, or association) as well as an individual. Irs forms 2011 1040 The tenant-stockholder does not have to live in any of the cooperative's dwelling units. Irs forms 2011 1040 The units that the tenant-stockholder has the right to occupy can be rented to others. Irs forms 2011 1040 Deductible taxes. Irs forms 2011 1040   You figure your share of real estate taxes in the following way. Irs forms 2011 1040 Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Irs forms 2011 1040 Multiply the corporation's deductible real estate taxes by the number you figured in (1). Irs forms 2011 1040 This is your share of the real estate taxes. Irs forms 2011 1040   Generally, the corporation will tell you your share of its real estate tax. Irs forms 2011 1040 This is the amount you can deduct if it reasonably reflects the cost of real estate taxes for your dwelling unit. Irs forms 2011 1040 Refund of real estate taxes. Irs forms 2011 1040   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. Irs forms 2011 1040 Your deduction for real estate taxes the corporation paid this year is reduced by your share of the refund the corporation received. Irs forms 2011 1040 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). Irs forms 2011 1040 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. Irs forms 2011 1040 For information on figuring your deduction, see the Instructions for Schedule A (Form 1040). Irs forms 2011 1040 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. Irs forms 2011 1040 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. Irs forms 2011 1040 Most home buyers take out a mortgage (loan) to buy their home. Irs forms 2011 1040 They then make monthly payments to either the mortgage holder or someone collecting the payments for the mortgage holder. Irs forms 2011 1040 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). Irs forms 2011 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. Irs forms 2011 1040 If either of these situations applies to you, see Publication 936 for more information. Irs forms 2011 1040 Also see Publication 936 if you later refinance your mortgage or buy a second home. Irs forms 2011 1040 Refund of home mortgage interest. Irs forms 2011 1040   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. Irs forms 2011 1040 For more information, see Recoveries in Publication 525. Irs forms 2011 1040 The amount of the refund will usually be shown on the mortgage interest statement you receive from your mortgage lender. Irs forms 2011 1040 See Mortgage Interest Statement , later. Irs forms 2011 1040 Deductible Mortgage Interest To be deductible, the interest you pay must be on a loan secured by your main home or a second home. Irs forms 2011 1040 The loan can be a first or second mortgage, a home improvement loan, or a home equity loan. Irs forms 2011 1040 Prepaid interest. Irs forms 2011 1040   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. Irs forms 2011 1040 Generally, you can deduct in each year only the interest that qualifies as home mortgage interest for that year. Irs forms 2011 1040 An exception (discussed later) applies to points. Irs forms 2011 1040 Late payment charge on mortgage payment. Irs forms 2011 1040   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. Irs forms 2011 1040 Mortgage prepayment penalty. Irs forms 2011 1040   If you pay off your home mortgage early, you may have to pay a penalty. Irs forms 2011 1040 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. Irs forms 2011 1040 Ground rent. Irs forms 2011 1040   In some states (such as Maryland), you may buy your home subject to a ground rent. Irs forms 2011 1040 A ground rent is an obligation you assume to pay a fixed amount per year on the property. Irs forms 2011 1040 Under this arrangement, you are leasing (rather than buying) the land on which your home is located. Irs forms 2011 1040 Redeemable ground rents. Irs forms 2011 1040   If you make annual or periodic rental payments on a redeemable ground rent, you can deduct the payments as mortgage interest. Irs forms 2011 1040 The ground rent is a redeemable ground rent only if all of the following are true. Irs forms 2011 1040 Your lease, including renewal periods, is for more than 15 years. Irs forms 2011 1040 You can freely assign the lease. Irs forms 2011 1040 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. Irs forms 2011 1040 The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled. Irs forms 2011 1040   Payments made to end the lease and buy the lessor's entire interest in the land are not redeemable ground rents. Irs forms 2011 1040 You cannot deduct them. Irs forms 2011 1040 Nonredeemable ground rents. Irs forms 2011 1040   Payments on a nonredeemable ground rent are not mortgage interest. Irs forms 2011 1040 You can deduct them as rent only if they are a business expense or if they are for rental property. Irs forms 2011 1040 Cooperative apartment. Irs forms 2011 1040   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 . Irs forms 2011 1040 In addition, you can treat as home mortgage interest your share of the corporation's deductible mortgage interest. Irs forms 2011 1040 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. Irs forms 2011 1040 For more information on cooperatives, see Special Rule for Tenant-Stockholders in Cooperative Housing Corporations in Publication 936. Irs forms 2011 1040 Refund of cooperative's mortgage interest. Irs forms 2011 1040   You must reduce your mortgage interest deduction by your share of any cash portion of a patronage dividend that the cooperative receives. Irs forms 2011 1040 The patronage dividend is a partial refund to the cooperative housing corporation of mortgage interest it paid in a prior year. Irs forms 2011 1040   If you receive a Form 1098 from the cooperative housing corporation, the form should show only the amount you can deduct. Irs forms 2011 1040 Mortgage Interest Paid at Settlement One item that normally appears on a settlement or closing statement is home mortgage interest. Irs forms 2011 1040 You can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). Irs forms 2011 1040 This amount should be included in the mortgage interest statement provided by your lender. Irs forms 2011 1040 See the discussion under Mortgage Interest Statement , later. Irs forms 2011 1040 Also, if you pay interest in advance, see Prepaid interest , earlier, and Points , next. Irs forms 2011 1040 Points The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Irs forms 2011 1040 Points also may be called loan origination fees, maximum loan charges, loan discount, or discount points. Irs forms 2011 1040 A borrower is treated as paying any points that a home seller pays for the borrower's mortgage. Irs forms 2011 1040 See Points paid by the seller , later. Irs forms 2011 1040 General rule. Irs forms 2011 1040   You cannot deduct the full amount of points in the year paid. Irs forms 2011 1040 They are prepaid interest, so you generally must deduct them over the life (term) of the mortgage. Irs forms 2011 1040 Exception. Irs forms 2011 1040   You can deduct the full amount of points in the year paid if you meet all the following tests. Irs forms 2011 1040 Your loan is secured by your main home. Irs forms 2011 1040 (Generally, your main home is the one you live in most of the time. Irs forms 2011 1040 ) Paying points is an established business practice in the area where the loan was made. Irs forms 2011 1040 The points paid were not more than the points generally charged in that area. Irs forms 2011 1040 You use the cash method of accounting. Irs forms 2011 1040 This means you report income in the year you receive it and deduct expenses in the year you pay them. Irs forms 2011 1040 Most individuals use this method. Irs forms 2011 1040 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. Irs forms 2011 1040 The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. Irs forms 2011 1040 The funds you provided are not required to have been applied to the points. Irs forms 2011 1040 They can include a down payment, an escrow deposit, earnest money, and other funds you paid at or before closing for any purpose. Irs forms 2011 1040 You cannot have borrowed these funds. Irs forms 2011 1040 You use your loan to buy or build your main home. Irs forms 2011 1040 The points were computed as a percentage of the principal amount of the mortgage. Irs forms 2011 1040 The amount is clearly shown on the settlement statement (such as the Uniform Settlement Statement, Form HUD-1) as points charged for the mortgage. Irs forms 2011 1040 The points may be shown as paid from either your funds or the seller's. Irs forms 2011 1040 Note. Irs forms 2011 1040 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. Irs forms 2011 1040 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. Irs forms 2011 1040 Home improvement loan. Irs forms 2011 1040   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. Irs forms 2011 1040 Refinanced loan. Irs forms 2011 1040   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. Irs forms 2011 1040 You can deduct the rest of the points over the life of the loan. Irs forms 2011 1040 Points not fully deductible in year paid. Irs forms 2011 1040    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. Irs forms 2011 1040 Figure A. Irs forms 2011 1040   You can use Figure A, next, as a quick guide to see whether your points are fully deductible in the year paid. Irs forms 2011 1040    Please click here for the text description of the image. Irs forms 2011 1040 Figure A. Irs forms 2011 1040 Are my points fully deductible this year? Amounts charged for services. Irs forms 2011 1040   Amounts charged by the lender for specific services connected to the loan are not interest. Irs forms 2011 1040 Examples of these charges are: Appraisal fees, Notary fees, and Preparation costs for the mortgage note or deed of trust. Irs forms 2011 1040 You cannot deduct these amounts as points either in the year paid or over the life of the mortgage. Irs forms 2011 1040 For information about the tax treatment of these amounts and other settlement fees and closing costs, see Basis , later. Irs forms 2011 1040 Points paid by the seller. Irs forms 2011 1040   The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Irs forms 2011 1040 Treatment by seller. Irs forms 2011 1040   The seller cannot deduct these fees as interest. Irs forms 2011 1040 However, they are a selling expense that reduces the seller's amount realized. Irs forms 2011 1040 See Publication 523 for more information. Irs forms 2011 1040 Treatment by buyer. Irs forms 2011 1040   The buyer treats seller-paid points as if he or she had paid them. Irs forms 2011 1040 If all the tests listed earlier under Exception are met, the buyer can deduct the points in the year paid. Irs forms 2011 1040 If any of those tests are not met, the buyer must deduct the points over the life of the loan. Irs forms 2011 1040   The buyer must also reduce the basis of the home by the amount of the seller-paid points. Irs forms 2011 1040 For more information about the basis of your home, see Basis , later. Irs forms 2011 1040 Funds provided are less than points. Irs forms 2011 1040   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. Irs forms 2011 1040 In addition, you can deduct any points paid by the seller. Irs forms 2011 1040 Example 1. Irs forms 2011 1040 When you took out a $100,000 mortgage loan to buy your home in December, you were charged one point ($1,000). Irs forms 2011 1040 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. Irs forms 2011 1040 Of the $1,000 you were charged for points, you can deduct $750 in the year paid. Irs forms 2011 1040 You spread the remaining $250 over the life of the mortgage. Irs forms 2011 1040 Example 2. Irs forms 2011 1040 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. Irs forms 2011 1040 In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller). Irs forms 2011 1040 You spread the remaining $250 over the life of the mortgage. Irs forms 2011 1040 You must reduce the basis of your home by the $1,000 paid by the seller. Irs forms 2011 1040 Excess points. Irs forms 2011 1040   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. Irs forms 2011 1040 You must spread any additional points over the life of the mortgage. Irs forms 2011 1040 Mortgage ending early. Irs forms 2011 1040   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. Irs forms 2011 1040 A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. Irs forms 2011 1040 Example. Irs forms 2011 1040 Dan paid $3,000 in points in 2006 that he had to spread out over the 15-year life of the mortgage. Irs forms 2011 1040 He had deducted $1,400 of these points through 2012. Irs forms 2011 1040 Dan prepaid his mortgage in full in 2013. Irs forms 2011 1040 He can deduct the remaining $1,600 of points in 2013. Irs forms 2011 1040 Exception. Irs forms 2011 1040   If you refinance the mortgage with the same lender, you cannot deduct any remaining points for the year. Irs forms 2011 1040 Instead, deduct them over the term of the new loan. Irs forms 2011 1040 Form 1098. Irs forms 2011 1040   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. Irs forms 2011 1040 See Mortgage Interest Statement , later. Irs forms 2011 1040 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). Irs forms 2011 1040 If you did not receive a Form 1098, enter your deductible interest on line 11, and any deductible points on line 12. Irs forms 2011 1040 See Table 1 below for a summary of where to deduct home mortgage interest and real estate taxes. Irs forms 2011 1040 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. Irs forms 2011 1040 The seller must give you this number and you must give the seller your SSN. Irs forms 2011 1040 Form W-9, Request for Taxpayer Identification Number and Certification, can be used for this purpose. Irs forms 2011 1040 Failure to meet either of these requirements may result in a $50 penalty for each failure. Irs forms 2011 1040 Table 1. Irs forms 2011 1040 Where To Deduct Interest and Taxes Paid on Your Home See the text for information on what expenses are eligible. Irs forms 2011 1040 IF you are eligible to deduct . Irs forms 2011 1040 . Irs forms 2011 1040 . Irs forms 2011 1040 THEN report the amount  on Schedule A (Form 1040) . Irs forms 2011 1040 . Irs forms 2011 1040 . Irs forms 2011 1040 real estate taxes line 6. Irs forms 2011 1040 home mortgage interest and points reported on Form 1098 line 10. Irs forms 2011 1040 home mortgage interest not reported on  Form 1098 line 11. Irs forms 2011 1040 points not reported on Form 1098 line 12. Irs forms 2011 1040 qualified mortgage insurance premiums line 13. Irs forms 2011 1040 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. Irs forms 2011 1040 The statement will show the total interest paid on your mortgage during the year. Irs forms 2011 1040 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. Irs forms 2011 1040 See Points , earlier. Irs forms 2011 1040 The interest you paid at settlement should be included on the statement. Irs forms 2011 1040 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. Irs forms 2011 1040 Put the total on Schedule A (Form 1040), line 10, and attach a statement to your return explaining the difference. Irs forms 2011 1040 Write “See attached” to the right of line 10. Irs forms 2011 1040 A mortgage holder can be a financial institution, a governmental unit, or a cooperative housing corporation. Irs forms 2011 1040 If a statement comes from a cooperative housing corporation, it generally will show your share of interest. Irs forms 2011 1040 Your mortgage interest statement for 2013 should be provided or sent to you by January 31, 2014. Irs forms 2011 1040 If it is mailed, you should allow adequate time to receive it before contacting the mortgage holder. Irs forms 2011 1040 A copy of this form will be sent to the IRS also. Irs forms 2011 1040 Example. Irs forms 2011 1040 You bought a new home on May 3. Irs forms 2011 1040 You paid no points on the purchase. Irs forms 2011 1040 During the year, you made mortgage payments which included $4,480 deductible interest on your new home. Irs forms 2011 1040 The settlement sheet for the purchase of the home included interest of $620 for 29 days in May. Irs forms 2011 1040 The mortgage statement you receive from the lender includes total interest of $5,100 ($4,480 + $620). Irs forms 2011 1040 You can deduct the $5,100 if you itemize your deductions. Irs forms 2011 1040 Refund of overpaid interest. Irs forms 2011 1040   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. Irs forms 2011 1040 Generally, you must include the refund in income in the year you receive it. Irs forms 2011 1040 See Refund of home mortgage interest , earlier, under Home Mortgage Interest. Irs forms 2011 1040 More than one borrower. Irs forms 2011 1040   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. Irs forms 2011 1040 Show how much of the interest each of you paid, and give the name and address of the person who received the form. Irs forms 2011 1040 Deduct your share of the interest on Schedule A (Form 1040), line 11, and write “See attached” to the right of that line. Irs forms 2011 1040 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. Irs forms 2011 1040 Mortgage insurance premiums you paid or accrued on any mortgage insurance contract issued before January 1, 2007, are not deductible as an itemized deduction. Irs forms 2011 1040 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). Irs forms 2011 1040 Prepaid mortgage insurance premiums. Irs forms 2011 1040   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. Irs forms 2011 1040 The premiums are treated as paid in the year to which they were allocated. Irs forms 2011 1040 If the mortgage is satisfied before its term, no deduction is allowed for the unamortized balance. Irs forms 2011 1040 See Publication 936 for details. Irs forms 2011 1040 Exception for certain mortgage insurance. Irs forms 2011 1040   The allocation rules, explained above, do not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or Rural Housing Service. Irs forms 2011 1040 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. Irs forms 2011 1040 It also must be secured by that home. Irs forms 2011 1040 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. Irs forms 2011 1040 Home acquisition debt limit. Irs forms 2011 1040   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). Irs forms 2011 1040 Discharges of qualified principal residence indebtedness. Irs forms 2011 1040   You can exclude from gross income any discharges of qualified principal residence indebtedness made after 2006 and before 2014. Irs forms 2011 1040 You must reduce the basis of your principal residence (but not below zero) by the amount you exclude. Irs forms 2011 1040 Principal residence. Irs forms 2011 1040   Your principal residence is the home where you ordinarily live most of the time. Irs forms 2011 1040 You can have only one principal residence at any one time. Irs forms 2011 1040 Qualified principal residence indebtedness. Irs forms 2011 1040   This is a mortgage that you took out to buy, build, or substantially improve your principal residence and that is secured by that residence. Irs forms 2011 1040 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. Irs forms 2011 1040   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. Irs forms 2011 1040 Additional debt incurred to substantially improve your principal residence is also qualified principal residence indebtedness. Irs forms 2011 1040 Amount you can exclude. Irs forms 2011 1040   You can only exclude debt discharged after 2006 and before 2014. Irs forms 2011 1040 The most you can exclude is $2 million ($1 million if married filing separately). Irs forms 2011 1040 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. Irs forms 2011 1040 Ordering rule. Irs forms 2011 1040   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. Irs forms 2011 1040 Qualified Home This means your main home or your second home. Irs forms 2011 1040 A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. Irs forms 2011 1040 Main home. Irs forms 2011 1040   You can have only one main home at any one time. Irs forms 2011 1040 This is the home where you ordinarily live most of the time. Irs forms 2011 1040 Second home and other special situations. Irs forms 2011 1040   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. Irs forms 2011 1040 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. Irs forms 2011 1040 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. Irs forms 2011 1040 If your AGI is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums. Irs forms 2011 1040 Form 1098. Irs forms 2011 1040   The amount of mortgage insurance premiums you paid during 2013 should be reported in box 4. Irs forms 2011 1040 See Form 1098, Mortgage Interest Statement in Publication 936. Irs forms 2011 1040 Mortgage Interest Credit The mortgage interest credit is intended to help lower-income individuals afford home ownership. Irs forms 2011 1040 If you qualify, you can claim the credit on Form 8396 each year for part of the home mortgage interest you pay. Irs forms 2011 1040 Who qualifies. Irs forms 2011 1040   You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate (MCC) from your state or local government. Irs forms 2011 1040 Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home. Irs forms 2011 1040 The MCC will show the certificate credit rate you will use to figure your credit. Irs forms 2011 1040 It also will show the certified indebtedness amount. Irs forms 2011 1040 Only the interest on that amount qualifies for the credit. Irs forms 2011 1040 See Figuring the Credit , later. Irs forms 2011 1040 You must contact the appropriate government agency about getting an MCC before you get a mortgage and buy your home. Irs forms 2011 1040 Contact your state or local housing finance agency for information about the availability of MCCs in your area. Irs forms 2011 1040 How to claim the credit. Irs forms 2011 1040   To claim the credit, complete Form 8396 and attach it to your Form 1040 or Form 1040NR, U. Irs forms 2011 1040 S. Irs forms 2011 1040 Nonresident Alien Income Tax Return. Irs forms 2011 1040 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. Irs forms 2011 1040 Reducing your home mortgage interest deduction. Irs forms 2011 1040   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. Irs forms 2011 1040 You must do this even if part of that amount is to be carried forward to 2014. Irs forms 2011 1040 Selling your home. Irs forms 2011 1040   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. Irs forms 2011 1040 For additional information, see Recapturing (Paying Back) a Federal Mortgage Subsidy, in Publication 523. Irs forms 2011 1040 Figuring the Credit Figure your credit on Form 8396. Irs forms 2011 1040 Mortgage not more than certified indebtedness. Irs forms 2011 1040   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. Irs forms 2011 1040 Mortgage more than certified indebtedness. Irs forms 2011 1040   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. Irs forms 2011 1040 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. Irs forms 2011 1040 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. Irs forms 2011 1040 Example. Irs forms 2011 1040 Emily bought a home this year. Irs forms 2011 1040 Her mortgage loan is $125,000. Irs forms 2011 1040 The certified indebtedness amount on her MCC is $100,000. Irs forms 2011 1040 She paid $7,500 interest this year. Irs forms 2011 1040 Emily figures the interest to enter on Form 8396, line 1, as follows:   $100,000 = 80% (. Irs forms 2011 1040 80)       $125,000       $7,500 x . Irs forms 2011 1040 80 = $6,000   Emily enters $6,000 on Form 8396, line 1. Irs forms 2011 1040 In each later year, she will figure her credit using only 80% of the interest she pays for that year. Irs forms 2011 1040 Limits Two limits may apply to your credit. Irs forms 2011 1040 A limit based on the credit rate, and A limit based on your tax. Irs forms 2011 1040 Limit based on credit rate. Irs forms 2011 1040   If the certificate credit rate is higher than 20%, the credit you are allowed cannot be more than $2,000. Irs forms 2011 1040 Limit based on tax. Irs forms 2011 1040   After applying the limit based on the credit rate, your credit generally cannot be more than your tax liability. Irs forms 2011 1040 See the Credit Limit Worksheet in the Form 8396 instructions to calculate the limit based on tax. Irs forms 2011 1040 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. Irs forms 2011 1040 Example. Irs forms 2011 1040 John and his brother, George, were issued an MCC. Irs forms 2011 1040 They used it to get a mortgage on their main home. Irs forms 2011 1040 John has a 60% ownership interest in the home, and George has a 40% ownership interest in the home. Irs forms 2011 1040 John paid $5,400 mortgage interest this year and George paid $3,600. Irs forms 2011 1040 The MCC shows a credit rate of 25% and a certified indebtedness amount of $130,000. Irs forms 2011 1040 The loan amount (mortgage) on their home is $120,000. Irs forms 2011 1040 The credit is limited to $2,000 because the credit rate is more than 20%. Irs forms 2011 1040 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. Irs forms 2011 1040 His credit is limited to $1,200 ($2,000 × 60%). Irs forms 2011 1040 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. Irs forms 2011 1040 His credit is limited to $800 ($2,000 × 40%). Irs forms 2011 1040 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. Irs forms 2011 1040 Example. Irs forms 2011 1040 You receive a mortgage credit certificate from State X. Irs forms 2011 1040 This year, your regular tax liability is $1,100, you owe no alternative minimum tax, and your mortgage interest credit is $1,700. Irs forms 2011 1040 You claim no other credits. Irs forms 2011 1040 Your unused mortgage interest credit for this year is $600 ($1,700 − $1,100). Irs forms 2011 1040 You can carry forward this amount to the next 3 years or until used, whichever comes first. Irs forms 2011 1040 Credit rate more than 20%. Irs forms 2011 1040   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). Irs forms 2011 1040 Example. Irs forms 2011 1040 In the earlier example under Dividing the Credit , John and George used the entire $2,000 credit. Irs forms 2011 1040 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. Irs forms 2011 1040 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. Irs forms 2011 1040 The amount of credit you can claim on the new loan may change. Irs forms 2011 1040 Table 2 below summarizes how to figure your credit if you refinance your original mortgage loan. Irs forms 2011 1040 Table 2. Irs forms 2011 1040 Effect of Refinancing on Your Credit IF you get a new (reissued) MCC and the amount of your new mortgage is . Irs forms 2011 1040 . Irs forms 2011 1040 . Irs forms 2011 1040 THEN the interest you claim on Form 8396, line 1, is* . Irs forms 2011 1040 . Irs forms 2011 1040 . Irs forms 2011 1040 smaller than or equal to the certified indebtedness amount on the new MCC all the interest paid during the year on your new mortgage. Irs forms 2011 1040 larger than the certified indebtedness amount on the new MCC interest paid during the year on your new mortgage multiplied by the following fraction. Irs forms 2011 1040         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. Irs forms 2011 1040  See New MCC cannot increase your credit above. Irs forms 2011 1040 An issuer may reissue an MCC after you refinance your mortgage. Irs forms 2011 1040 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. Irs forms 2011 1040 Year of refinancing. Irs forms 2011 1040   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. Irs forms 2011 1040   If your new MCC has a credit rate different from the rate on the old MCC, you must attach a statement to Form 8396. Irs forms 2011 1040 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. Irs forms 2011 1040 It must show a separate calculation for the part of the year when the new MCC was in effect. Irs forms 2011 1040 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. Irs forms 2011 1040 New MCC cannot increase your credit. Irs forms 2011 1040   The credit that you claim with your new MCC cannot be more than the credit that you could have claimed with your old MCC. Irs forms 2011 1040   In most cases, the agency that issues your new MCC will make sure that it does not increase your credit. Irs forms 2011 1040 However, if either your old loan or your new loan has a variable (adjustable) interest rate, you will need to check this yourself. Irs forms 2011 1040 In that case, you will need to know the amount of the credit you could have claimed using the old MCC. Irs forms 2011 1040   There are two methods for figuring the credit you could have claimed. Irs forms 2011 1040 Under one method, you figure the actual credit that would have been allowed. Irs forms 2011 1040 This means you use the credit rate on the old MCC and the interest you would have paid on the old loan. Irs forms 2011 1040   If your old loan was a variable rate mortgage, you can use another method to determine the credit that you could have claimed. Irs forms 2011 1040 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. Irs forms 2011 1040 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. Irs forms 2011 1040 The principal of the hypothetical mortgage is the remaining outstanding balance of the certified mortgage indebtedness shown on the old MCC. Irs forms 2011 1040    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. Irs forms 2011 1040    As part of your tax records, you should keep your old MCC and the schedule of payments for your old mortgage. Irs forms 2011 1040 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. Irs forms 2011 1040 While you own your home, you may add certain items to your basis. Irs forms 2011 1040 You may subtract certain other items from your basis. Irs forms 2011 1040 These items are called adjustments to basis and are explained later under Adjusted Basis . Irs forms 2011 1040 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. Irs forms 2011 1040 You also must keep records of the events that affect basis or adjusted basis. Irs forms 2011 1040 See Keeping Records , below. Irs forms 2011 1040 Figuring Your Basis How you figure your basis depends on how you acquire your home. Irs forms 2011 1040 If you buy or build your home, your cost is your basis. Irs forms 2011 1040 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. Irs forms 2011 1040 If you inherit your home from a decedent, different rules apply depending on the date of the decedent's death. Irs forms 2011 1040 Each of these topics is discussed later. Irs forms 2011 1040 Property transferred from a spouse. Irs forms 2011 1040   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. Irs forms 2011 1040 Publication 504, Divorced or Separated Individuals, fully discusses transfers between spouses. Irs forms 2011 1040 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. Irs forms 2011 1040 The cost of your home includes most settlement or closing costs you paid when you bought the home. Irs forms 2011 1040 If you built your home, your cost includes most closing costs paid when you bought the land or settled on your mortgage. Irs forms 2011 1040 See Settlement or closing costs , later. Irs forms 2011 1040 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. Irs forms 2011 1040 Purchase. Irs forms 2011 1040   The basis of a home you bought is the amount you paid for it. Irs forms 2011 1040 This usually includes your down payment and any debt you assumed. Irs forms 2011 1040 The basis of a cooperative apartment is the amount you paid for your shares in the corporation that owns or controls the property. Irs forms 2011 1040 This amount includes any purchase commissions or other costs of acquiring the shares. Irs forms 2011 1040 Construction. Irs forms 2011 1040   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. Irs forms 2011 1040 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. Irs forms 2011 1040 If you built all or part of your home yourself, your basis is the total amount it cost you to build it. Irs forms 2011 1040 You cannot include in basis the value of your own labor or any other labor for which you did not pay. Irs forms 2011 1040 Real estate taxes. Irs forms 2011 1040   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. Irs forms 2011 1040 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. Irs forms 2011 1040   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. Irs forms 2011 1040 You cannot deduct them as taxes paid. Irs forms 2011 1040   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. Irs forms 2011 1040 Do not include those taxes in your basis. Irs forms 2011 1040 If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Irs forms 2011 1040 Example 1. Irs forms 2011 1040 You bought your home on September 1. Irs forms 2011 1040 The property tax year in your area is the calendar year, and the tax is due on August 15. Irs forms 2011 1040 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. Irs forms 2011 1040 You did not reimburse the seller for your share of the real estate taxes from September 1 through December 31. Irs forms 2011 1040 You must reduce the basis of your home by the $426 [(122 ÷ 365) × $1,275] the seller paid for you. Irs forms 2011 1040 You can deduct your $426 share of real estate taxes on your return for the year you purchased your home. Irs forms 2011 1040 Example 2. Irs forms 2011 1040 You bought your home on May 3, 2013. Irs forms 2011 1040 The property tax year in your area is the calendar year. Irs forms 2011 1040 The taxes for the previous year are assessed on January 2 and are due on May 31 and November 30. Irs forms 2011 1040 Under state law, the taxes become a lien on May 31. Irs forms 2011 1040 You agreed to pay all taxes due after the date of sale. Irs forms 2011 1040 The taxes due in 2013 for 2012 were $1,375. Irs forms 2011 1040 The taxes due in 2014 for 2013 will be $1,425. Irs forms 2011 1040 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. Irs forms 2011 1040 Instead, you add the $1,375 to the cost (basis) of your home. Irs forms 2011 1040 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. Irs forms 2011 1040 You add the remaining $476 ($1,425 − $949) of taxes paid in 2014 to the cost (basis) of your home. Irs forms 2011 1040 Settlement or closing costs. Irs forms 2011 1040   If you bought your home, you probably paid settlement or closing costs in addition to the contract price. Irs forms 2011 1040 These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. Irs forms 2011 1040 If you built your home, you probably paid these costs when you bought the land or settled on your mortgage. Irs forms 2011 1040   The only settlement or closing costs you can deduct are home mortgage interest and certain real estate taxes. Irs forms 2011 1040 You deduct them in the year you buy your home if you itemize your deductions. Irs forms 2011 1040 You can add certain other settlement or closing costs to the basis of your home. Irs forms 2011 1040 Items added to basis. Irs forms 2011 1040   You can include in your basis the settlement fees and closing costs you paid for buying your home. Irs forms 2011 1040 A fee is for buying the home if you would have had to pay it even if you paid cash for the home. Irs forms 2011 1040   The following are some of the settlement fees and closing costs that you can include in the original basis of your home. Irs forms 2011 1040 Abstract fees (abstract of title fees). Irs forms 2011 1040 Charges for installing utility services. Irs forms 2011 1040 Legal fees (including fees for the title search and preparation of the sales contract and deed). Irs forms 2011 1040 Recording fees. Irs forms 2011 1040 Surveys. Irs forms 2011 1040 Transfer or stamp taxes. Irs forms 2011 1040 Owner's title insurance. Irs forms 2011 1040 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. Irs forms 2011 1040   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. Irs forms 2011 1040 Items not added to basis and not deductible. Irs forms 2011 1040   Here are some settlement and closing costs that you cannot deduct or add to your basis. Irs forms 2011 1040 Fire insurance premiums. Irs forms 2011 1040 Charges for using utilities or other services related to occupancy of the home before closing. Irs forms 2011 1040 Rent for occupying the home before closing. Irs forms 2011 1040 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. Irs forms 2011 1040 Points paid by seller. Irs forms 2011 1040   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. Irs forms 2011 1040   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. Irs forms 2011 1040 See Points , earlier, for the rules on deducting points. Irs forms 2011 1040 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. Irs forms 2011 1040 Fair market value. Irs forms 2011 1040   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. Irs forms 2011 1040 Donor's adjusted basis is more than FMV. Irs forms 2011 1040   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. Irs forms 2011 1040 Disposition basis. Irs forms 2011 1040   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. Irs forms 2011 1040 Your basis for figuring a gain is the same as the donor's adjusted basis. Irs forms 2011 1040 Your basis for figuring a loss is the FMV when you received the gift. Irs forms 2011 1040 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. Irs forms 2011 1040 However, if using the FMV results in a gain, then you neither have a gain nor a loss. Irs forms 2011 1040 Example 1. Irs forms 2011 1040 Andrew received a house as a gift from Ishmael (the donor). Irs forms 2011 1040 At the time of the gift, the home had an FMV of $80,000. Irs forms 2011 1040 Ishmael's adjusted basis was $100,000. Irs forms 2011 1040 After he received the house, no events occurred to increase or decrease the basis. Irs forms 2011 1040 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. Irs forms 2011 1040 Example 2. Irs forms 2011 1040 Same facts as Example 1 , except this time Andrew sells the house for $70,000. Irs forms 2011 1040 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. Irs forms 2011 1040 Example 3. Irs forms 2011 1040 Same facts as Example 1 , except this time Andrew sells the house for $90,000. Irs forms 2011 1040 Initially, he figures the gain using Ishmael's adjusted basis ($100,000), which results in a loss of $10,000. Irs forms 2011 1040 Since it is a loss, Andrew must now recalculate the loss using the FMV ($80,000), which results in a gain of $10,000. Irs forms 2011 1040 So in this situation, Andrew will neither have a gain nor a loss. Irs forms 2011 1040 Donor's adjusted basis equal to or less than the FMV. Irs forms 2011 1040   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. Irs forms 2011 1040 Part of federal gift tax due to net increase in value. Irs forms 2011 1040   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. Irs forms 2011 1040 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. Irs forms 2011 1040 The net increase in the value of the home is its FMV minus the adjusted basis of the donor. Irs forms 2011 1040 Publication 551 gives more information, including examples, on figuring your basis when you receive property as a gift. Irs forms 2011 1040 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. Irs forms 2011 1040 If an estate tax return was filed, your basis is generally the value of the home listed on the estate tax return. Irs forms 2011 1040 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. Irs forms 2011 1040 Publication 551 and Publication 559, Survivors, Executors, and Administrators, have more information on the basis of inherited property. Irs forms 2011 1040 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. Irs forms 2011 1040 Adjusted Basis While you own your home, various events may take place that can change the original basis of your home. Irs forms 2011 1040 These events can increase or decrease your original basis. Irs forms 2011 1040 The result is called adjusted basis. Irs forms 2011 1040 See Table 3, on this page, for a list of some of the items that can adjust your basis. Irs forms 2011 1040 Table 3. Irs forms 2011 1040 Adjusted Basis This table lists examples of some items that generally will increase or decrease your basis in your home. Irs forms 2011 1040 It is not intended to be all-inclusive. Irs forms 2011 1040 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. Irs forms 2011 1040   An improvement materially adds to the value of your home, considerably prolongs its useful life, or adapts it to new uses. Irs forms 2011 1040 You must add the cost of any improvements to the basis of your home. Irs forms 2011 1040 You cannot deduct these costs. Irs forms 2011 1040   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. Irs forms 2011 1040 Amount added to basis. Irs forms 2011 1040   The amount you add to your basis for improvements is your actual cost. Irs forms 2011 1040 This includes all costs for material and labor, except your own labor, and all expenses related to the improvement. Irs forms 2011 1040 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. Irs forms 2011 1040   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. Irs forms 2011 1040 These assessments are discussed earlier under Real Estate Taxes . Irs forms 2011 1040 Improvements no longer part of home. Irs forms 2011 1040    Your home's adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home. Irs forms 2011 1040 Example. Irs forms 2011 1040 You put wall-to-wall carpeting in your home 15 years ago. Irs forms 2011 1040 Later, you replaced that carpeting with new wall-to-wall carpeting. Irs forms 2011 1040 The cost of the old carpeting you replaced is no longer part of your home's adjusted basis. Irs forms 2011 1040 Repairs versus improvements. Irs forms 2011 1040   A repair keeps your home in an ordinary, efficient operating condition. Irs forms 2011 1040 It does not add to the value of your home or prolong its life. Irs forms 2011 1040 Repairs include repainting your home inside or outside, fixing your gutters or floors, fixing leaks or plastering, and replacing broken window panes. Irs forms 2011 1040 You cannot deduct repair costs and generally cannot add them to the basis of your home. Irs forms 2011 1040   However, repairs that are done as part of an extensive remodeling or restoration of your home are considered improvements. Irs forms 2011 1040 You add them to the basis of your home. Irs forms 2011 1040 Records to keep. Irs forms 2011 1040   You can use Table 4 (at the end of the publication) as a guide to help you keep track of improvements to your home. Irs forms 2011 1040 Also see Keeping Records , below. Irs forms 2011 1040 Energy conservation subsidy. Irs forms 2011 1040   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. Irs forms 2011 1040 You must reduce the basis of your home by that value. Irs forms 2011 1040   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. Irs forms 2011 1040 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. Irs forms 2011 1040 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. Irs forms 2011 1040 You should keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis. Irs forms 2011 1040 In addition, you should keep track of any decreases to the basis such as those listed in Table 3, earlier. Irs forms 2011 1040 How to keep records. Irs forms 2011 1040   How you keep records is up to you, but they must be clear and accurate and must be available to the IRS. Irs forms 2011 1040 How long to keep records. Irs forms 2011 1040   You must keep your records for as long as they are important for meeting any provision of the federal tax law. Irs forms 2011 1040   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. Irs forms 2011 1040 (A period of limitations is the period of time after which no legal action can be brought. Irs forms 2011 1040 ) For assessment of tax you owe, this is generally 3 years from the date you filed the return. Irs forms 2011 1040 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. Irs forms 2011 1040 Returns filed before the due date are treated as filed on the due date. Irs forms 2011 1040   You may need to keep records relating to the basis of property (discussed earlier) for longer than the period of limitations. Irs forms 2011 1040 Keep those records as long as they are important in figuring the basis of the original or replacement property. Irs forms 2011 1040 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. Irs forms 2011 1040 Table 4. Irs forms 2011 1040 Record of Home Improvements Keep this for your records. Irs forms 2011 1040 Also, keep receipts or other proof of improvements. Irs forms 2011 1040 Remove from this record any improvements that are no longer part of your main home. Irs forms 2011 1040 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. Irs forms 2011 1040 (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