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Question: Are
seller-paid points deductible?
Answer:
As of Jan. 1, 1991,
homeowners have been able to deduct points paid by the
seller. This deduction previously was reserved only for
points actually paid by the buyer.
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Question: Are
taxes on second homes deductible?
Answer:
Mortgage interest and
property taxes are deductible on a second home if you
itemize. Check with your accountant or tax adviser for
specifics.
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Question: Can
I deduct the loss I suffered when I sold my home?
Answer:
The Internal Revenue
Service currently does not allow deductions for losses on
the sale of your own home. In fact there's no way to use a
loss on the sale of your principal residence to your
advantage on your income tax return.
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Question: What
are the rules on capital gains when inheriting a house?
Answer:
When children inherit a
home, the Internal Revenue Service determines their basis in
the property on the date of the owner's death. The cost
basis is not the amount the owner originally paid for the
house, but the property's fair-market value on the date of
the parent's death.
Cost basis is a tax term for the dollar amount assigned to a
property at the time it is acquired, for the purpose of
determining gain or loss when it is sold. For example, one
of the three siblings sold his or her share of a property to
be divided equally, he or she must pay capital gains tax for
whatever profit made over one-third of the new basis.
Other tax consequences include estate taxes. However, the
estate must total $675,000 or more for tax year 2001 before
tax issues become a concern. The IRS allow residents to pass
on property, cash and other assets worth up to a total of
$675,000 for tax year 2001 before charging the heirs any
taxes. This figure will rise each year for the next several
years.
Regarding the transfer of ownership, quit-claim deeds often
are used between family members in situations such as this
when an heir is buying out the other. All parties must be
agreeable to dropping a name from the title. For more
information, consult the IRS's Publication 950, "Introduction
to Estate and Gift Taxes." Order by calling (800)
TAX-FORM or download
from irs.gov..
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Question: What
home-buying costs are deductible?
Answer:
Any points you or the
seller pay to purchase your home loan are deductible for
that year. Property taxes and interest are deductible every
year.
But while other home-buying costs (closing costs in
particular) are not immediately tax-deductible, they can be
figured into the adjusted cost basis of your home when you
go to sell (any significant home improvements also can be
calculated into your basis). These fees would include title
insurance, loan-application fee, credit report, appraisal
fee, service fee, settlement or closing fees, bank
attorney's fee, attorney's fee, document preparation fee and
recording fees. Points paid when you refinance an existing
mortgage must be deducted ratably over the life of the new
loan.
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Question: Where
do I get information on IRS publications?
Answer:
The Internal Revenue
Service publishes a number of real estate publications. They
are listed by number:
* 521
"Moving Expenses"
* 523
"Selling Your Home"
* 527
"Residential Rental Property"
* 534
"Depreciation"
* 541
"Tax Information on Partnerships"
* 551
"Basis of Assets"
* 555
"Federal Tax Information on Community Property"
* 561
"Determining the Value of Donated Property"
* 590
"Individual Retirement Arrangements"
* 908
"Bankruptcy and Other Debt Cancellation"
* 936
"Home Mortgage Interest Deduction"
These publications are available for free online or by
calling (800) TAX-FORM.
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