Publication 530 - Tax Information For First-Time Homeowners

in the care of a third party) for real estate taxes.

Transfer taxes (or stamp taxes). You cannot

estate taxes the corporation paid this year is

You may not be able to deduct the total you pay

deduct transfer taxes and similar taxes and

reduced by your share of the refund the corpora-

into the escrow account. You can deduct only

charges on the sale of a personal home. If you

tion received.

the real estate taxes that the lender actually paid

are the buyer and you pay them, include them in

from escrow to the taxing authority. Your real

the cost basis of the property. If you are the

Home Mortgage Interest

estate tax bill will show this amount.

seller and you pay them, they are expenses of

the sale and reduce the amount realized on the

This section of the publication gives you basic

sale.

Refund or rebate of real estate taxes. If you

information about home mortgage interest, in-

receive a refund or rebate of real estate taxes

cluding information on interest paid at settle-

Homeowners association assessments.

this year for amounts you paid this year, you

ment, points, and Form 1098, Mortgage Interest

You cannot deduct these assessments because

must reduce your real estate tax deduction by

Statement.

the homeowners association, rather than a state

the amount refunded to you. If the refund or

Most home buyers take out a mortgage

or local government, imposes them.

rebate was for real estate taxes paid for a prior

(loan) to buy their home. They then make

year, you may have to include some or all of the

monthly house payments to either the mortgage

refund in your income. For more information,

holder or someone collecting the payments for

Special Rules for Cooperatives

see Recoveries in Publication 525, Taxable and

the mortgage holder. (See Your house payment,

earlier, under What You Can and Cannot

Nontaxable Income.

If you own a cooperative apartment, some

Deduct.)

special rules apply to you, though you generally

Usually, you can deduct the entire part of

receive the same tax treatment as other home-

Items You Cannot Deduct

your house payment that is for mortgage inter-

owners. As an owner of a cooperative apart-

as Real Estate Taxes

est, if you itemize your deductions on Schedule

ment, you own shares of stock in a corporation

A (Form 1040). However, your deduction may

that owns or leases housing facilities. You can

The following items are not deductible as real

be limited if:

deduct your share of the corporation’s deducti-

estate taxes.

•

ble real estate taxes if the cooperative housing

Your total mortgage balance is more than

corporation meets all of the following condi-

$1 million ($500,000 if married filing sepa-

Charges for services. An itemized charge for

tions.

rately), or

services to specific property or people is not a

•

tax, even if the charge is paid to the taxing

The corporation has only one class of

You took out a mortgage for reasons other

authority. You cannot deduct the charge as a

stock outstanding.

than to buy, build, or improve your home.

real estate tax if it is:

•

Each stockholder, solely because of own-

If either of these situations applies to you, you

•

ership of the stock, can live in a house,

will need to get Publication 936. You also may

A unit fee for the delivery of a service

apartment, or house trailer owned or

need Publication 936 if you later refinance your

(such as a $5 fee charged for every 1,000

leased by the corporation.

mortgage or buy a second home.

gallons of water you use),

•

No stockholder can receive any distribu-

A periodic charge for a residential service

Refund of home mortgage interest. If you

tion out of capital, except on a partial or

(such as a $20 per month or $240 annual

receive a refund of home mortgage interest that

complete liquidation of the corporation.

fee charged for trash collection), or

you deducted in an earlier year and that reduced

•

The tenant-stockholders pay at least 80%

your tax, you generally must include the refund

A flat fee charged for a single service pro-

of the corporation’s gross income for the

in income in the year you receive it. For more

vided by your local government (such as a

tax year. For this purpose, gross income

information, see Recoveries in Publication 525.

$30 charge for mowing your lawn because

means all income received during the en-

The amount of the refund will usually be shown

it had grown higher than permitted under a

tire tax year, including any received before

on the mortgage interest statement you receive

local ordinance).

the corporation changed to cooperative

from your mortgage lender. See Mortgage Inter-

ownership.

est Statement, later.

You must look at your real estate tax

bill to decide if any nondeductible item-

Tenant-stockholders. A tenant-stockholder

ized charges, such as those listed

CAUTION

Deductible Mortgage Interest

can be any entity (such as a corporation, trust,

above, are included in the bill. If your taxing

estate, partnership, or association) as well as an

authority (or lender) does not furnish you a copy

To be deductible, the interest you pay must be

individual. The tenant-stockholder does not

of your real estate tax bill, ask for it.

on a loan secured by your main home or a

have to live in any of the cooperative’s dwelling

second home. The loan can be a first or second

units. The units that the tenant-stockholder has

mortgage, a home improvement loan, or a home

Assessments for local benefits. You cannot

the right to occupy can be rented to others.

equity loan.

deduct amounts you pay for local benefits that

tend to increase the value of your property. Lo-

Prepaid interest. If you pay interest in ad-

Deductible taxes. You figure your share of

cal benefits include the construction of streets,

vance for a period that goes beyond the end of

real estate taxes in the following way.

sidewalks, or water and sewer systems. You

the tax year, you must spread this interest over

1) Divide the number of your shares of stock

must add these amounts to the basis of your

the tax years to which it applies. You can deduct

by the total number of shares outstanding,

property.

in each year only the interest that qualifies as

including any shares held by the corpora-

home mortgage interest for that year. However,

You can, however, deduct assessments (or

tion.

there is an exception that applies to points, dis-

taxes) for local benefits if they are for mainte-

cussed later.

nance, repair, or interest charges related to

2) Multiply the corporation’s deductible real

those benefits. An example is a charge to repair

estate taxes by the number you figured in

Late payment charge on mortgage payment.

an existing sidewalk and any interest included in

(1). This is your share of the real estate

You can deduct as home mortgage interest a

that charge.

taxes.

late payment charge if it was not for a specific

If only a part of the assessment is for mainte-

service in connection with your mortgage loan.

Generally, the corporation will tell you your

nance, repair, or interest charges, you must be

share of its real estate tax. This is the amount

Mortgage prepayment penalty. If you pay off

able to show the amount of that part to claim the

you can deduct if it reasonably reflects the cost

your home mortgage early, you may have to pay

deduction. If you cannot show what part of the

of real estate taxes for your dwelling unit.

a penalty. You can deduct that penalty as home

assessment is for maintenance, repair, or inter-

mortgage interest provided the penalty is not for

est charges, you cannot deduct any of it.

Refund of real estate taxes. If the corpora-

a specific service performed or cost incurred in

An assessment for a local benefit may be

tion receives a refund of real estate taxes it paid

connection with your mortgage loan.

listed as an item in your real estate tax bill. If so,

in an earlier year, it must reduce the amount of

use the rules in this section to find how much of

real estate taxes paid this year when it allocates

Ground rent. In some states (such as Mary-

it, if any, you can deduct.

the tax expense to you. Your deduction for real

land), you may buy your home subject to a

Page 3

Publication 530 - Tax Information For First-Time Homeowners - 2002 Page 3

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