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Tax Filing Season FAQ — Homeowners

 

I sold my primary residence this year. What form do I need to file? | Top

If you meet the ownership and use tests, you will generally only need to report the sale of your home if your gain is more than $250,000 ($500,000 if married filing a joint return). This means that during the five-year period ending on the date of the sale, you must have:

  • Owned the home for at least two years (the ownership test), and
  • Lived in the home as your main home for at least two years (the use test). If you owned and lived in the property as your main home for less than two years, you may still be able to claim an exclusion in some cases. The maximum amount you can exclude will be reduced. If you are required or choose to report a gain, it is reported on Form 1040, Schedule D, "Capital Gains and Losses" (PDF). 

If you were on qualified extended duty in the U.S. Armed Services or the Foreign Service you may suspend the five-year test period for up to 10 years. You are on qualified extended duty when:

  • At a duty station that is at least 50 miles from the residence sold, or
  • When residing under orders in government housing, for more than 90 days or for an indefinite period.

This change applies to home sales after May 6, 1997. You may use this provision for only one property at a time and one sale every two years. Please refer to Publication 523, "Selling Your Home" (PDF), for more information.


My daughter and I own a house together. Her name is on the mortgage, but both our names are on the deed. Can we each claim half the yearly interest and property tax on our income tax returns? | Top

In order for both of you to claim one-half of the interest deduction, both of you must be legally liable for the loan. Since only your daughter is legally liable for the loan, only she can deduct the interest. Since both of you are legal owners of the property, both of you may deduct one-half of the real estate taxes paid during the year.


What are the rules for mortgage interest on a manufactured home? Can I deduct the interest on the mortgage for the manufactured home if it is on a rented lot? Can I deduct the interest for the manufactured home and for the lot if I buy a lot for the home? | Top

For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home. A home includes a house, condominium, cooperative, mobile home, boat or similar property that has sleeping, cooking and toilet facilities.

If you buy a lot and place the manufactured home on it, the interest paid for the lot would be qualifying home mortgage interest, provided that it was secured by the house.


I have a mortgage for my primary residence and a second mortgage for land that I intend to build a home on. Can the interest be deducted for the second mortgage? | Top

Unless you have begun construction of a home on the bare land that you can occupy within 24 months, the land would be considered an investment and the interest you paid on the second mortgage would not qualify as deductible mortgage interest. However, it would constitute investment interest if you itemize your deductions. For more information, refer to Publication 550, "Investment Income and Expenses, (PDF)" and Publication 936, "Home Mortgage Interest Deduction" (PDF).


I refinanced my home last year and paid points. Are they all deductible this year? | Top

Generally, points paid to refinance a mortgage are not deductible in their entirety in the year paid. They are "amortized" or deducted over the life of the loan. This is true even if the mortgage is secured by your main home. However, if you use part of the refinanced mortgage proceeds to improve your main home you may be able to fully deduct  the part of the points related to the improvement in the year you paid them with your own funds. For more information, refer to Publication 936, "Home Mortgage Interest Deduction" (PDF).


I took out a home equity loan to pay off personal debts. Is this interest deductible? Where do I enter this amount on my tax return? | Top

A loan taken out for reasons other than to buy, build or substantially improve your home, such as to pay off personal debts, may qualify as home equity debt. The interest would be deducted on line 10, Form 1040, Schedule A, "Itemized Deductions" (PDF). The amount you can deduct as interest on home equity debt is subject to certain limitations. For more information, refer to Publication 936, "Home Mortgage Interest Deduction" (.PDF).


Is the mortgage interest and property tax on a second residence deductible? | Top

The mortgage interest on a second home that you use as a residence for some portion of the taxable year is generally deductible if the interest satisfies the same requirements for deductibility as interest on a primary residence. Real estate taxes paid on your primary and second residence are generally deductible. Deductible real estate taxes include any state, local or foreign taxes on real property levied for the general public welfare. Deductible real estate taxes do not include taxes charged for local benefits and improvements that increase the value of the property. For more information, refer to Publication 17, "Your Federal Income Tax for Individuals" (PDF) or Publication 530, "Tax Information for First-Time Home Owners" (PDF).


I made energy- efficient improvements to my home. Do they qualify for a tax credit? Top

You may be able to take a credit of 30 percent of the costs paid or incurred in 2010 for any qualified energy efficiency improvements and any residential energy property. The credit is limited to a total of $1,500 over tax years 2009 and 2010. Certain additional limits may apply for different types of improvements.

The nonbusiness energy property credit applies to insulation materials, exterior windows, exterior doors and roofing materials installed that meet certain energy efficient criteria. the Residential Energy Efficient Credit may be claimed on qualified solar electric property, solar water heating property, fuel cell property, small wind energy property or geothermal heat pump property. Use Form 5695 (PDF) to figure and take your residential energy credits.