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Barb Lanis

Real Estate Tax Deduction FAQ

Monday, January 21, 2013 - Article by: Barb Lanis - The Federal Savings Bank is a member FDIC and Equal Housing Lender - Message

With tax season right around the corner you may have questions about the various real estate-related tax deductions. Here are some answers to some frequently asked questions.

Can I deduct the sum of my monthly payments for the year on my income taxes? You can only deduct the interest portion of your payment. This includes interest paid on mortgages to buy, build or substantially improve your first or second home. Money paid to principal cannot be part of your deduction.

I'm married but we file separately. Who gets the deduction? A taxpayer can deduct interest paid on a mortgage if the tax payer is the legal or equitable owner of the property. When married, ownership rights and their tax treatment when filing separately can get complicated. If a home is owned jointly, each spouse can deduct 1/2 the interest.

I usually pay my January payment late in December; which year's taxes gets this deduction? If you make your January payment during December, it can be applied to the earlier year. However, your statement from your lender showing your total interest paid for the year will not reflect this payment. You will need to deduct your correct amount on your income tax statement and attach a short letter to the lender's statement explaining why their calculation is incorrect.

Can I deduct my homeowner's association assessment? No. This payment only includes insurance on the building as well as general maintenance for common areas.

How does my inheritance or gift money used for the purchase of my house factor into my income taxes? Money from inheritance or a gift that goes directly into a real estate transaction is not subject to taxes. There is no financial gain for you as the recipient other than the purchase of your home, which is already acknowledged in your taxes when you sell the home.

How do I know if I'm eligible for a real estate tax deduction? If you pay real estate taxes on property you own, your real estate taxes are fully tax deductible, whether they are imposed by state, county, city, township, or some other local government body. As co-owners, you can deduct the amount paid in half. If you pay taxes for someone else (such as a relative) for property you do not own, you do not get that deduction.

Am I able to deduct my transfer stamp payment along with other fees paid at my closing? No. You are only allowed to deduct origination points and prepaid interest, not other lending, title or transfer stamp cost. However, you are able to deduct these amounts from your capital gain when you sell your property. (Please see your accountant for further details on these questions (i.e. how to fill out an itemized form).

1st Advantage Mortgage as an institution does not advise on any personal income tax requirements or issues. Use of any information from this site or any other web site referred to is for general information only and does not represent personal tax advice either expressed or implied. You are encouraged to seek professional tax advice for personal income tax questions and assistance.

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