Posted on Sat, Mar. 18, 2006 The Charlotte Observer - displayed by permission
ROBERT J. BRUSS
This is the last in a series of realty tax tips.
Many of them involve mortgage fees; another is moving expenses
April 15 is fast approaching. (Actually, your taxes are due Monday, April 17, because April 15 is on a Saturday.) But it's not too late to review the most frequently overlooked real estate tax savings deductions.
Here are the 10 most frequently forgotten real estate tax deductions:
• Loan fee "points" paid to obtain a home acquisition mortgage. Homeowners rarely forget to deduct their mortgage interest and property taxes. However, if you bought your principal residence in 2005, and if you paid the mortgage lender "points," that loan fee is deductible as itemized interest on Schedule A. Each point equals 1 percent of the amount borrowed.
The IRS Form 1098 your lender sent you reporting your 2005 annual interest paid might not include the loan fee. Be sure to double-check. Your best proof of the loan fee payment is often the closing statement received when the acquisition mortgage was recorded.
• If you refinanced your home loan, as millions of borrowers did in 2005, and if you paid a loan fee to obtain that refinanced mortgage, it can only be deducted over the life of the mortgage, such as 15, 20, or 30 years.
For example, if you paid your lender a $3,000 loan fee to refinance your 30-year home mortgage, you can deduct $100 each year for the next 30 years.
• In 2005, if you refinanced a prior refinanced home loan, remember to deduct any remaining undeducted loan fee in the tax year of the refinance.
For example, suppose you had $2,000 of undeducted loan fees remaining from a prior home mortgage refinance. That $2,000 became fully deductible interest as a lump sum in the year of the second refinance.
• Deduct the mortgage prepayment penalty you paid.
If you sold your home in 2005, or refinanced your mortgage, and had to pay a mortgage prepayment penalty to the old lender, that prepayment penalty qualifies as itemized tax-deductible interest. Prepayment penalties most frequently apply to home loans during the first three to five years, depending on the terms of the mortgage.
• You may qualify to deduct your unreimbursed moving costs if you changed both your residence and job location in 2005, and it doesn't matter whether you rent or own.
Moving costs can be a huge tax deduction, especially if you made a long-distance move that was not paid by your employer. The residence move must come within 12 months before or after the job site change.
Use IRS Form 3903 to calculate and claim this big tax break. To qualify, the distance from your old home to your new job location must be at least 50 miles farther than was the distance from that home to your old job site. The distance from your new home to the new job is irrelevant. Either spouse can qualify, but part-time work doesn't count.
• If you suffered an uninsured "sudden, unusual, or unexpected" loss, such as those due to a fire, flood, hurricane, tornado, earthquake, mudslide, theft, accident, water damage, riot, embezzlement, vandalism, snow, rain, or ice storm, you may qualify for the casualty loss tax deduction. But slow losses are not deductible. Non-deductible examples include termite damage, dry rot, rust, moth damage, Dutch elm disease, erosion, mold, corrosion, and dry well.
To qualify, the casualty loss deduction must exceed 10 percent of your 2005 adjusted gross income, plus a $100 "floor" per casualty event. However, these limitations are waived if your casualty loss was due to Hurricanes Katrina, Rita, or Wilma. Brand-new IRS Publication 4492 details the special tax relief (www.irs.gov/pub/irs-pdf/p4492.pdf).
• Another often-overlooked homeowner tax deduction occurs in the year of sale or purchase. As part of the sale closing settlement, the property taxes must be pro-rated between the buyer and seller based on the number of days each party owned the home during the property tax year. Your best proof of payment of your pro-rated property tax share is usually the closing settlement statement.
• Also, deduct pro-rated mortgage interest in year of home sale or purchase.
• If you are like millions of U.S. homeowners looking for every dollar of tax deductions, you may have prepaid your part of your 2006 property taxes and mortgage interest in December 2005. These payments are tax deductible in the year of actual payment.
• Deduct ground rent if your home is on leased land.
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