those based only on the value of personal
property such as a boat or car. In addition, the tax must be charged to you
on a yearly basis, even if it is collected more than once a year or less
than once a year.
Home Mortgage Points
The term "points" is used to describe certain charges
paid to obtain a home mortgage. Points are prepaid interest and may be
deductible as home mortgage interest, if you itemize deductions on Form
1040, Schedule A. If you can deduct all of the interest on your mortgage,
you may be able to deduct all of the points paid on the mortgage. If your
acquisition debt exceeds $1 million or your home equity debt exceeds
$100,000, you cannot deduct all the interest on your mortgage and you cannot
deduct all your points.
You can deduct the points in full in the year they
are paid, if your loan is
secured by your main home (your main home is the one you live in most of the
time), paying points is an established business practice
in your area, the points paid were not more than the
amount generally charged in that area. Additionally, you can deduct
points you paid in full if you use the cash method of accounting.
This means you report income in the year you receive it and deduct expenses
in the year you pay them. Furthermore,
the points were not paid for items that usually are separately
stated on the settlement sheet such as appraisal fees, inspection fees,
title fees, attorney fees, or property taxes.The funds you provided at or before
closing, plus any points the seller paid, were at least as much as the
points charged. You cannot have borrowed the funds from your lender or
mortgage broker in order to pay the points. It is further required
that you use your loan to buy or
build your main home, that the points were computed as a
percentage of the principal amount of the mortgage, and the
amount is clearly shown as points on your settlement statement.
You can also fully deduct (in the year paid) points
paid on a loan to improve your main home if the
requirement are met. Points that do not
meet these requirements may be deductible over the life of the loan. Points
paid for refinancing generally can only be deducted over the life of the new
mortgage. However, if you use part of the refinanced mortgage proceeds to
improve your main home, and you meet the requirements, you can fully deduct
the part of the points related to the improvement in the year you paid them
with your own funds. You can deduct the rest of the points over the life of
the loan. Points charged for specific services, such as preparation costs
for a mortgage note, appraisal fees, or notary fees are not interest and
cannot be deducted. Points paid by the seller of a home cannot be deducted
as interest on the seller's return, but they are a selling expense, which
will reduce the amount of gain realized. Points paid by the seller may be
deducted by the buyer, provided the buyer subtracts the amount from the
basis or cost of the residence. Points you pay on loans secured by your
second home can be deducted only over the life of the loan.You may be subject to a limit on some of
your itemized deductions, including points.
Points are considered prepaid interest and may be deductible as
home mortgage interest, if you itemize deductions on Schedule A
(of Form 1040). As a result, you may be able to deduct all of the points paid
on the mortgage if you can deduct all of the interest on your
mortgage. You can deduct the points in full
