Publication 530 - Tax Information For First-Time Homeowners

into the escrow account. You can deduct only

seller and you pay them, they are expenses of

you can deduct if it reasonably reflects the cost

the real estate taxes that the lender actually paid

the sale and reduce the amount realized on the

of real estate taxes for your dwelling unit.

from escrow to the taxing authority. Your real

sale.

Refund of real estate taxes. If the corpora-

estate tax bill will show this amount.

tion receives a refund of real estate taxes it paid

Homeowners association assessments.

in an earlier year, it must reduce the amount of

Refund or rebate of real estate taxes. If you

You cannot deduct these assessments because

real estate taxes paid this year when it allocates

receive a refund or rebate of real estate taxes

the homeowners association, rather than a state

the tax expense to you. Your deduction for real

this year for amounts you paid this year, you

or local government, imposes them.

estate taxes the corporation paid this year is

must reduce your real estate tax deduction by

reduced by your share of the refund the corpora-

the amount refunded to you. If the refund or

tion received.

Special Rules for Cooperatives

rebate was for real estate taxes paid for a prior

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

If you own a cooperative apartment, some spe-

Sales Taxes

refund in your income. For more information,

cial rules apply to you, though you generally

see Recoveries in Publication 525, Taxable and

receive the same tax treatment as other home-

Generally, you can elect to deduct state and

Nontaxable Income.

owners. As an owner of a cooperative apart-

local general sales taxes instead of state and

ment, you own shares of stock in a corporation

local income taxes as an itemized deduction on

that owns or leases housing facilities. You can

Items You Cannot Deduct

Schedule A (Form 1040). Deductible sales taxes

deduct your share of the corporation’s deducti-

as Real Estate Taxes

may include sales taxes paid on your home

ble real estate taxes if the cooperative housing

(including mobile and prefabricated), or home

The following items are not deductible as real

corporation meets the following conditions:

building materials if the tax rate was the same as

estate taxes.

the general sales tax rate. For information on

1. The corporation has only one class of

figuring your deduction, see the Instructions for

Charges for services. An itemized charge for

stock outstanding,

Schedule A (Form 1040).

services to specific property or people is not a

2. Each stockholder, solely because of own-

tax, even if the charge is paid to the taxing

If you elect to deduct the sales taxes

ership of the stock, can live in a house,

authority. You cannot deduct the charge as a

paid on your home, or home building

apartment, or house trailer owned or

real estate tax if it is:

materials, you cannot include them as

CAUTION

leased by the corporation,

part of your cost basis in the home.

•

A unit fee for the delivery of a service

3. No stockholder can receive any distribution

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

out of capital, except on a partial or com-

Home Mortgage Interest

gallons of water you use),

plete liquidation of the corporation, and

•

A periodic charge for a residential service

This section of the publication gives you basic

4. At least one of the following:

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

information about home mortgage interest, in-

fee charged for trash collection), or

a. At least 80% of the corporation’s gross

cluding information on interest paid at settle-

•

income for the tax year was paid by the

ment, points, and Form 1098, Mortgage Interest

A flat fee charged for a single service pro-

tenant-stockholders. For this purpose,

Statement.

vided by your local government (such as a

gross income means all income re-

Most home buyers take out a mortgage

$30 charge for mowing your lawn because

ceived during the entire tax year, includ-

(loan) to buy their home. They then make

it had grown higher than permitted under a

ing any received before the corporation

monthly payments to either the mortgage holder

local ordinance).

changed to cooperative ownership,

or someone collecting the payments for the

mortgage holder.

b. At least 80% of the total square footage

You must look at your real estate tax

Usually, you can deduct the entire part of

of the corporation’s property must be

bill to decide if any nondeductible item-

your payment that is for mortgage interest, if you

available for use by the ten-

ized charges, such as those listed

CAUTION

itemize your deductions on Schedule A (Form

ant-stockholder during the entire tax

above, are included in the bill. If your taxing

1040). However, your deduction may be limited

year, or

authority (or lender) does not furnish you a copy

if:

of your real estate tax bill, ask for it.

c. At least 90% of the expenditures paid or

•

Your total mortgage balance is more than

incurred by the corporation were used

Assessments for local benefits. You cannot

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

for the acquisition, construction, man-

deduct amounts you pay for local benefits that

rately), or

agement, maintenance, or care of the

tend to increase the value of your property. Lo-

•

property for the benefit of the ten-

You took out a mortgage for reasons other

cal benefits include the construction of streets,

ant-shareholder during the entire tax

than to buy, build, or improve your home.

sidewalks, or water and sewer systems. You

year.

must add these amounts to the basis of your

If either of these situations applies to you, you

property.

will need to get Publication 936. You also may

You can, however, deduct assessments (or

need Publication 936 if you later refinance your

Tenant-stockholders. A tenant-stockholder

taxes) for local benefits if they are for mainte-

mortgage or buy a second home.

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

nance, repair, or interest charges related to

estate, partnership, or association) as well as an

those benefits. An example is a charge to repair

Refund of home mortgage interest. If you

individual. The tenant-stockholder does not

receive a refund of home mortgage interest that

an existing sidewalk and any interest included in

have to live in any of the cooperative’s dwelling

you deducted in an earlier year and that reduced

that charge.

units. The units that the tenant-stockholder has

If only a part of the assessment is for mainte-

your tax, you generally must include the refund

the right to occupy can be rented to others.

in income in the year you receive it. For more

nance, repair, or interest charges, you must be

Deductible taxes. You figure your share of

information, see Recoveries in Publication 525.

able to show the amount of that part to claim the

deduction. If you cannot show what part of the

real estate taxes in the following way.

The amount of the refund will usually be shown

assessment is for maintenance, repair, or inter-

on the mortgage interest statement you receive

1. Divide the number of your shares of stock

from your mortgage lender. See Mortgage Inter-

est charges, you cannot deduct any of it.

by the total number of shares outstanding,

An assessment for a local benefit may be

est Statement, later.

including any shares held by the corpora-

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

tion.

use the rules in this section to find how much of

Deductible Mortgage Interest

it, if any, you can deduct.

2. Multiply the corporation’s deductible real

estate taxes by the number you figured in

Transfer taxes (or stamp taxes). You cannot

To be deductible, the interest you pay must be

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

deduct transfer taxes and similar taxes and

on a loan secured by your main home or a

taxes.

charges on the sale of a personal home. If you

second home. The loan can be a first or second

are the buyer and you pay them, include them in

Generally, the corporation will tell you your

mortgage, a home improvement loan, or a home

the cost basis of the property. If you are the

share of its real estate tax. This is the amount

equity loan.

Publication 530 (2007)

Page 3

Publication 530 - Tax Information For First-Time Homeowners - 2007 Page 3

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