What s New... 1 of the Reminders... 2 Treasury Tax Introduction... 2 Internal What You Can and Cannot Deduct... 2

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1 Publication 530 Cat K Contents Department What s New... 1 of the Reminders... 2 Treasury Tax Introduction... 2 Internal Revenue What You Can and Cannot Deduct... 2 Service Information for Real Estate Taxes... 2 Sales Taxes... 4 Home Mortgage Interest... 4 Homeowners Mortgage Insurance Premiums... 7 For use in preparing 2009 Returns Mortgage Interest Credit... 7 Figuring the Credit... 8 First-Time Homebuyer Credit... 9 Basis... 9 Figuring Your Basis... 9 Adjusted Basis Keeping Records How To Get Tax Help Index What s New First-time homebuyer credit. The Worker, Homeownership, and Business Assistance Act of 2009 changed the rules for the first-time homebuyer credit. The changes are summarized below. 1. The time period for purchasing a home has been extended by 5 months until April 30, You can also claim a credit for a home purchased after April 30, 2010, and before July 1, 2010, if you entered into a binding contract before May 1, 2010, to purchase the property before July 1, Members of the uniformed services or Foreign Service and employees of the intelligence community who meet certain requirements do not have to repay the credit and have an extra year to purchase a main home. 3. A qualified long-time resident of the same main home is treated as a first-time homebuyer and can claim a reduced credit for a new main home purchased after vember 6, The modified adjusted gross income (MAGI) limits are increased for individuals who purchase homes after vember 6, You cannot claim the credit for a home purchased after vember 6, 2009, if any of the following apply. a. The purchase price of the home is more than $800,000. b. You can be claimed as a dependent on another person s tax return. Get forms and other information faster and easier by: c. You (and your spouse if married) are Internet under age 18 on the date of purchase. d. You acquire the home from a person related to your spouse. Feb 22, 2010

2 6. The credit for homes purchased in 2009 or The first-time homebuyer credit. later years does not have to be repaid over The tax credit you can claim if you re- What You Can and 15 years. ceived a mortgage credit certificate when 7. You may have to attach a copy of certain you bought your home. Cannot Deduct documentation to your return. Why you should keep track of adjustments To deduct expenses of owning a home, you For more information, see First-Time to the basis of your home. (Your home s must file Form 1040 and itemize your deducbasis generally is what it costs; adjust- Homebuyer Credit later. tions on Schedule A (Form 1040). If you itemize, ments include the cost of any improveyou cannot take the standard deduction. Repayment of the first-time homebuyer ments you might make.) credit. You generally must repay any credit This section explains what expenses you you claimed for a home you bought in 2008 if What records you should keep as proof of can deduct as a homeowner. It also points out you disposed of the home or it ceased to be your the basis and adjusted basis. expenses that you cannot deduct. There are main home in For details, see Form 5405 four primary discussions: real estate taxes, and its separate instructions. Comments and suggestions. We welcome sales taxes, home mortgage interest, and mort- your comments about this publication and your gage insurance premiums. Generally, your real Home Affordable Modification Program suggestions for future editions. estate taxes, home mortgage interest, and mort- (HAMP). If you benefit from You can write to us at the following address: gage insurance premiums are included in your Pay-for-Performance Success Payments, the house payment. payments are not taxable under HAMP. Internal Revenue Service Your house payment. If you took out a mort- Limit on itemized deductions. Certain item- Individual Forms and Publications Branch gage (loan) to finance the purchase of your ized deductions (including taxes and home SE:W:CAR:MP:T:I home, you probably have to make monthly mortgage interest) are limited if your adjusted 1111 Constitution Ave. NW, IR-6526 house payments. Your house payment may ingross income is more than $166,800 ($83,400 if Washington, DC clude several costs of owning a home. The only you are married filing separately). For more incosts you can deduct are real estate taxes actuformation, see the Instructions for Schedule A We respond to many letters by telephone. ally paid to the taxing authority, interest that (Form 1040). Therefore, it would be helpful if you would in- qualifies as home mortgage interest, and mortclude your daytime phone number, including the gage insurance premiums. These are discussed area code, in your correspondence. in more detail later. You can us at *taxforms@irs.gov. (The Some nondeductible expenses that may be Reminders asterisk must be included in the address.) Please put Publications Comment on the subject line. Although we cannot respond individu- Fire or homeowner s insurance premiums, included in your house payment include: Mortgage debt forgiveness. You can exally to each , we do appreciate your and clude from gross income any discharges of qualfeedback and will consider your comments as ified principal residence indebtedness made we revise our tax products. The amount applied to reduce the princi- after 2006 and before You must reduce pal of the mortgage. the basis of your principal residence (but not Ordering forms and publications. Visit below zero) by the amount you exclude. See to download forms and Discharges of qualified principal residence in- Minister s or military housing allowance. If publications, call , or write to the debtedness, later, and Form 982, Reduction of address below and receive a response within 10 you are a minister or a member of the uniformed Tax Attributes Due to Discharge of Indebted- days after your request is received. services and receive a housing allowance that is ness (and Section 1082 Basis Adjustment), for not taxable, you still can deduct your real estate more information. taxes and your home mortgage interest. You do Internal Revenue Service not have to reduce your deductions by your Real estate tax deduction for nonitemizers N. Mitsubishi Motorway nontaxable allowance. You may be able to take a deduction for real Bloomington, IL estate taxes you paid even if you do not itemize ndeductible payments. You cannot dedeductions on your income tax return. See your Tax questions. If you have a tax question, duct any of the following items. tax return instructions for additional information. check the information available on Insurance (other than mortgage insurance Photographs of missing children. The Interquestions sent to either of the above addresses. sive coverage, and title insurance. or call We cannot answer tax premiums), including fire and comprehennal Revenue Service is a proud partner with the National Center for Missing and Exploited Chil- Useful Items Wages you pay for domestic help. dren. Photographs of missing children selected by the Center may appear in this publication on You may want to see: Depreciation. pages that would otherwise be blank. You can Publication The cost of utilities, such as gas, electrichelp bring these children home by looking at the ity, or water. photographs and calling THE-LOST 523 Selling Your Home ( ) if you recognize a child. Most settlement costs. See Settlement or 527 Residential Rental Property closing costs under Cost as Basis, later, 547 Casualties, Disasters, and Thefts for more information. 551 Basis of Assets Forfeited deposits, down payments, or Introduction earnest money. 555 Community Property This publication provides tax information for homeowners. Your home may be a house, con- 587 Business Use of Your Home Real Estate Taxes dominium, cooperative apartment, mobile 936 Home Mortgage Interest Deduction home, houseboat, or house trailer. Most state and local governments charge an The following topics are explained. Form (and Instructions) annual tax on the value of real property. This is called a real estate tax. You can deduct the tax if How you treat items such as settlement 5405 First-Time Homebuyer Credit and it is based on the assessed value of the real and closing costs, real estate taxes, sales Repayment of the Credit property and the taxing authority charges a unitaxes, home mortgage interest, and reform rate on all property in its jurisdiction. The 8396 Mortgage Interest Credit pairs. See How To Get Tax Help, near the end of tax must be for the welfare of the general public What you can and cannot deduct on your this publication, for information about getting and not be a payment for a special privilege tax return. publications and forms. granted or service rendered to you. Page 2 Publication 530 (2009)

3 te. You may be able to deduct $500 into the escrow account. You can deduct only charges on the sale of a personal home. If you ($1,000, if married filing jointly), for real estate the real estate taxes that the lender actually paid are the buyer and you pay them, include them in taxes you paid even if you do not itemize deduc- from escrow to the taxing authority. Your real the cost basis of the property. If you are the tions on your income tax return. See your tax estate tax bill will show this amount. seller and you pay them, they are expenses of return instructions for additional information. the sale and reduce the amount realized on the Refund or rebate of real estate taxes. If you sale. receive a refund or rebate of real estate taxes Deductible Real Estate Taxes this year for amounts you paid this year, you Homeowners association assessments. must reduce your real estate tax deduction by You cannot deduct these assessments because You can deduct real estate taxes imposed on the amount refunded to you. If the refund or the homeowners association, rather than a state you. You must have paid them either at settleyear, rebate was for real estate taxes paid for a prior or local government, imposes them. ment or closing, or to a taxing authority (either you may have to include some or all of the directly or through an escrow account) during refund in your income. For more information, the year. If you own a cooperative apartment, see Recoveries in Publication 525, Taxable and Special Rules for Cooperatives see Special Rules for Cooperatives, later. ntaxable Income. If you own a cooperative apartment, some special Where to deduct real estate taxes. Enter the rules apply to you, though you generally amount of your deductible real estate taxes on Items You Cannot Deduct receive the same tax treatment as other home- Schedule A (Form 1040), line 6. as Real Estate Taxes owners. As an owner of a cooperative apartment, you own shares of stock in a corporation Real estate taxes paid at settlement or clos- The following items are not deductible as real that owns or leases housing facilities. You can ing. Real estate taxes are generally divided so estate taxes. deduct your share of the corporation s deducti- that you and the seller each pay taxes for the ble real estate taxes if the cooperative housing part of the property tax year you owned the Charges for services. An itemized charge for corporation meets the following conditions: home. Your share of these taxes is fully deducti- services to specific property or people is not a ble if you itemize your deductions. tax, even if the charge is paid to the taxing 1. The corporation has only one class of authority. You cannot deduct the charge as a stock outstanding, Division of real estate taxes. For federal real estate tax if it is: income tax purposes, the seller is treated as 2. Each stockholder, solely because of own- paying the property taxes up to, but not includ- A unit fee for the delivery of a service ership of the stock, can live in a house, ing, the date of sale. You (the buyer) are treated (such as a $5 fee charged for every 1,000 apartment, or house trailer owned or as paying the taxes beginning with the date of gallons of water you use), leased by the corporation, sale. This applies regardless of the lien dates A periodic charge for a residential service 3. stockholder can receive any distribution under local law. Generally, this information is (such as a $20 per month or $240 annual out of capital, except on a partial or comincluded on the settlement statement you get at fee charged for trash collection), or plete liquidation of the corporation, and closing. You and the seller each are considered to A flat fee charged for a single service prohave 4. At least one of the following: paid your own share of the taxes, even if vided by your local government (such as a one or the other paid the entire amount. You $30 charge for mowing your lawn because a. At least 80% of the corporation s gross each can deduct your own share, if you itemize it had grown higher than permitted under a income for the tax year was paid by the deductions, for the year the property is sold. local ordinance). tenant-stockholders. For this purpose, gross income means all income received during the entire tax year, includ- Example. You bought your home on Sep- You must look at your real estate tax tember 1. The property tax year (the period to ing any received before the corporation bill to decide if any nondeductible itemwhich the tax relates) in your area is the calenized charges, such as those listed! changed to cooperative ownership. CAUTION dar year. The tax for the year was $730 and was above, are included in the bill. If your taxing b. At least 80% of the total square footage due and paid by the seller on August 15. authority (or lender) does not furnish you a copy of the corporation s property must be You owned your new home during the propof your real estate tax bill, ask for it. Contact the available for use by the ten- erty tax year for 122 days (September 1 to Detaxing authority if you need additional informacember 31, including your date of purchase). ant-stockholders during the entire tax tion about a specific charge on your real estate year. You figure your deduction for real estate taxes tax bill. on your home as follows. c. At least 90% of the expenditures paid or incurred by the corporation were used 1. Enter the total real estate taxes for Assessments for local benefits. You cannot for the acquisition, construction, manthe real property tax year... $730 deduct amounts you pay for local benefits that agement, maintenance, or care of the 2. Enter the number of days in the tend to increase the value of your property. Loproperty tax year that you owned the property for the benefit of the ten- cal benefits include the construction of streets, property ant-shareholders during the entire tax 3. Divide line 2 by sidewalks, or water and sewer systems. You year. 4. Multiply line 1 by line 3. This is your must add these amounts to the basis of your deduction. Enter it on Schedule A property. (Form 1040), line 6... $244 You can, however, deduct assessments (or Tenant-stockholders. A tenant-stockholder taxes) for local benefits if they are for mainte- can be any entity (such as a corporation, trust, You can deduct $244 on your return for the nance, repair, or interest charges related to estate, partnership, or association) as well as an year if you itemize your deductions. You are those benefits. An example is a charge to repair individual. The tenant-stockholder does not considered to have paid this amount and can an existing sidewalk and any interest included in have to live in any of the cooperative s dwelling deduct it on your return even if, under the conunits. The units that the tenant-stockholder has that charge. tract, you did not have to reimburse the seller. If only a part of the assessment is for mainte- the right to occupy can be rented to others. Delinquent taxes. Delinquent taxes are un- nance, repair, or interest charges, you must be Deductible taxes. You figure your share of paid taxes that were imposed on the seller for an able to show the amount of that part to claim the real estate taxes in the following way. earlier tax year. If you agree to pay delinquent deduction. If you cannot show what part of the taxes when you buy your home, you cannot assessment is for maintenance, repair, or inter- 1. Divide the number of your shares of stock deduct them. You treat them as part of the cost est charges, you cannot deduct any of it. by the total number of shares outstanding, of your home. See Real estate taxes, later, An assessment for a local benefit may be including any shares held by the corporaunder Basis. listed as an item in your real estate tax bill. If so, tion. use the rules in this section to find how much of Escrow accounts. Many monthly house pay- it, if any, you can deduct. 2. Multiply the corporation s deductible real ments include an amount placed in escrow (put estate taxes by the number you figured in in the care of a third party) for real estate taxes. Transfer taxes (or stamp taxes). You cannot (1). This is your share of the real estate You may not be able to deduct the total you pay deduct transfer taxes and similar taxes and taxes. Publication 530 (2009) Page 3

4 Generally, the corporation will tell you your share of its real estate tax. This is the amount you can deduct if it reasonably reflects the cost of real estate taxes for your dwelling unit. Refund of real estate taxes. If the corpora- tion receives a refund of real estate taxes it paid in an earlier year, it must reduce the amount of real estate taxes paid this year when it allocates the tax expense to you. Your deduction for real estate taxes the corporation paid this year is reduced by your share of the refund the corpora- mortgage, a home improvement loan, or a home Refund of cooperative s mortgage interequity loan. est. You must reduce your mortgage interest deduction by your share of any cash portion of a Prepaid interest. If you pay interest in ad- patronage dividend that the cooperative re- vance for a period that goes beyond the end of ceives. The patronage dividend is a partial rethe tax year, you must spread this interest over fund to the cooperative housing corporation of the tax years to which it applies. Generally, you mortgage interest it paid in a prior year. can deduct in each year only the interest that If you receive a Form 1098 from the coopera- qualifies as home mortgage interest for that tive housing corporation, the form should show year. An exception applies to points, which are only the amount you can deduct. discussed later. tion received. Late payment charge on mortgage payment. Mortgage Interest Paid You can deduct as home mortgage interest a Sales Taxes at Settlement late payment charge if it was not for a specific service in connection with your mortgage loan. One item that normally appears on a settlement or closing statement is home mortgage interest. You can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). This amount should be included in the mortgage interest statement provided by your lender. See the discussion under Mortgage Interest Statement, later. Also, if you pay interest in advance, see Prepaid interest, earlier, and Points, next. Generally, you can elect to deduct state and local general sales taxes instead of state and Mortgage prepayment penalty. If you pay off local income taxes as an itemized deduction on your home mortgage early, you may have to pay Schedule A (Form 1040). Deductible sales taxes a penalty. You can deduct that penalty as home may include sales taxes paid on your home mortgage interest provided the penalty is not for (including mobile and prefabricated), or home a specific service performed or cost incurred in building materials if the tax rate was the same as connection with your mortgage loan. the general sales tax rate. For information on figuring your deduction, see the Instructions for Ground rent. In some states (such as Mary- Schedule A (Form 1040). land), you may buy your home subject to a If you elect to deduct the sales taxes ground rent. A ground rent is an obligation you paid on your home, or home building assume to pay a fixed amount per year on the! CAUTION materials, you cannot include them as property. Under this arrangement, you are leas- part of your cost basis in the home. ing (rather than buying) the land on which your home is located. Home Mortgage Interest Points The term points is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points also may be called loan origination fees, maximum loan charges, loan discount, or discount points. A borrower is treated as paying any points that a home seller pays for the borrower s mortgage. See Points paid by the seller, later. Redeemable ground rents. If you make annual or periodic rental payments on a re- This section of the publication gives you basic deemable ground rent, you can deduct the payinformation about home mortgage interest, in- ments as mortgage interest. The ground rent is a cluding information on interest paid at settleredeemable ground rent only if all of the follow- ment, points, and Form 1098, Mortgage Interest ing are true. Statement. Your lease, including renewal periods, is General rule. You cannot deduct the full Most home buyers take out a mortgage for more than 15 years. amount of points in the year paid. They are (loan) to buy their home. They then make You can freely assign the lease. prepaid interest, so you generally must deduct monthly payments to either the mortgage holder them over the life (term) of the mortgage. or someone collecting the payments for the You have a present or future right (under mortgage holder. state or local law) to end the lease and Exception. You can deduct the full amount Usually, you can deduct the entire part of buy the lessor s entire interest in the land of points in the year paid if you meet all the your payment that is for mortgage interest, if you by paying a specified amount. following tests. itemize your deductions on Schedule A (Form 1040). However, your deduction may be limited The lessor s interest in the land is primarily 1. Your loan is secured by your main home. if: a security interest to protect the rental (Generally, your main home is the one you payments to which he or she is entitled. live in most of the time.) Your total mortgage balance is more than $1 million ($500,000 if married filing sepa- 2. Paying points is an established business Payments made to end the lease and buy the rately), or practice in the area where the loan was lessor s entire interest in the land are not remade. You took out a mortgage for reasons other deemable ground rents. You cannot deduct than to buy, build, or improve your home. them. 3. The points paid were not more than the points generally charged in that area. If either of these situations applies to you, you nredeemable ground rents. Payments will need to get Publication 936. You also may on a nonredeemable ground rent are not mort- 4. You use the cash method of accounting. need Publication 936 if you later refinance your gage interest. You can deduct them as rent only This means you report income in the year mortgage or buy a second home. if they are a business expense or if they are for you receive it and deduct expenses in the rental property. year you pay them. Most individuals use Refund of home mortgage interest. If you this method. receive a refund of home mortgage interest that Cooperative apartment. You can usually 5. The points were not paid in place of you deducted in an earlier year and that reduced treat the interest on a loan you took out to buy amounts that ordinarily are stated sepastock in a cooperative housing corporation as your tax, you generally must include the refund rately on the settlement statement, such as in income in the year you receive it. For more home mortgage interest if you own a coopera- appraisal fees, inspection fees, title fees, information, see Recoveries in Publication 525. tive apartment and the cooperative housing cor- attorney fees, and property taxes. The amount of the refund will usually be shown poration meets the conditions described earlier on the mortgage interest statement you receive under Special Rules for Cooperatives. In addi- 6. The funds you provided at or before clos- from your mortgage lender. See Mortgage Interyour share of the corporation s deductible mort- least as much as the points charged. The tion, you can treat as home mortgage interest ing, plus any points the seller paid, were at est Statement, later. gage interest. Figure your share of mortgage funds you provided do not have to have interest the same way that is shown for figuring been applied to the points. They can inyour share of real estate taxes in the Example clude a down payment, an escrow deposit, Deductible Mortgage Interest under Division of real estate taxes, earlier. For earnest money, and other funds you paid To be deductible, the interest you pay must be more information on cooperatives, see Special at or before closing for any purpose. You on a loan secured by your main home or a Rule for Tenant-Stockholders in Cooperative cannot have borrowed these funds from second home. The loan can be a first or second Housing Corporations in Publication 936. your lender or mortgage broker. Page 4 Publication 530 (2009)

5 Figure A. Are My Points Fully Deductible This Year? Start Here: Is the loan secured by your main home? Is the payment of points an established business practice in your area? Were the points paid more than the amount generally charged in your area? Do you use the cash method of accounting? Were the points paid in place of amounts that ordinarily are separately stated on the settlement sheet? Were the funds you provided (other than those you borrowed from your lender or mortgage broker), plus any points the seller paid, at least as much as the points charged?* 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 principal amount of the mortgage? Is the amount paid clearly shown as points on the settlement statement? You can fully deduct the points this year on Schedule A (Form 1040). 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 funds you paid at or before closing for any purpose. Publication 530 (2009) Page 5

6 7. You use your loan to buy or build your met, the buyer can deduct the points in the year line 12. See Table 1 for a summary of where to main home. paid. If any of those tests are not met, the buyer deduct home mortgage interest and real estate must deduct the points over the life of the loan. taxes. 8. The points were computed as a percent- The buyer must also reduce the basis of the If you paid home mortgage interest to the age of the principal amount of the morthome by the amount of the seller-paid points. person from whom you bought your home, show gage. For more information about the basis of your that person s name, address, and social security 9. The amount is clearly shown on the settleber home, see Basis, later. number (SSN) or employer identification numment (EIN) on the dotted lines next to line 11. The statement (such as the Uniform Settlement Statement, Form HUD-1) as points Funds provided are less than points. If you seller must give you this number and you must charged for the mortgage. The points may meet all the tests listed earlier under Exception give the seller your SSN. Form W-9, Request for be shown as paid from either your funds or except that the funds you provided were less Taxpayer Identification Number and Certifica- the seller s. than the points charged to you (test 6), you can tion, can be used for this purpose. Failure to deduct the points in the year paid up to the meet either of these requirements may result in amount of funds you provided. In addition, you a $50 penalty for each failure. te. If you meet all of the tests listed above can deduct any points paid by the seller. and you itemize your deductions in the year you get the loan, you can either deduct the full Example 1. When you took out a $100,000 Mortgage Interest Statement amount of points in the year paid or deduct them mortgage loan to buy your home in December, over the life of the loan, beginning in the year you were charged one point ($1,000). You meet If you paid $600 or more of mortgage interest you get the loan. If you do not itemize your all the tests for deducting points in the year paid (including certain points and mortgage insurdeductions in the year you get the loan, you can (see Exception, earlier), except the only funds ance premiums) during the year on any one spread the points over the life of the loan and you provided were a $750 down payment. Of the mortgage to a mortgage holder in the course of deduct the appropriate amount in each future $1,000 you were charged for points, you can that holder s trade or business, you should rededuct year, if any, when you do itemize your deductions. $750 in the year paid. You spread the ceive a Form 1098 or similar statement from the remaining $250 over the life of the mortgage. mortgage holder. The statement will show the Home improvement loan. You can also total interest paid on your mortgage during the Example 2. The facts are the same as in fully deduct in the year paid points paid on a loan year. If you bought a main home during the year, Example 1, except that the person who sold you it also will show the deductible points you paid to improve your main home, if you meet the first your home also paid one point ($1,000) to help and any points you can deduct that were paid by six tests listed earlier. you get your mortgage. In the year paid, you can the person who sold you your home. See Points, Refinanced loan. If you use part of the refi- deduct $1,750 ($750 of the amount you were earlier. nanced mortgage proceeds to improve your charged plus the $1,000 paid by the seller). You The interest you paid at settlement should be main home and you meet the first six tests listed spread the remaining $250 over the life of the included on the statement. If it is not, add the earlier, you can fully deduct the part of the points mortgage. You must reduce the basis of your interest from the settlement sheet that qualifies related to the improvement in the year you paid home by the $1,000 paid by the seller. as home mortgage interest to the total shown on them with your own funds. You can deduct the Form 1098 or similar statement. Put the total on Excess points. If you meet all the tests under rest of the points over the life of the loan. Schedule A (Form 1040), line 10, and attach a Exception except that the points paid were more statement to your return explaining the differthan are generally charged in your area (test 3), Points not fully deductible in year paid. If ence. Write See attached to the right of line 10. you do not qualify under the exception to deduct you can deduct in the year paid only the points A mortgage holder can be a financial instituthat are generally charged. You must spread the full amount of points in the year paid (or tion, a governmental unit, or a cooperative housany additional points over the life of the mortchoose not to do so), see Points in Publication ing corporation. If a statement comes from a 936, Home Mortgage Interest Deduction, for the gage. cooperative housing corporation, it generally will rules on when and how much you can deduct. Mortgage ending early. If you spread your show your share of interest. Figure A. You can use Figure A as a quick deduction for points over the life of the mortshould Your mortgage interest statement for 2009 guide to see whether your points are fully de- gage, you can deduct any remaining balance in be provided or sent to you by February 1, ductible in the year paid. the year the mortgage ends. A mortgage may If it is mailed, you should allow adequate end early due to a prepayment, refinancing, time to receive it before contacting the mortgage Amounts charged for services. Amounts foreclosure, or similar event. holder. A copy of this form will be sent to the IRS charged by the lender for specific services con- also. nected to the loan are not interest. Examples of Example. Dan paid $3,000 in points in 2002 these charges are: that he had to spread out over the 15-year life of Example. You bought a new home on May the mortgage. He had deducted $1,400 of these 3. You paid no points on the purchase. During Appraisal fees, points through the year, you made mortgage payments which tary fees, and Dan prepaid his mortgage in full in He included $4,480 deductible interest on your new can deduct the remaining $1,600 of points in home. The settlement sheet for the purchase of Preparation costs for the mortgage note or the home included interest of $620 for 29 days in deed of trust. May. The mortgage statement you receive from You cannot deduct these amounts as points Exception. If you refinance the mortgage the lender includes total interest of $5,100 with the same lender, you cannot deduct any either in the year paid or over the life of the ($4,480 + $620). You can deduct the $5,100 if remaining points for the year. Instead, deduct mortgage. For information about the tax treatthem over the term of the new loan. you itemize your deductions. ment of these amounts and other settlement Refund of overpaid interest. If you receive a fees and closing costs, see Basis, later. Form The mortgage interest statement refund of mortgage interest you overpaid in a you receive should show not only the total inter- prior year, you generally will receive a Form Points paid by the seller. The term points est paid during the year, but also your deductible 1098 showing the refund in box 3. Generally, includes loan placement fees that the seller points paid during the year. See Mortgage Inter- you must include the refund in income in the pays to the lender to arrange financing for the est Statement, later. year you receive it. See Refund of home mortbuyer. gage interest, earlier, under Home Mortgage Treatment by seller. The seller cannot de- Interest. duct these fees as interest; but, they are a sell- Where To Deduct Home Mortgage Interest More than one borrower. If you and at least ing expense that reduces the seller s amount one other person (other than your spouse if you realized. See Publication 523 for more informa- Enter on Schedule A (Form 1040), line 10, the file a joint return) were liable for and paid interest tion. home mortgage interest and points reported to on a mortgage that was for your home, and the Treatment by buyer. The buyer treats you on Form 1098 (discussed next). If you did other person received a Form 1098 showing the seller-paid points as if he or she had paid them. not receive a Form 1098, enter your deductible interest that was paid during the year, attach a If all the tests listed earlier under Exception are interest on line 11, and any deductible points on statement to your return explaining this. Show Page 6 Publication 530 (2009)

7 how much of the interest each of you paid, and substantially improve a qualified home. It also that is more than the amount of the loan (immemust give the name and address of the person who be secured by that home. diately before the discharge) that is not qualified received the form. Deduct your share of the If the amount of your mortgage is more than principal residence indebtedness. interest on Schedule A (Form 1040), line 11, and the cost of the home plus the cost of any sub- write See attached to the right of that line. stantial improvements, only the debt that is not more than the cost of the home plus improvements Qualified Home qualifies as home acquisition debt. Mortgage Insurance This means your main home or your second Premiums Home acquisition debt limit. The total home. A home includes a house, condominium, amount you can treat as home acquisition debt cooperative, mobile home, house trailer, boat, or You can take an itemized deduction on Sched- at any time on your home cannot be more than similar property that has sleeping, cooking, and ule A (Form 1040), line 13, for premiums you $1 million ($500,000 if married filing separately). toilet facilities. pay or accrue during 2009 for qualified mortgage insurance in connection with home acquihome at any one time. This is the home where Discharges of qualified principal residence Main home. You can have only one main sition debt on your qualified home. indebtedness. You can exclude from gross Mortgage insurance premiums you paid or income any discharges of qualified principal res- you ordinarily live most of the time. accrued on any mortgage insurance contract idence indebtedness made after 2006 and Second home and other special situations. issued before January 1, 2007, are not deducti- before You must reduce the basis of your If you have a second home, use part of your ble as an itemized deduction. principal residence (but not below zero) by the home for other than residential living (such as a amount you exclude. home office), rent out part of your home, or are Qualified Mortgage Insurance Principal residence. Your principal resi- having your home constructed, see Qualified dence is the home where you ordinarily live most Home in Publication 936. of the time. You can have only one principal Qualified mortgage insurance is mortgage insurresidence at any one time. ance provided by the Veterans Administration, the Federal Housing Administration, or the Rural Qualified principal residence indebted- Limit on Deduction Housing Administration, and private mortgage ness. This is a mortgage that you took out to If your adjusted gross income (AGI) on Form insurance (as defined in section 2 of the Home- buy, build, or substantially improve your princi- 1040, line 38, is more than $100,000 ($50,000 if owners Protection Act of 1998 as in effect on pal residence and that is secured by that resi- your filing status is married filing separately), the December 20, 2006). dence. If the amount of your original mortgage is amount of your mortgage insurance premiums more than the cost of your principal residence that are deductible is reduced and may be elimiplus the cost of substantial improvements, quali- nated. See Line 13 in the instructions for Sched- Prepaid mortgage insurance premiums. If you paid premiums that are allocable to periods fied principal residence indebtedness cannot be ule A (Form 1040) and complete the Qualified after 2009, you must allocate them over the more than the cost of your principal residence Mortgage Insurance Premiums Deduction shorter of: plus improvements. Worksheet to figure the amount you can deduct. Any debt secured by your principal residence If your AGI is more than $109,000 ($54,500 if The stated term of the mortgage, or that you use to refinance qualified principal resi- married filing separately), you cannot deduct 84 months, beginning with the month the dence indebtedness is qualified principal resi- your mortgage insurance premiums. insurance was obtained. dence indebtedness up to the amount of your old mortgage principal just before the refinancance premiums you paid during 2009, should be Form The amount of mortgage insur- The premiums are treated as paid in the year to ing. Additional debt incurred to substantially imreported in box 4. See Form 1098, Mortgage which they were allocated. If the mortgage is prove your principal residence is also qualified satisfied before its term, no deduction is allowed principal residence indebtedness. Interest Statement in Publication 936. for the unamortized balance. See Pub. 936 for details. Amount you can exclude. You can only exclude debt discharged after 2006 and before Exception for certain mortgage insurance The most you can exclude is $2 million ($1 Mortgage Interest The allocation rules, explained above, do not million if married filing separately). You cannot apply to qualified mortgage insurance provided exclude any amount that was discharged be- Credit by the Department of Veterans Affairs or Rural cause of services performed for the lender or on Housing Service. account of any other factor not directly related The mortgage interest credit is intended to help either to a decline in the value of your residence lower-income individuals afford home owneror to your financial condition. ship. If you qualify, you can claim the credit each Home Acquisition Debt Ordering rule. If only a part of a loan is year for part of the home mortgage interest you Home acquisition debt is a mortgage you took qualified principal residence indebtedness, you pay. out after October 13, 1987, to buy, build, or can exclude only the amount of the discharge Who qualifies. You may be eligible for the Table 1. Where To Deduct Interest and Taxes Paid on Your Home credit if you were issued a mortgage credit certificate (MCC) from your state or local government. Generally, an MCC is issued only in See the text for information on what expenses are eligible. connection with a new mortgage for the purchase of your main home. IF you are eligible to deduct... THEN report the amount The MCC will show the certificate credit rate on Schedule A (Form 1040)... you will use to figure your credit. It also will show the certified indebtedness amount. Only the inreal estate taxes line 6. terest on that amount qualifies for the credit. See Figuring the Credit, later. home mortgage interest and points reported line 10. on Form 1098 You must contact the appropriate gov- TIP ernment agency about getting an MCC before you get a mortgage and buy home mortgage interest not reported on Form line 11. your home. Contact your state or local housing 1098 finance agency for information about the availability points not reported on line 12. of MCCs in your area. Form 1098 How to claim the credit. To claim the credit, complete Form 8396 and attach it to your Form qualified mortgage insurance premiums line Include the credit in your total for Form 1040, line 52; be sure to check box a on that line. Publication 530 (2009) Page 7

8 Reducing your home mortgage interest de- Table 2. Effect of Refinancing on duction. If you itemize your deductions on Schedule A (Form 1040), you must reduce your Your Credit Keep for Your Records home mortgage interest deduction by the amount of the mortgage interest credit shown on IF you get a new (reissued) MCC and the THEN the interest you claim on Form 8396, amount of your new mortgage is... line 1, is*... Form 8396, line 3. You must do this even if part of that amount is to be carried forward to smaller than or equal to the certified all the interest paid during the year on your new Selling your home. If you purchase a home indebtedness amount on the new MCC mortgage. after 1990 using an MCC, and you sell that larger than the certified indebtedness interest paid during the year on your new home within 9 years, you may have to recapture (repay) all or part of the benefit you received from the MCC program. For additional informaamount on the new MCC mortgage multiplied by the following fraction. tion, see Recapturing (Paying Back) a Federal Mortgage Subsidy, in Publication 523. Figuring the Credit Figure your credit on Form *The credit using the new MCC cannot be more than the credit using the old MCC. See New MCC cannot increase your credit. certified indebtedness amount on your new MCC original amount of your mortgage Mortgage not more than certified indebtedness. If your mortgage loan amount is equal to minimum tax on Form 1040, line 45, minus this amount to the next 3 years or until used, (or smaller than) the certified indebtedness certain other credits. whichever comes first. amount shown on your MCC, enter on Form Form 1040NR filers: Your regular tax lia- Credit rate more than 20%. If you are subject 8396, line 1, all the interest you paid on your bility on Form 1040NR, line 41, plus any to the $2,000 limit because your certificate credit mortgage during the year. alternative minimum tax on Form 1040NR, rate is more than 20%, you cannot carry forward Mortgage more than certified indebtedness. line 42, minus certain other credits. any amount more than $2,000 (or your share of If your mortgage loan amount is larger than the the $2,000 if you must divide the credit). Use Form 8396 to figure this limit. certified indebtedness amount shown on your Example. In the earlier example under Di- MCC, you can figure the credit on only part of Dividing the Credit viding the Credit, John and George used the the interest you paid. To find the amount to enter on line 1, multiply the total interest you paid during the year on your mortgage by the following fraction. Certified indebtedness amount on your MCC If two or more persons (other than a married couple filing a joint return) hold an interest in the home to which the MCC relates, the credit must be divided based on the interest held by each person. entire $2,000 credit. The excess $150 for John ($1,350 $1,200) and $100 for George ($900 $800) cannot be carried forward to future years, despite the respective tax liabilities for John and George. Example. John and his brother, George, Refinancing Original amount of your were issued an MCC. They used it to get a mortgage mortgage on their main home. John has a 60% If you refinance your original mortgage loan on The fraction will not change as long as you ownership interest in the home, and George has which you had been given an MCC, you must are entitled to take the mortgage interest credit. a 40% ownership interest in the home. John paid get a new MCC to be able to claim the credit on $5,400 mortgage interest this year and George the new loan. The amount of credit you can Example. Emily bought a home this year. paid $3,600. claim on the new loan may change. Table 2 Her mortgage loan is $125,000. The certified The MCC shows a credit rate of 25% and a summarizes how to figure your credit if you refiindebtedness amount on her MCC is $100,000. certified indebtedness amount of $130,000. The nance your original mortgage loan. She paid $7,500 interest this year. Emily figures loan amount (mortgage) on their home is An issuer may reissue an MCC after you the interest to enter on Form 8396, line 1, as $120,000. The credit is limited to $2,000 be- refinance your mortgage. If you did not get a follows: cause the credit rate is more than 20%. new MCC, you may want to contact the state or local housing finance agency that issued your John figures the credit by multiplying the $100,000 original MCC for information about whether you = 80% (.80) mortgage interest he paid this year ($5,400) by $125,000 can get a reissued MCC. the certificate credit rate (25%) for a total of $1,350. His credit is limited to $1,200 ($2,000 Year of refinancing. In the year of refinanc- $7,500 x.80 = $6,000 60%). ing, add the applicable amount of interest paid Emily enters $6,000 on Form 8396, line 1. In George figures the credit by multiplying the on the old mortgage and the applicable amount each later year, she will figure her credit using mortgage interest he paid this year ($3,600) by of interest paid on the new mortgage, and enter only 80% of the interest she pays for that year. the certificate credit rate (25%) for a total of the total on Form 8396, line 1. $900. His credit is limited to $800 ($2,000 If your new MCC has a credit rate different 40%). from the rate on the old MCC, you must attach a Limits statement to Form The statement must show the calculation for lines 1, 2, and 3 for the Two limits may apply to your credit. part of the year when the old MCC was in effect. Carryforward A limit based on the credit rate, and It must show a separate calculation for the part If your allowable credit is reduced because of of the year when the new MCC was in effect. A limit based on your tax. the limit based on your tax, you can carry forline 3, enter the total on line 3 of the form, and Combine the amounts from both calculations for ward the unused portion of the credit to the next Limit based on credit rate. If the certificate 3 years or until used, whichever comes first. write See attached on the dotted line. credit rate is higher than 20%, the credit you are New MCC cannot increase your credit. The allowed cannot be more than $2,000. Example. You receive a mortgage credit credit that you claim with your new MCC cannot certificate from State X. This year, your regular be more than the credit that you could have Form 1040 filers: Your regular tax liability on Form 1040, line 44, plus any alternative Limit based on tax. Your credit (after apply- ing the limit based on the credit rate) generally cannot be more than the following. tax liability is $1,100, you owe no alternative minimum tax, and your mortgage interest credit is $1,700. You claim no other credits. Your unused mortgage interest credit for this year is $600 ($1,700 $1,100). You can carry forward claimed with your old MCC. In most cases, the agency that issues your new MCC will make sure that it does not in- crease your credit. However, if either your old loan or your new loan has a variable (adjustable) Page 8 Publication 530 (2009)

9 interest rate, you will need to check this yourself. 1. You (and your spouse if married) previ- Amount of the Credit 2. You purchased your new main home lo- cated in the United States: In that case, you will need to know the amount of the credit you could have claimed using the old MCC. There are two methods for figuring the credit you could have claimed. Under one method, you figure the actual credit that would have been allowed. This means you use the credit rate on the old MCC and the interest you would have paid on the old loan. If your old loan was a variable rate mortgage, you can use another method to determine the credit that you could have claimed. Under this method, you figure the credit using a payment schedule of a hypothetical self-amortizing mortgage with level payments projected to the final maturity date of the old mortgage. The interest rate of the hypothetical mortgage is the annual percentage rate (APR) of the new mortgage for purposes of the Federal Truth in Lending Act. The principal of the hypothetical mortgage is the remaining outstanding balance of the certified mortgage indebtedness shown on the old MCC. ously owned and used the same main home as your main home for any 5-consecutive-year period during the 8-year pe- riod ending on the date you purchased your new main home. a. After vember 6, 2009, and before May 1, 2010, or First-time homebuyer. is the smaller of: Generally, the credit $8000 ($4000) if married filing separately), or 10% of the purchase price of the home. Long-time resident of the same main home. Generally, the credit is the smaller of: b. After April 30, 2010, and before July 1, $6,500 ($3,250 if married filing sepa- 2010, and you entered into a binding rately), or contract before May 1, 2010, to purchase the property before July 1, 10% of the purchase price of the home Phase-out of the credit for homes purchased 3. You do not meet any of the conditions before vember 7, You are allowed listed under Who Cannot Claim the Credit. the full amount of the credit if your modified adjusted gross income (MAGI) is $75,000 or less ($150,000 or less if married filing jointly). Additional year to purchase a home for mem- The phase-out of the credit begins when your bers of the uniformed services or Foreign MAGI exceeds $75,000 ($150,000 if married You must choose one method and use Service and employees of the intelligence filing jointly). The credit is eliminated completely! it consistently beginning with the first community. Members of the uniformed serv- when your MAGI reaches $95,000 ($170,000 if CAUTION tax year for which you claim the credit ices or Foreign Service and employees of the married filing jointly). based on the new MCC. intelligence community who are on qualified offi- cial extended duty outside the United States Phase-out of the credit for homes purchased As part of your tax records, you should may have an additional year to purchase a home after vember 6, You are allowed the TIP keep your old MCC and the schedule and qualify for the credit. full amount of the credit if your modified adjusted of payments for your old mortgage. gross income (MAGI) is $125,000 or less First-Time Homebuyer Credit The following paragraphs summarize the first-time homebuyer credit. For more details, see Form 5405 and its separate instructions. Who Cannot Claim the Credit ($225,000 or less if married filing jointly). The phase-out of the credit begins when your MAGI You cannot claim the credit if any of the following exceeds $125,000 ($225,000 if married filing apply. jointly). The credit is eliminated completely when your MAGI reaches $145,000 ($245,000 if mar- 1. The purchase price of the home is more ried filing jointly). than $800,000. This rule applies to homes purchased after vember 6, Modified adjusted gross income (MAGI). 2. Your modified adjusted gross income is: a. $95,000 or more ($170,000 or more if married filing jointly) and you purchased Who Can Claim the Credit your home before vember 7, 2009, In general, you may be able to claim the credit if you are a first-time homebuyer or a long-time b. $145,000 or more ($245,000 or more if line 15. resident of the same main home. married filing jointly) and you purchased your home after vember 6, or Your modified adjusted gross income is the amount from Form 1040, line 38, increased by the total of any: Exclusion of income from Puerto Rico, and Amount from Form 2555, lines 45 and 50; Form 2555-EZ, line 18; and Form 4563, First-time homebuyer. You are considered a first-time homebuyer if you meet all of the follow- 3. You cannot claim the credit for any year for ing requirements. which you can be claimed as a dependent Basis on another person s tax return. This rule 1. You purchased your main home located in applies to homes purchased after vemthe United States: Basis is your starting point for figuring a gain or ber 6, loss if you later sell your home, or for figuring depreciation if you later use part of your home a. After December 31, 2008, and before 4. You (and your spouse if married) are for business purposes or for rent. May 1, 2010, or under age 18 on the date of purchase. While you own your home, you may add b. After April 30, 2010, and before July 1, This rule applies to homes purchased after certain items to your basis. You may subtract 2010, and you entered into a binding vember 6, certain other items from your basis. These items contract before May 1, 2010, to 5. You are a nonresident alien. are called adjustments to basis and are expurchase the property before July 1, plained later under Adjusted Basis Your home is located outside the United It is important that you understand these States. terms when you first acquire your home be- 2. You (and your spouse if married) did not 7. You sell the home, or it ceases to be your cause you must keep track of your basis and own any other main home during the main home, before the end of the year in adjusted basis during the period you own your 3-year period ending on the date of home. You also must keep records of the events which you purchased it. purchase. that affect basis or adjusted basis. See Keeping 8. You acquired the home by gift or inheri- Records, later. 3. You do not meet any of the conditions tance. listed under Who Cannot Claim the Credit. 9. You acquired your home from a related Figuring Your Basis person. Long-time resident of the same main home. How you figure your basis depends on how you You are considered a long-time resident of the 10. You acquired your home after vember acquire your home. If you buy or build your same main home if you meet all of the following 6, 2009, from a person related to your home, your cost is your basis. If you receive your requirements. spouse. home as a gift, your basis is usually the same as Publication 530 (2009) Page 9