Amounts that qualify as points may either be deductible at the time they are paid or deducted ratably over the life of the loan. They aren't an addition to the basis.
You can deduct the points to obtain a mortgage or to refinance your mortgage to pay for home improvements on your principal residence, in the year you pay them. In general, points to obtain a new mortgage, to refinance an existing mortgage, or paid on loans secured by your second home are deducted ratably over the term of the loan.
If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. However, if you refinance the mortgage with the same lender, you can't deduct any remaining balance of spread points. Instead, deduct the remaining balance over the term of the new loan. A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event. See IRS Publication 936 for more information.
Many other settlement fees and closing costs for buying the property become additions to your basis in the property, including:
- Abstract fees.
- Charges for installing utility services.
- Legal fees.
- Recording fees.
- Surveys.
- Transfer taxes.
- Title insurance.
If you sold your main home during the current tax year, TurboTax can determine if you need to report the sale on your tax return. Generally, profits of up to $250,000 (up to $500,000 on a joint tax return) don't need to be reported to the IRS. TurboTax can figure this out for you.
To enter the sale of a personal residence in TurboTax Online:
- Click on Federal Taxes
- Click on Wages and Income
- Scroll down to Less Common Income
- On Sale of Home (gain or loss), click the start or update button
If your gain on the sale will be less than the applicable limit, and if it was never used for business or as a rental, and you didn't receive a Form 1099-S, you don't need to report the sale on your return at all. Not having to report the sale could save you from needing to upgrade your TurboTax product.
See this article for more information on determining the gain on the sale of your home.
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