us internal revenue service: p530--2000

8/14/2019 US Internal Revenue Service: p530--2000

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ContentsImportant Changes for 2000 ............. 1

Important Reminder ........................... 1

Introduction ........................................ 1

What You Can and Cannot Deduct .. 2Real Estate Taxes .......................... 2

Home Mortgage Interest ................. 3

Mortgage Interest Credit ................... 6Figuring the Credit .......................... 6

Basis .................................................... 7Figuring Your Basis ........................ 7Adjusted Basis ................................ 9

Keeping Records ................................ 9

How To Get Tax Help ......................... 9

Index .................................................... 11

Important Changes

for 2000District of Columbia first-time homebuyercredit. The credit for first-time homebuyersin the District of Columbia has been extendedto include home purchases before January1, 2002. For 2000 and 2001, the credit canoffset both your regular tax (after reductionby any foreign tax credit) and your alternativeminimum tax, if any. For more informationabout this credit for firsttime homebuyers,see page 2.

Limit on mortgage interest credit. For2000 and 2001, your mortgage interest creditfor the year can offset both your regular tax(after reduction by any foreign tax credit) and

your alternative minimum tax for that year, ifany. See Figuring the Creditunder MortgageInterest Credit, later.

Photographs of missing children. TheInternal Revenue Service is a proud partnerwith the National Center for Missing and Ex-ploited Children. Photographs of missingchildren selected by the Center may appearin this publication on pages that would other-wise be blank. You can help bring thesechildren home by looking at the photographsand calling 1800THELOST (18008435678) if you recognize a child.

Important ReminderLimit on itemized deductions. Certainitemized deductions (including real estatetaxes and home mortgage interest) are limitedif your adjusted gross income is more than$128,950 ($64,475 if you are married filingseparately). For more information, see theinstructions for Schedule A (Form 1040).

IntroductionThis publication provides tax information forfirst-time homeowners. Your first home maybe a mobile home, a single-family house, a

Departmentof theTreasury

InternalRevenueService

Publication 530Cat. No. 15058k

Tax

Information for

First-Time

Homeowners

For use in preparing

2000 Returns


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townhouse, a condominium, or a cooperativeapartment.

The following topics are explained.

How you treat items such as settlementand closing costs, real estate taxes,home mortgage interest, and repairs.

What you can and cannot deduct on yourtax return.

The tax credit you can claim if you re-ceived a mortgage credit certificate when

you bought your home. Why you should keep track of adjust-

ments to the basis of your home. (Yourhome's basis generally is what it costs;adjustments include the cost of any im-provements you might make.)

What records you should keep as proofof the basis and adjusted basis.

District of Columbia first-time homebuyercredit. You may be able to claim a one-timetax credit of up to $5,000 if you buy a mainhome in the District of Columbia. You mustreduce the basis of your home by the amountof the credit you claimed. Only purchases af-ter August 4, 1997, and before January 1,

2002, qualify for this credit.You qualify for the credit if you (and yourspouse if you are married) did not have anownership interest in a main home in theDistrict of Columbia for at least 1 year beforebuying the new home. Individuals with modi-fied adjusted gross income of $90,000 ormore ($130,000 or more in the case of a jointreturn) cannot claim the credit. Individualswith modified adjusted gross income between$70,000 and $90,000 (between $110,000 and$130,000 in the case of a joint return) canclaim only a reduced credit.

Use Form 8859, District of ColumbiaFirst-Time Homebuyer Credit, to figure yourcredit. See the form and its instructions formore information.

Comments and suggestions. We welcomeyour comments about this publication andyour suggestions for future editions.

You can e-mail us while visiting our website at www.irs.gov/help/email2.html.

You can write to us at the following ad-dress:

Internal Revenue ServiceTechnical Publications BranchW:CAR:MP:FP:P1111 Constitution Ave. NWWashington, DC 20224

We respond to many letters by telephone.Therefore, it would be helpful if you wouldinclude your daytime phone number, includ-ing the area code, in your correspondence.

Useful ItemsYou may want to see:

Publication

523 Selling Your Home

527 Residential Rental Property

547 Casualties, Disasters, and Thefts

551 Basis of Assets

555 Community Property

587 Business Use of Your Home

936 Home Mortgage Interest De-duction

Form (and Instructions)

8396 Mortgage Interest Credit

See How To Get Tax Help, near the endof this publication, for information about get-ting these publications and this form.

What You Can andCannot DeductTo deduct expenses of owning a home, youmust file Form 1040 and itemize your de-ductions on Schedule A (Form 1040). If youitemize, you cannot take the standard de-duction. See the Form 1040 instructions if youhave questions about whether to itemize yourdeductions or claim the standard deduction.

This section explains what expenses youcan deduct as a homeowner. It also pointsout expenses that you cannot deduct. Thereare two primary discussions: real estate taxes

and home mortgage interest. Generally, yourreal estate taxes and home mortgage interestare included in your house payment.

Your house payment. If you took out amortgage (loan) to finance the purchase ofyour home, you probably have to makemonthly house payments. Your house pay-ment may include several costs of owning ahome. The only costs you can deduct are realestate taxes actually paid to the taxing au-thority and interest that qualifies as homemortgage interest. These are discussed inmore detail later.

Here are some items, which may be in-cluded in your house payment, that cannotbe deducted.

Fire or homeowner's insurance premi-ums.

FHA mortgage insurance premiums.

The amount applied to reduce the princi-pal of the mortgage.

Minister's or military housing allowance.If you are a minister or a member of the uni-formed services and receive a housing al-lowance that is not taxable, you can still de-duct your real estate taxes and your homemortgage interest. You do not have to reduceyour deductions by your nontaxable allow-ance.

Nondeductible payments. You cannot de-duct any of the following items.

Insurance, including fire and comprehen-sive coverage, and title and mortgageinsurance.

Wages you pay for domestic help.

Depreciation.

The cost of utilities, such as gas, elec-tricity, or water.

Most settlement costs. See Settlementor closing costs, under Cost as Basis,later, for more information.

Real Estate TaxesMost state and local governments charge anannual tax on the value of real property. Thisis called a real estate tax. You can deductthe tax if it is based on the assessed valueof the real property and the taxing authoritycharges a uniform rate on all property in its

jurisdiction. The tax must be for the welfareof the general public and not be a paymentfor a special privilege granted or service ren-dered to you.

Deductible TaxesYou can deduct real estate taxes imposed onyou. You must have paid them either atsettlement or closing, or to a taxing authority(either directly or through an escrow account)during the year. If you own a cooperativeapartment, see Special Rules for Cooper-atives, later.

Where to deduct real estate taxes. Enterthe amount of your deductible real estatetaxes on line 6 of Schedule A (Form 1040).

Real estate taxes paid at settlement orclosing. Real estate taxes are generally di-vided so that you and the seller each pay

taxes for the part of the property tax year youowned the home. Your share of these taxesis fully deductible, if you itemize your de-ductions.

Division of real estate taxes. For federalincome tax purposes, the seller is treated aspaying the property taxes up to, but not in-cluding, the date of sale. You (the buyer) aretreated as paying the taxes beginning with thedate of sale. This applies regardless of thelien dates under local law. Generally, this in-formation is included on the settlement state-ment you get at closing.

You and the seller each are considered tohave paid your own share of the taxes, evenif one or the other paid the entire amount. Youcan each deduct your own share, if youitemize deductions, for the year the propertyis sold.

Example. You bought your home onSeptember 1. The property tax year (the pe-riod to which the tax relates) in your area isthe calendar year. The tax for the year was$730 and was due and paid by the seller onAugust 15.

You owned your new home during the realproperty tax year for 122 days (September 1to December 31, including your date of pur-chase). You figure your deduction for realestate taxes on your home as follows.

You can deduct $243 on your return forthe year if you itemize your deductions. Youare considered to have paid this amount andcan deduct it on your return even if, under thecontract, you did not have to reimburse theseller.

Delinquent taxes. Delinquent taxes areunpaid taxes that were imposed on the sellerfor an earlier tax year. If you agree to paydelinquent taxes when you buy your home,you cannot deduct them. You treat them as

1. Enter the total real estate taxes for thereal property tax year .......................... $730

2. Enter the number of days in the realproperty tax year that you owned the

property ............................................... 1223. Divide line 2 by 366 ............................ .33334. Multiply line 1 by line 3. This is your

deduction. Enter it on line 6 of Sched-ule A (Form 1040) ............................... $243

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part of the cost of your home. See Real estatetaxes, later, under Cost as Basis.

Escrow accounts. Many monthly housepayments include an amount placed inescrow (put in the care of a third party) for realestate taxes. You may not be able to deductthe total you pay into the escrow account. Youcan deduct only the real estate taxes that thelender actually paid from escrow to the taxingauthority. Your real estate tax bill will showthis amount.

Refund or rebate of real estate taxes. Ifyou receive a refund or rebate of real estatetaxes this year for amounts you paid this year,you must reduce your real estate tax de-duction by the amount refunded to you. If therefund or rebate was for real estate taxes paidfor a prior year, you may have to includesome or all of the refund in your income. Formore information, see Recoveriesin Publica-tion 525, Taxable and Nontaxable Income.

Real Estate Items YouCannot DeductThe following items are not deductible as realestate taxes.

Charges for services. An itemized chargefor services to specific property or people isnot a tax, even if the charge is paid to thetaxing authority. You cannot deduct thecharge as a real estate tax if it is:

1) A unit fee for the delivery of a service(such as a $5 fee charged for every1,000 gallons of water you use),

2) A periodic charge for a residential ser-vice (such as a $20 per month or $240annual fee charged for trash collection),or

3) A flat fee charged for a single serviceprovided by your local government (suchas a $30 charge for mowing your lawn

because it had grown higher than per-mitted under a local ordinance).

CAUTION

!You must look at your real estate taxbill to decide if any nondeductibleitemized charges, such as those just

listed, are included in the bill. If your taxingauthority (or lender) does not furnish you acopy of your real estate tax bill, ask for it.

Assessments for local benefits. You can-not deduct amounts you pay for local benefitsthat tend to increase the value of your prop-erty. Local benefits include the constructionof streets, sidewalks, or water and sewersystems. You must add these amounts to thebasis of your property.

You can, however, deduct assessments(or taxes) for local benefits if they are formaintenance, repair, or interest charges re-lated to those benefits. An example is acharge to repair an existing sidewalk and anyinterest included in that charge.

If only a part of the assessment is formaintenance, repair, or interest charges, youmust be able to show the amount of that partto claim the deduction. If you cannot showwhat part of the assessment is for mainte-nance, repair, or interest charges, you cannotdeduct any of it.

An assessment for a local benefit may belisted as an item in your real estate tax bill. Ifso, use the rules in this section to find howmuch of it, if any, you can deduct.

Transfer taxes (or stamp taxes). You can-not deduct transfer taxes and similar taxesand charges on the sale of a personal home.If you are the buyer and you pay them, in-clude them in the cost basis of the property.If you are the seller and you pay them, theyare expenses of the sale and reduce theamount realized on the sale.

Homeowners association assessments.You cannot deduct these assessments be-cause the homeowners association, rather

than a state or local government, imposesthem.

Special Rules for CooperativesIf you own a cooperative apartment, somespecial rules apply to you, though you gen-erally receive the same tax treatment as otherhomeowners. As an owner of a cooperativeapartment, you own shares of stock in a cor-poration that owns or leases housing facilities.You can deduct your share of the corpo-ration's deductible real estate taxes if thecooperative housing corporationmeets allof the following conditions.

1) The corporation has only one class ofstock outstanding.

2) Each stockholder, solely because ofownership of the stock, can live in ahouse, apartment, or house trailerowned or leased by the corporation.

3) No stockholder can receive any distribu-tion out of capital, except on a partial orcomplete liquidation of the corporation.

4) The tenant-stockholders pay at least80% of the corporation's gross incomefor the tax year. For this purpose, grossincome means all income received dur-ing the entire tax year, including any re-ceived before the corporation changedto cooperative ownership.

Tenant-stockholders. A tenant-stockholdercan be any entity (such as a corporation,trust, estate, partnership, or association) aswell as an individual. The tenant-stockholderdoes not have to live in any of the cooper-ative's dwelling units. The units that thetenant-stockholder has the right to occupycan be rented to others.

Deductible taxes. You figure your share ofreal estate taxes in the following way.

1) Divide the number of your shares ofstock by the total number of shares out-standing, including any shares held bythe corporation.

2) Multiply the corporation's deductible realestate taxes by the number you figuredin (1). This is your share of the real es-tate taxes.

Generally, the corporation will tell you yourshare of its real estate tax. This is the amountyou can deduct, if it reasonably reflects thecost of real estate taxes for your dwelling unit.

Refund of real estate taxes. If the cor-poration receives a refund of real estate taxesit paid in an earlier year, it must reduce theamount of real estate taxes paid this yearwhen it allocates the tax expense to you. Yourdeduction for real estate taxes the corporationpaid this year is reduced by your share of therefund the corporation received.

Home Mortgage InterestThis section of the publication gives you basicinformation about home mortgage interest,including information on interest paid atsettlement, points, and Form 1098, MortgageInterest Statement.

Most home buyers take out a mortgage(loan) to buy their home. They then makemonthly house payments to either the mort-gage holder or someone collecting the pay-ments for the mortgage holder. (See Yourhouse payment, earlier, under What You Can

and Cannot Deduct.)Usually, you can deduct the entire part of

your house payment that is for mortgage in-terest, if you itemize your deductions onSchedule A (Form 1040). However, your de-duction may be limited if:

1) Your total mortgage balance is morethan $1 million ($500,000 if married filingseparately), or

2) You took out a mortgage for reasonsother than to buy, build, or improve yourhome.

If either of these situations applies to you, youwill need to get Publication 936. You may alsoneed Publication 936 if you later refinance

your mortgage or buy a second home.

Refund of home mortgage interest. If youreceive a refund of home mortgage interestthat you deducted in an earlier year and thatreduced your tax, you generally must includethe refund in income in the year you receiveit. For more information, see Recoveries inPublication 525. The amount of the refundwill usually be shown on the mortgage inter-est statement you receive from your mortgagelender. See Mortgage Interest Statement,later.

Deductible Mortgage InterestTo be deductible, the interest you pay must

be on a loan secured by your main home ora second home. The loan can be a first orsecond mortgage, a home improvement loan,or a home equity loan.

Prepaid interest. If you pay interest in ad-vance for a period that goes beyond the endof the tax year, you must spread this interestover the tax years to which it applies. You candeduct in each year only the interest thatqualifies as home mortgage interest for thatyear. However, there is an exception thatapplies to points, discussed later.

Late payment charge on mortgage pay-ment. You can deduct as home mortgageinterest a late payment charge if it was not for

a specific service in connection with yourmortgage loan.

Mortgage prepayment penalty. If you payoff your home mortgage early, you may haveto pay a penalty. You can deduct that penaltyas home mortgage interest provided thepenalty is not for a specific service performedor cost incurred in connection with yourmortgage loan.

Ground rent. In some states (such asMaryland), you may buy your home subjectto a ground rent. A ground rent is an obli-gation you assume to pay a fixed amount peryear on the property. Under this arrange-

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ment, you are leasing (rather than buying) theland on which your home is located.

Redeemable ground rents. If you makeannual or periodic rental payments on aredeemable ground rent, you can deduct thepayments as mortgage interest. The groundrent is a redeemable ground rent only if allof the following are true.

1) Your lease, including renewal periods, isfor more than 15 years.

2) You can freely assign the lease.

3) You have a present or future right (understate or local law) to end the lease andbuy the lessor's entire interest in the landby paying a specified amount.

4) The lessor's interest in the land is pri-marily a security interest to protect therental payments to which he or she isentitled.

Payments made to end the lease and tobuy the lessor's entire interest are notredeemable ground rents. You cannot deductthem.

Nonredeemable ground rents. Pay-

ments on a nonredeemable ground rent arenot mortgage interest. You can deduct themas rent if they are a business expense or ifthey are for rental property.

Cooperative apartment. You can usuallytreat the interest on a loan you took out to buystock in a cooperative housing corporation ashome mortgage interest if you own a cooper-ative apartment and the cooperative housingcorporation meets the conditions describedearlier under Special Rules for Cooperatives.In addition, you can treat as home mortgageinterest your share of the corporation'sdeductible mortgage interest. Figure yourshare of mortgage interest the same way that

is shown for figuring your share of real estatetaxes. For more information on cooperatives,see Special Rule for Tenant-Stockholders inCooperative Housing Corporations in Publi-cation 936.

Refund of cooperative's mortgage in-terest. You must reduce your mortgage in-terest deduction by your share of any cashportion of a patronage dividend that the co-operative receives. The patronage dividendis a partial refund to the cooperative housingcorporation of mortgage interest it paid in aprior year.

If you receive a Form 1098 from the co-operative housing corporation, the formshould show only the amount you can deduct.

Mortgage InterestPaid at Settlement

One item that normally appears on a settle-ment or closing statement is home mortgageinterest.

You can deduct the interest that you payat settlement if you itemize your deductionson Schedule A (Form 1040). This amountshould be included in the mortgage intereststatement provided by your lender. See thediscussion under Mortgage Interest State-ment, later. Also, if you pay interest in ad-vance, see Prepaid interest, earlier, andPoints, next.

PointsThe term points is used to describe certaincharges paid, or treated as paid, by a bor-rower to obtain a home mortgage. Pointsmay also be called loan origination fees,maximum loan charges, loan discount, ordiscount points.

A borrower is treated as paying any pointsthat a home seller pays for the borrower'smortgage. See Points paid by the seller, later.

General rule. You cannot deduct the full

amount of points in the year paid. Becausethey are prepaid interest, you generally mustdeduct them over the life (term) of the mort-gage.

Exception. You can fully deduct pointsin the year paid if you meet all the followingtests.

1) Your loan is secured by your main home.(Your main home is the one you live inmost of the time.)

2) Paying points is an established businesspractice in the area where the loan wasmade.

3) The points paid were not more than thepoints generally charged in that area.

4) You use the cash method of accounting.This means you report income in theyear you receive it and deduct expensesin the year you pay them. Most individ-uals use this method.

5) The points were not paid in place ofamounts that ordinarily are stated sepa-rately on the settlement statement, suchas appraisal fees, inspection fees, titlefees, attorney fees, and property taxes.

6) The funds you provided at or beforeclosing, plus any points the seller paid,were at least as much as the pointscharged. The funds you provided do nothave to have been applied to the points.They can include a down payment, an

escrow deposit, earnest money, andother funds you paid at or before closingfor any purpose. You cannot have bor-rowed these funds from your lender ormortgage broker.

7) You use your loan to buy or build yourmain home.

8) The points were computed as a per-centage of the principal amount of themortgage.

9) The amount is clearly shown on thesettlement statement (such as the Uni-form Settlement Statement, FormHUD-1) as points charged for the mort-gage. The points may be shown as paidfrom either your funds or the seller's.

Note. If you meet all of the tests listedabove and you itemize your deductions in theyear you get the loan, you can either deductthe full amount of points in the year paid ordeduct them over the life of the loan, begin-ning in the year you get the loan. If you donot itemize your deductions in the year youget the loan, you can spread the points overthe life of the loan and deduct the appropriateamount in each future year, if any, when youdo itemize your deductions.

Home improvement loan. You can alsofully deduct in the year paid points paid on aloan to improve your main home, if tests (1)through (6) are met.

Points not fully deductible in year paid.If you do not qualify under the exception todeduct the full amount of points in the yearpaid, see Points in chapter 5 of Publication535, Business Expenses, for the rules onwhen and how much you can deduct.

Figure A. You can use Figure A as aquick guide to see whether your points arefully deductible in the year paid.

Amounts charged for services. Amountscharged by the lender for specific servicesconnected to the loan are not interest. Ex-amples of these charges are:

1) Appraisal fees,

2) Notary fees,

3) Preparation costs for the mortgage noteor deed of trust,

4) Mortgage insurance premiums, and

5) VA funding fees.

You cannot deduct these amounts as pointseither in the year paid or over the life of themortgage. For information about the taxtreatment of these amounts and other settle-ment fees and closing costs, see Basis, later.

Points paid by the seller. The termpoints includes loan placement fees that theseller pays to the lender to arrange financingfor the buyer.

Treatment by seller. The seller cannotdeduct these fees as interest. But they are aselling expense that reduces the seller'samount realized. See Publication 523 formore information.

Treatment by buyer. The buyer treatsseller-paid points as if he or she had paidthem. If all the tests under the Exceptionaremet, the buyer can deduct the points in theyear paid. If any of those tests is not met, thebuyer deducts the points over the life of theloan.

The buyer also reduces the basis of thehome by the amount of the seller-paid points.For more information about the basis of yourhome, see Basis, later.

Funds provided are less than points. If youmeet all the tests in the Exceptionexcept thatthe funds you provided were less than thepoints charged to you (test 6), you can deductthe points in the year paid up to the amountof funds you provided. In addition, you candeduct any points paid by the seller.

Example 1. When you took out a$100,000 mortgage loan to buy your home inDecember, you were charged one point($1,000). You meet all the tests for deductingpoints in the Exception, except the only fundsyou provided were a $750 down payment.

Of the $1,000 you were charged for points,you can deduct $750 in the year paid. Youspread the remaining $250 over the life of themortgage.

Example 2. The facts are the same as inExample 1, except that the person who soldyou your home also paid one point ($1,000)to help you get your mortgage. In the yearpaid, you can deduct $1,750 ($750 of theamount you were charged plus the $1,000paid by the seller). You must reduce the basisof your home by the $1,000 paid by the seller.

Excess points. If you meet all the tests inthe Exception except that the points paidwere more than are generally paid in your

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Figure A. Are My Points Fully Deductible This Year?

Start Here:

Yes

NoIs the loan secured by your main home?

Is the payment of points an established business practice inyour area?

Were the points paid more than the amount generally chargedin your area?

Do you use the cash method of accounting?

Did you take out the loan to improve your main home?

Did you take out the loan to buy or build your main home?

Were the points computed as a percentage of the principalamount of the mortgage?

Is the amount paid clearly shown as points on the settlementstatement?

You can fully deduct the points this year.

You cannot fully deduct the points this

year. See the discussion on Points.

* The funds you provided do not have to have been applied to the points. They can include a down payment, an escrow deposit, earnest money, and other fundsyou paid at or before closing for any purpose.

Yes

No

Yes

No

Yes

Yes

Yes

No

Yes

No

No

No

No

Yes

Were the funds you provided (other than those you borrowedfrom your lender or mortgage broker), plus any points theseller paid, at least as much as the points charged?*

Yes

No

Were the points paid in place of amounts that ordinarily areseparately stated on the settlement sheet?

No

Yes

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area (test 3), you can deduct in the year paidonly the points that are generally charged.You must spread any additional points overthe life of the mortgage.

Mortgage ending early. If you spread yourdeduction for points over the life of the mort-gage, you can deduct any remaining balancein the year the mortgage ends. A mortgagemay end early due to a prepayment, refi-nancing, foreclosure, or similar event.

Example. Dan paid $3,000 in points in

1993 that he had to spread out over the15-year life of the mortgage. He had deducted$1,400 of these points through 1999.

Dan prepaid his mortgage in full in 2000.He can deduct the remaining $1,600 of pointsin 2000.

Exception. If you refinance the mortgagewith the same lender, you cannot deduct anyremaining points for the year. Instead, deductthem over the term of the new loan.

Form 1098. The mortgage interest statementyou receive should show not only the totalinterest paid during the year, but also yourdeductible points paid during the year. SeeMortgage Interest Statement, later.

Where To DeductHome Mortgage InterestEnter on line 10 of your Schedule A (Form1040) the home mortgage interest and pointsreported to you on Form 1098 (discussednext). If you did not receive a Form 1098,enter your deductible interest on line 11, andany deductible points on line 12. See Table1 for a summary of where to deduct homemortgage interest and real estate taxes.

If you paid home mortgage interest to theperson from whom you bought your home,show that person's name, address, and socialsecurity number (SSN) or employer identifi-cation number (EIN) on the dotted lines nextto line 11. The seller must give you this

number and you must give the seller yourSSN; Form W-9, Request for Taxpayer Iden-tification Number and Certification, can beused for this purpose. Failure to meet eitherof these requirements may result in a $50penalty for each failure.

Mortgage Interest StatementIf you paid $600 or more of mortgage interest(including certain points) during the year onany one mortgage to a mortgage holder in thecourse of that holder's trade or business, youshould receive a Form 1098, Mortgage In-terest Statement, or similar statement fromthe mortgage holder. The statement will showthe total interest paid on your mortgage dur-ing the year. If you bought a main homeduring the year, it will also show the deduct-ible points you paid and any points you candeduct that were paid by the person who soldyou your home. See Points, earlier.

The interest you paid at settlement shouldbe included on the statement. If it is not, addthe interest from the settlement sheet thatqualifies as home mortgage interest to thetotal shown on Form 1098 or similar state-ment. Put the total on line 10 of Schedule A(Form 1040) and attach a statement to yourreturn explaining the difference. Write Seeattached next to line 10.

A mortgage holder can be a financial in-stitution, a governmental unit, or a cooper-ative housing corporation. If a statement

Table 1. Where To Deduct Interest and Taxes Paid on Your Home

Real estate taxes

Home mortgage interest and pointsreported on Form 1098

Home mortgage interest notreported on

Form 1098

Points notreported on Form 1098

line 6

line 10

line 11

line 12

IF you are eligible to deduct . . . THEN report the amounton Schedule A (Form 1040) . . .

See the text for information on what expenses are eligible.

comes from a cooperative housing corpo-ration, it will generally show your share of in-terest.

You should receive your mortgage intereststatement for each year by January 31 of thefollowing year. A copy of this form will alsobe sent to the IRS.

Example. You bought a new home onMay 3. You paid no points on the purchase.During the year, you made mortgage pay-ments which included $1,872 deductible in-terest on your new home. The settlement

sheet for the purchase of the home includedinterest of $232 for 29 days in May. Themortgage statement you receive from thelender includes total interest of $2,104($1,872 + $232). You can deduct the $2,104if you itemize your deductions.

Refund of overpaid interest. If you receivea refund of mortgage interest you overpaid ina prior year, you generally will receive a Form1098 showing the refund in box 3. Generally,you must include the refund in income in theyear you receive it. See Refund of homemortgage interest, earlier, under Home Mort-gage Interest.

More than one borrower. If you and at least

one other person (other than your spouse ifyou file a joint return) were liable for and paidinterest on a mortgage that was for yourhome, and the other person received a Form1098 showing the interest that was paid dur-ing the year, attach a statement to your returnexplaining this. Show how much of the inter-est each of you paid, and give the name andaddress of the person who received the form.Deduct your share of the interest on line 11of Schedule A (Form 1040), and write Seeattached next to the line.

Mortgage Interest

CreditThe mortgage interest credit is intended tohelp lower-income individuals afford homeownership. If you qualify, you can claim thecredit each year for part of the home mort-gage interest you pay.

To be eligible for the credit, you must geta mortgage credit certificate (MCC) fromyour state or local government. Generally, anMCC is issued only in connection with a newmortgage for the purchase of your mainhome.

The MCC will show the certificate creditrate you will use to figure your credit. It willalso show the certified indebtedness amounton which the interest is eligible for the credit.

TIP

You must contact the appropriategovernment agency about getting anMCC before you get a mortgage and

buy your home. Contact your state or localhousing finance agency for information aboutthe availability of MCCs in your area.

Claiming the credit. To claim the credit,complete Form 8396 and attach it to yourForm 1040. Include the credit in your total forline 49 of Form 1040, and check box b.

Reducing your home mortgage interestdeduction. If you itemize your deductionson Schedule A (Form 1040), reduce yourhome mortgage interest deduction by theamount of the mortgage interest credit.

Selling your home. If you purchase a homeafter 1990 using an MCC, and you sell thathome within 9 years, you will have to recap-ture (repay) a portion of the credit. For addi-tional information, see Publication 523.

Figuring the CreditFigure your credit on Form 8396.

Mortgage not more than certified indebt-edness. If your mortgage is equal to (orsmaller than) the certified indebtednessamount shown on your MCC, enter on line 1of Form 8396 all the interest you paid on yourmortgage during the year.

Mortgage more than certified indebt-edness. If your mortgage is larger than thecertified indebtedness amount shown on yourMCC, you can figure the credit on only partof the interest you paid. To find the amountto enter on line 1, multiply the total interestyou paid during the year on your mortgageby the following fraction.

Certified indebtedness amount on your MCC

Original amount of your mortgage

This fraction, which you may change to apercentage, will not change as long as youcan take the credit.

Example. Emily bought a home this year.Her mortgage loan is $50,000. The certifiedindebtedness amount on her MCC is $40,000.She paid $4,000 interest this year. Emily fig-ures the interest to enter on line 1 of Form8396 as follows:

$40,000

$50,000= 80% (.80)

$4,000 .80 = $3,200

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Emily enters $3,200 on line 1 of Form 8396.In each later year, she will figure her creditusing only 80% of the interest she pays forthat year.

LimitsTwo limits may apply to your credit:

1) A limit based on the credit rate, and

2) A limit based on your tax.

Limit based on credit rate. If the certificatecredit rate is higher than 20%, the creditcannot be more than $2,000.

Limit based on tax. Your credit (after ap-plying the limit based on the credit rate) can-not be more than your regular tax liability online 40 of Form 1040, plus any alternativeminimum tax on line 41 of Form 1040, minuscertain other credits. Use Form 8396 to figurethis limit.

Dividing the CreditIf two or more persons (other than a marriedcouple filing a joint return) hold an interest inthe home to which the MCC relates, the credit

must be divided based on the interest heldby each person.

Example. John and his brother, George,were issued an MCC. They used it to get amortgage on their main home. John has a60% ownership interest in the home, andGeorge has a 40% ownership interest in thehome. John paid $5,400 mortgage interestthis year and George paid $3,600.

The MCC shows a credit rate of 25% anda certified indebtedness amount of $65,000.The loan amount (mortgage) on their homeis $60,000. Because the credit rate is morethan 20%, the credit is limited to $2,000.

John figures the credit by multiplying themortgage interest he paid this year ($5,400)

by the certificate credit rate (25%) for a totalof $1,350. His credit is limited to $1,200($2,000 60%).

George figures the credit by multiplyingthe mortgage interest he paid in this year($3,600) by the certificate credit rate (25%) fora total of $900. His credit is limited to $800($2,000 40%).

CarryforwardIf your allowable credit is reduced becauseof the limit based on your tax, you can carryforward the unused portion of the credit to thenext 3 years or until used, whichever comesfirst.

Example. You receive a mortgage creditcertificate from State X. This year, your reg-ular tax liability is $1,100, you owe no alter-native minimum tax, and your mortgage in-terest credit is $1,700. You claim no othercredits. Your unused mortgage interest creditfor this year is $600 ($1,700 $1,100). Youcan carry forward this amount to the next 3years.

Credit rate more than 20%. If you are sub- ject to the $2,000 limit because your certif-icate credit rate is more than 20%, you cannotcarry forward any amount more than $2,000(or your share of the $2,000 if you must dividethe credit).

Table 2. Effect of Refinancing on Your Credit

IF you get a new (reissued) MCC and theamount of your new mortgage is . . .

THEN the interest you claim onForm 8396, line 1, is . . .*

Smaller than or equal to the certificateindebtedness amount on the new MCC

Larger than the certificate indebtedness onthe new MCC

All the interest paid during the year on yournew mortgage

Interest paid during the year on your newmortgage multiplied by the following fraction.

* The credit using the new MCC cannot be more than the credit using the old MCC. See New MCCcannot increase your credit.

Certificate indebtedness onyour new MCC

Original amount of your mortgage

Example. In the earlier example underDividing the Credit, John and George usedthe entire $2,000 credit. The excess $150 forJohn ($1,350 $1,200) and $100 for George($900 $800) cannot be carried forward tofuture years, despite the tax liabilities for Johnand George.

Refinancing

If you refinance your original mortgage loan

on which you had been given an MCC, youmust get a new MCC to be able to claim thecredit on the new loan. And the amount ofcredit you can claim on the new loan maychange. Table 2 summarizes how to figureyour credit if you refinance your originalmortgage loan.

An issuer may reissue an MCC after yourefinance your mortgage, but only up to oneyear after the date of the refinancing. If youdid not get a new MCC, you may want tocontact the state or local housing financeagency that issued your original MCC for in-formation about whether you can get a reis-sued MCC.

Year of refinancing. In the year of refi-

nancing, add the applicable amount of inter-est paid on the old mortgage and the appli-cable amount of interest paid on the newmortgage, and enter the total on line 1 ofForm 8396.

If your new MCC has a credit rate differentfrom the rate on the old MCC, you must at-tach a statement to Form 8396. The state-ment must show the calculation for lines 1,2, and 3 for the part of the year when the oldMCC was in effect. It must show a separatecalculation for the part of the year when thenew MCC was in effect. Combine theamounts of each line 3, enter the total on line3 of the form, and write See attached on thedotted line.

New MCC cannot increase your credit.The credit that you claim with your new MCCcannot be more than the credit that you couldhave claimed with your old MCC.

In most cases, the agency that issues yournew MCC will make sure that it does not in-crease your credit. However, if either your oldloan or your new loan has a variable (adjust-able) interest rate, you will need to check thisyourself. In that case, you will need to knowthe amount of the credit you could haveclaimed using the old MCC.

There are two methods for figuring thecredit you could have claimed. Under onemethod, you figure the actual credit thatwould have been allowed. This means you

use the credit rate on the old MCC and theinterest you would have paid on the old loan.

If your old loan was a variable rate mort-gage, you can use another method to deter-mine the credit that you could have claimed.Under this method, you figure the credit usinga payment schedule of a hypothetical self-amortizing mortgage with level paymentsprojected to the final maturity date of the oldmortgage. The interest rate of the hypothet-ical mortgage is the annual percentage rate(APR) of the new mortgage for purposes ofthe Federal Truth in Lending Act. The prin-cipal of the hypothetical mortgage is the re-maining outstanding balance of the certifiedmortgage indebtedness shown on the oldMCC.

CAUTION

!You must choose one method anduse it consistently beginning with thefirst tax year for which you claim the

credit based on the new MCC.

TIP

As part of your tax records, youshould keep your old MCC and theschedule of payments for your old

mortgage.

BasisBasis is your starting point for figuring a gainor loss if you later sell your home, or for fig-uring depreciation if you later use part of yourhome for business purposes or for rent.

While you own your home, you may addcertain items to your basis. You may subtractcertain other items from your basis. Theseitems are called adjustments to basis and areexplained later under Adjusted Basis.

It is important that you understand theseterms when you first acquire your home be-cause you must keep track of your basis andadjusted basis during the period you own your

home. You must also keep records of theevents that affect basis or adjusted basis. SeeKeeping Records, later.

Figuring Your BasisHow you figure your basis depends on howyou acquire your home. If you buy or buildyour home, your cost is your basis. If youreceive your home as a gift, your basis isusually the adjusted basis that the personwho gave you the home had. If you inherityour home from a decedent, the fair marketvalue at the date of the decedent's death isgenerally your basis. Each of these topics isdiscussed later.

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Fair market value. Fair market value is theprice that property would sell for on the openmarket. It is the price that would be agreedon between a willing buyer and a willingseller, with neither having to buy or sell, andboth having reasonable knowledge of therelevant facts.

Property transferred from a spouse. If yourhome is transferred to you from your spouse,or from your former spouse as a result of adivorce, your basis is the same as your

spouse's (or former spouse's) adjusted basis just before the transfer. Publication 504, Di-vorced or Separated Individuals, fully dis-cusses transfers between spouses.

Cost as BasisThe cost of your home, whether you pur-chased it or constructed it, is the amount youpaid for it, including any debt you assumed.

The cost of your home includes mostsettlement or closing costs you paid when youbought the home. If you built your home, yourcost includes most closing costs paid whenyou bought the land or settled on your mort-gage.

Purchase. The basis of a home you boughtis the amount you paid for it. This usually in-cludes your down payment and any debt youassumed. The basis of a cooperative apart-ment is the amount you paid for your sharesin the corporation that owns or controls theproperty. This amount includes any purchasecommissions or other costs of acquiring theshares.

Construction. If you contracted to have yourhome built on land that you own, your basisin the home is your basis in the land plus theamount you paid to have the home built. Thisincludes the cost of labor and materials, theamount you paid the contractor, any archi-tect's fees, building permit charges, utility

meter and connection charges, and legal feesthat are directly connected with building yourhome. If you built all or part of your homeyourself, your basis is the total amount it costyou to build it. You cannot include the valueof your own labor or any other labor you didnot pay for.

Real estate taxes. Real estate taxes areusually divided so that you and the seller eachpay taxes for the part of the property tax yearthat each owned the home. See the earlierdiscussion of Real estate taxes paid atsettlement or closing, under Real EstateTaxes, to figure the real estate taxes you paidor are considered to have paid.

If you pay any part of the seller's share

of the real estate taxes (the taxes up to thedate of sale), and the seller did not reimburseyou, add those taxes to your basis in thehome. You cannot deduct them as taxes paid.

If the seller paid any of your share of thereal estate taxes (the taxes beginning with thedate of sale), you can still deduct those taxes.Do not include those taxes in your basis. Ifyou did not reimburse the seller, you mustreduce your basis by the amount of thosetaxes.

Example 1. You bought your home onSeptember 1. The property tax year in yourarea is the calendar year, and the tax is dueon August 15. The real estate taxes on thehome you bought were $730 for the year and

Table 3. Adjusted BasisThis table summarizes items that will generally increase or decrease your basis inyour home.

Increases to Basis

Improvements:

Putting an addition on your homeReplacing an entire roofPaving your driveway

Installing central air conditioning

Rewiring your home

Assessments for local improvements(see Assessments for local benefits)

Amounts spent to restore damaged property

Insurance or other reimbursement forcasualty losses

Decreases to Basis

Deductible casualty loss not covered byinsurance

Payment received for easement orright-of-way granted

Value of subsidy for energy conservationmeasure excluded from income

Depreciation deduction if home is usedfor business or rental purposes

had been paid by the seller on August 15.You did not reimburse the seller for yourshare of the real estate taxes from September1 through December 31. You must reduce thebasis of your home by the $244 [(122 365) $730] the seller paid for you. You can de-duct your $244 share of real estate taxes on

your return for the year you purchased yourhome.

Example 2. You bought your home onMay 3, 2000. The property tax year in yourarea is the calendar year. The taxes for theprevious year are assessed on January 2 andare due on May 31 and November 30. Understate law, the taxes become a lien on May31. You agreed to pay all taxes due after thedate of sale. The taxes due in 2000 for 1999were $520. The taxes due in 2001 for 2000will be $565.

You cannot deduct any of the taxes paidin 2000 because they relate to the 1999property tax year. You did not own the homeuntil 2000. Instead, you add the $520 to the

cost (basis) of your home.Because you owned the home in 2000 for

243 days (May 3 to December 31), you cantake a tax deduction on your 2001 return of$375 [(243 366) $565] paid in 2001 for2000. You add the remaining $190 ($565 $375) of taxes paid in 2001 to the cost (basis)of your home.

Settlement or closing costs. If you boughtyour home, you probably paid settlement orclosing costs in addition to the contract price.These costs are divided between you and theseller according to the sales contract, localcustom, or understanding of the parties. Ifyou built your home, you probably paid thesecosts when you bought the land or settled onyour mortgage.

The only settlement or closing costs youcan deduct are home mortgage interest andcertain real estate taxes. You deduct them inthe year you buy your home if you itemizeyour deductions. You can add certain othersettlement or closing costs to the basis ofyour home.

Items added to basis. You can includein your basis the settlement fees and closingcosts that are for buying your home. A fee isfor buying the home if you would have had topay it even if you paid cash for the home.

The following are some of the settlementfees and closing costs that you can includein the original basis of your home.

Abstract fees (abstract of title fees).

Charges for installing utility services.

Legal fees (including fees for the titlesearch and preparation of the sales con-tract and deed).

Recording fees. Surveys.

Transfer taxes.

Title insurance.

Any amount the seller owes that youagree to pay, such as back taxes or in-terest, recording or mortgage fees, costfor improvements or repairs, and salescommissions.

If the seller actually paid for any item thatyou are liable for and that you can take adeduction for (such as your share of the realestate taxes for the year of sale), you mustreduce your basis by that amount unless youare charged for it in the settlement.

Items not added to basis and notdeductible. Here are some settlement andclosing costs that you cannot deduct oraddto your basis.

1) Fire insurance premiums.

2) Charges for using utilities or other ser-vices related to occupancy of the homebefore closing.

3) Rent for occupying the home beforeclosing.

4) Charges connected with getting or refi-nancing a mortgage loan, such as:

a) FHA mortgage insurance premiums

and VA funding fees,b) Loan assumption fees,

c) Cost of a credit report, and

d) Fee for an appraisal required by alender.

Points paid by seller. If you bought yourhome after April 3, 1994, you must reduceyour basis by any points paid for your mort-gage by the person who sold you your home.

If you bought your home after 1990 butbefore April 4, 1994, you must reduce yourbasis by seller-paid points only if you de-ducted them. See Points, earlier, for the ruleson deducting points.

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GiftIf someone gave you your home and its fairmarket value when it was given to you wasequal to or more than that person's adjustedbasis (defined later), your basis is the sameas that person's adjusted basis. If you re-ceived your home as a gift after 1976, add toyour basis (the donor's adjusted basis) thepart of any federal gift tax paid that is due tothe net increase in the value of the home.Figure this part by multiplying the gift tax paidon the gift of the home by a fraction. The nu-

merator (top part) of the fraction is the netincrease in the value of the home, and thedenominator (bottom part) is the amount ofthe gift. The net increase in the value of thehome is the fair market value of the homeminus the donor's adjusted basis. Theamount of the gift is its value for gift tax pur-poses after reduction by any annual exclusionand marital or charitable deduction that ap-plies to the gift.

If someone gave you your home and itsfair market value when it was given to youwas less than that person's adjusted basis,your basis for figuring gain on its sale is thesame as that person's adjusted basis. How-ever, your basis for figuring a loss on its saleis its fair market value when it was given to

you.Publication 551, Basis of Assets, givesmore information including examples of figur-ing your basis when you received propertyas a gift.

InheritanceYour basis in a home you inherited is gener-ally the fair market value of the home on thedate of the decedent's death or on the alter-nate valuation date if the personal represen-tative for the estate chooses to use alternativevaluation. If an estate tax return was filed,your basis is the value of the home listed onthe estate tax return.

If an estate tax return was not filed, yourbasis is the appraised value of the home at

the decedent's date of death for state inher-itance or transmission taxes. Publication 551and Publication 559, Survivors, Executors,and Administrators, have more informationon the basis of inherited property.

Adjusted BasisWhile you own your home, various eventsmay take place that can change the originalbasis of your home. These events can in-crease or decrease your original basis. Theresult is called adjusted basis. See Table 3for a list of some of the items that can adjustyour basis.

Improvements. An improvement materiallyadds to the value of your home, considerablyprolongs its useful life, or adapts it to newuses. You must add the cost of any improve-ments to the basis of your home. You cannotdeduct these costs.

Improvements include putting a recreationroom in your unfinished basement, addinganother bathroom or bedroom, putting up afence, putting in new plumbing or wiring, in-stalling a new roof, and paving your driveway.

Amount added to basis. The amountyou add to your basis for improvements isyour actual cost. This includes all costs formaterial and labor, except your own labor,and all expenses related to the improvement.For example, if you had your lot surveyed to

put up a fence, the cost of the survey is a partof the cost of the fence.

You must also add to your basis state andlocal assessments for improvements such asstreets and sidewalks if they increase thevalue of the property. These assessments arediscussed earlier under Real Estate Taxes.

Repairs versus improvements. A repairkeeps your home in an ordinary, efficient op-erating condition. It does not add to the valueof your home or prolong its life. Repairs in-clude repainting your home inside or outside,fixing your gutters or floors, fixing leaks orplastering, and replacing broken windowpanes. You cannot deduct repair costs andgenerally cannot add them to the basis ofyour home.

However, repairs that are done as part ofan extensive remodeling or restoration of yourhome are considered improvements. Youadd them to the basis of your home.

Records to keep. You can use Table 4as a guide to help you keep track of im-provements to your home. Also see KeepingRecords, later.

Energy conservation subsidy. If a publicutility gives you (directly or indirectly) a sub-sidy for the purchase or installation of an en-ergy conservation measure for your home,

do not include the value of that subsidy inyour income. You must reduce the basis ofyour home by that value.

An energy conservation measure is aninstallation or modification primarily designedto reduce consumption of electricity or naturalgas or to improve the management of energydemand.

Keeping Records

RECORDS

Keeping full and accurate records isvital to properly report your incomeand expenses, to support your de-

ductions, and to know the basis or adjusted

basis of your home. These records includeyour purchase contract and settlement papersif you bought the property, or other objectiveevidence if you acquired it by gift, inheritance,or similar means. You should keep any re-ceipts, canceled checks, and similar evidencefor improvements or other additions to thebasis. In addition, you should keep track ofany decreases to the basis such as thoselisted in Table 3.

How to keep records. How you keep rec-ords is up to you, but they must be clear andaccurate and must be available to the IRS.

How long to keep records. You must keepyour records for as long as they are importantfor the federal tax law.

Keep records that support an item of in-come or a deduction appearing on a returnuntil the period of limitations for the returnruns out. (A period of limitations is the limitedperiod of time after which no legal action canbe brought.) For assessment of tax you owe,this is generally 3 years from the date youfiled the return. For filing a claim for credit orrefund, this is generally 3 years from the dateyou filed the original return, or 2 years fromthe date you paid the tax, whichever is later.Returns filed before the due date are treatedas filed on the due date.

You may need to keep records relating tothe basis of property (discussed earlier)longer than the period of limitations. Keep

those records as long as they are importantin figuring the basis of the original or re-placement property. Generally, this means foras long as you own the property and, afteryou dispose of it, for the period of limitationsthat applies to you.

How To Get Tax HelpYou can get help with unresolved tax issues,order free publications and forms, ask tax

questions, and get more information from theIRS in several ways. By selecting the methodthat is best for you, you will have quick andeasy access to tax help.

Contacting your Taxpayer Advocate. If youhave attempted to deal with an IRS problemunsuccessfully, you should contact your Tax-payer Advocate.

The Taxpayer Advocate represents yourinterests and concerns within the IRS byprotecting your rights and resolving problemsthat have not been fixed through normalchannels. While Taxpayer Advocates cannotchange the tax law or make a technical taxdecision, they can clear up problems that re-sulted from previous contacts and ensure that

your case is given a complete and impartialreview.

To contact your Taxpayer Advocate:

Call the Taxpayer Advocate at18777774778.

Call the IRS at 18008291040.

Call, write, or fax the Taxpayer Advocateoffice in your area.

Call 18008294059 if you are aTTY/TDD user.

For more information, see Publication1546, The Taxpayer Advocate Service of theIRS.

Free tax services. To find out what servicesare available, get Publication 910, Guide toFree Tax Services. It contains a list of free taxpublications and an index of tax topics. It alsodescribes other free tax information services,including tax education and assistance pro-grams and a list of TeleTax topics.

Personal computer. With your per-sonal computer and modem, you canaccess the IRS on the Internet at

www.irs.gov. While visiting our web site, youcan select:

Frequently Asked Tax Questions(locatedunder Taxpayer Help & Ed) to find an-swers to questions you may have.

Forms & Pubsto download forms andpublications or search for forms andpublications by topic or keyword.

Fill-in Forms(located under Forms &Pubs) to enter information while the formis displayed and then print the completedform.

Tax Info For Youto view Internal Reve-nue Bulletins published in the last fewyears.

Tax Regs in Englishto search regulationsand the Internal Revenue Code (underUnited States Code (USC)).

Digital Dispatchand IRS Local News Net(both located under Tax Info For Busi-

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ness) to receive our electronic newslet-ters on hot tax issues and news.

Small Business Corner(located underTax Info For Business) to get informationon starting and operating a small busi-ness.

You can also reach us with your computerusing File Transfer Protocol at ftp.irs.gov.

TaxFax Service. Using the phoneattached to your fax machine, you canreceive forms and instructions by

calling 7033689694. Follow the directionsfrom the prompts. When you order forms,enter the catalog number for the form youneed. The items you request will be faxed toyou.

Phone. Many services are availableby phone.

Ordering forms, instructions, and publi-cations. Call 18008293676 to order

current and prior year forms, instructions,and publications.

Asking tax questions. Call the IRS withyour tax questions at 18008291040.

TTY/TDD equipment. If you have accessto TTY/TDD equipment, call 18008294059 to ask tax questions or to orderforms and publications.

TeleTax topics. Call 18008294477 tolisten to pre-recorded messages coveringvarious tax topics.

Evaluating the quality of our telephoneservices. To ensure that IRS representatives

give accurate, courteous, and professionalanswers, we evaluate the quality of our tele-phone services in several ways.

A second IRS representative sometimesmonitors live telephone calls. That persononly evaluates the IRS assistor and doesnot keep a record of any taxpayer's nameor tax identification number.

We sometimes record telephone calls toevaluate IRS assistors objectively. Wehold these recordings no longer than one

week and use them only to measure thequality of assistance.

We value our customers' opinions.Throughout this year, we will be survey-ing our customers for their opinions onour service.

Walk-in. You can walk in to manypost offices, libraries, and IRS officesto pick up certain forms, instructions,

and publications. Also, some libraries and IRSoffices have:

An extensive collection of products avail-able to print from a CD-ROM or photo-

copy from reproducible proofs. The Internal Revenue Code, regulations,

Internal Revenue Bulletins, and Cumula-tive Bulletins available for research pur-poses.

Mail. You can send your order forforms, instructions, and publicationsto the Distribution Center nearest to

you and receive a response within 10 work-days after your request is received. Find the

address that applies to your part of thecountry.

Western part of U.S.:Western Area Distribution CenterRancho Cordova, CA 957430001

Central part of U.S.:Central Area Distribution CenterP.O. Box 8903Bloomington, IL 617028903

Eastern part of U.S. and foreign ad-dresses:

Eastern Area Distribution CenterP.O. Box 85074Richmond, VA 232615074

CD-ROM. You can order IRS Publi-cation 1796, Federal Tax Products onCD-ROM, and obtain:

Current tax forms, instructions, and pub-lications.

Prior-year tax forms, instructions, andpublications.

Popular tax forms which may be filled inelectronically, printed out for submission,

and saved for recordkeeping. Internal Revenue Bulletins.

The CD-ROM can be purchased fromNational Technical Information Service (NTIS)by calling 18772336767 or on the Internetat www.irs.gov/cdorders. The first releaseis available in mid-December and the finalrelease is available in late January.

IRS Publication 3207, The Business Re-source Guide, is an interactive CD-ROM thatcontains information important to small busi-nesses. It is available in mid-February. Youcan get one free copy by calling18008293676.

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(a)Type of Improvement

(b)Date

(c)Amount

Additions:Bedroom

Bathroom

Deck

Garage

Porch

Patio

Storage shed

Fireplace

Other

Lawn & Grounds:

LandscapingDriveway

Walkway

Fences

Retaining wall

Sprinkler system

Swimming pool

Exterior lighting

Other

Communications:

Satellite dish

Intercom

Security system

Other

Miscellaneous:

Storm windows anddoors

Roof

Central vacuum

Other

Heating & Air

Conditioning:Heating system

Central air conditioning

Furnace

Duct work

Central humidifier

Filtration system

Other

Electrical:

Lighting fixtures

Wiring upgrades

Other

Plumbing:

Water heater

Soft water system

Filtration system

Other

Insulation:

Attic

Walls

Floors

Pipes and duct work

Other

InteriorImprovements:

Built-in appliances

Kitchen modernization

Bathroommodernization

Flooring

Wall-to-wall carpeting

Other

Table 4. Record of Home Improvements

Keep this for your records. Also keep receipts or other proof of improvements.

Caution: Remove from this record any improvements that are no longer part of your main home. For example, if you putwall-to-wall carpeting in your home and later replace it with new wall-to-wall carpeting, remove the cost of the first carpeting.

(a)Type of Improvement

(b)Date

(c)Amount

Page 11


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Index

AAdjusted basis ............................. 9Assessments:For local benefits .................... 3

Homeowners association ....... 3Assistance (SeeTax help)

B Basis ............................................ 7

CCertificate, mortgage credit ......... 6

Comments ................................... 2Construction ................................ 8Cooperatives ........................... 3, 4Cost basis .................................... 8Credits:District of Columbia first-time

homebuyer ........................ 2Mortgage interest ................... 6

D

Deductions:Home mortgage interest ........ 3Real estate taxes ................... 2

District of Columbia first-timehomebuyer credit ................... 2

EEscrow accounts ......................... 3

FFire insurance premiums ............. 8

Form:1098 ....................................... 68396 ....................................... 6

Free tax services ......................... 9

GGift of home ................................. 9

Ground rent ................................. 3

HHelp (SeeTax help) Home:

Inherited ................................. 9Mortgage interest ................... 3Purchase of ............................ 8

Received as gift ..................... 9Homeowners association, assess-

ments ...................................... 3House payment ........................... 2

Housing allowance, minister or mil-itary ......................................... 2

I

Improvements .............................. 9Inheritance ................................... 9Insurance ................................. 2, 8Interest:

Home mortgage ..................... 3Prepaid ................................... 3

KKeeping records .......................... 9

LLate payment charge .................. 3Local benefits, assessments for .. 3

MMCC (Mortgage credit certificate) 6Minister's or military housing allow-

ance ........................................ 2

More information (SeeTax help) Mortgage credit certificate (MCC) 6Mortgage insurance premiums .... 8

Mortgage interest:Credit ...................................... 6Deduction ............................... 3

Late payment charge ............. 3Paid at settlement .................. 4

Refund ................................ 3, 6Statement ............................... 6

Mortgage prepayment penalty .... 3

NNondeductible payments ......... 2, 8

P

Points ........................................... 4Prepaid interest ........................... 3Publications (SeeTax help)

RReal estate taxes:

Deductible taxes ..................... 2Paid at settlement or

closing ........................... 2, 8

Refund or rebate .................... 3Recordkeeping ............................ 9Refund of:

Mortgage interest ............... 3, 6Real estate taxes ................... 3Repairs ........................................ 9

SSettlement or closing costs:

Basis of home ........................ 8Mortgage interest ................... 4

Real estate taxes ............... 2, 8Stamp taxes ................................ 3

Statement, mortgage interest ...... 6Suggestions ................................. 2

TTax help ....................................... 9Taxes:

Real estate ............................. 2Taxpayer Advocate ..................... 9Transfer taxes ............................. 3TTY/TDD information .................. 9

VVA funding fees ........................... 8

WWhat you can and cannot deduct 2

P 12

us internal revenue service: p530--2000

Documents