IRS Publication 530
When you purchased your home, you may have paid what is called “settlement” or “closing costs” in addition to the contract price. These costs are typically divided between you and the seller according to the sales contract. If you built your home, these costs were probably paid when you bought the land or settled on your mortgage.
What You Can and Can’t Deduct
To deduct expenses of owning a home, you must file Form 1040, U.S. Individual Income Tax Return, and itemize your deductions on Schedule A (Form 1040). If you itemize, you can’t take the standard deduction.
There are three primary discussions: real estate taxes, sales taxes, and home mortgage interest.
Generally, your real estate taxes and home mortgage interest are included in your house payment.
Your house payment. If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. Your house payment may include several costs of owning a home. The only costs you can deduct are state and local real estate taxes actually paid to the taxing authority and interest that qualifies as home mortgage interest. These are discussed in more detail later.
Some nondeductible expenses that may be included in your house payment include:
• Mortgage insurance premiums,
• Fire or homeowner’s insurance premiums, and
• The amount applied to reduce the principal of the mortgage.
Minister’s or military housing allowance. If you are a minister or a member of the uni-formed services and receive a housing allowance that isn’t taxable, you still can deduct your real estate taxes and your home mortgage interest. You don’t have to reduce your deductions by your nontaxable allowance. For more information, see Pub. 517, Social Security and Other Information for Members of the Clergy and Religious Workers, and Pub. 3, Armed Forces’ Tax Guide.
Nondeductible payments. You can’t deduct any of the following items.
• Insurance, including fire and comprehensive coverage, mortgage insurance, and title insurance.
• Wages you pay for domestic help.
• The cost of utilities, such as gas, electricity, or water.
• Most settlement costs. See Settlement or closing costs under Cost as Basis, later, for more information.
• Forfeited deposits, down payments, or ear-nest money.
For additional tax information for homeowners, please see IRS Publication 530.
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