@JARHEAD1960
When you buy and sell personal property, including your home, the two transactions are completely separate. The old rule about postponing tax on the capital gains from selling the old house when you buy a new house was changed in 1997.
For the sale of the prior home, we have to keep separate the idea of tax deductions and capital gains.
If you sold the home for more than you paid, you have a capital gain. That is usually taxable. However, you can exclude the first $250,000 of capital gains from tax, or $500,000 if you are married filing jointly, as long as this was your main residence and you owned it and lived there at least two years of the past five years. However, you would be required to pay some capital gains tax if you have ever use the home as a home office or taken a business deduction or a casualty loss, even if you qualify for the exclusion. You can enter the sale in TurboTax under “sale of your home“. If you qualify for the exclusion, TurboTax will tell you that you don’t even need to report it on your tax return.
As far as deductions go, you will deduct the normal mortgage interest that you actually paid up to the date of sale. If you paid points on the mortgage when you bought the home and you were spreading the points out over the life of the loan (instead of deducting them as a lump sum when you bought the home), then you can now deduct the remaining unused points in the year you sell the home. You can deduct property taxes up to the day you sold the home, but not the entire amount you paid the government. For example, if you paid your property taxes on January 15 for the entire year, and you sold the home in August, then the buyer should have given you a credit on your closing statement for the taxes running from August to December when the buyer would be the owner of the home. Even if you did not get such a credit, you can only deduct the taxes up to the day you sold the home.
And far as buying a new home, there are no special deductions or credits, and you don’t report the purchase in TurboTax. However, there are some special rules regarding mortgage and property tax deductions. You can deduct property taxes for the days that you owned the new home, even if you did not pay them. For example, if the seller paid the property taxes in January for the entire year and you bought the home in June, you can deduct the property taxes paid from June to December as if you paid them directly to the government. Usually, you will pay a credit to the seller for these taxes, but even if you did not, you can deduct them as if you paid them.
When you closed, you paid daily mortgage interest to the closing bank from the date of the purchase to the end of the month. That interest is deductible even if it is not included in the total reported on the 1098 from the bank that is servicing your mortgage.
If you paid points to get a discount on the mortgage interest rate, those points are usually deductible in the year that you bought the home. If you tell TurboTax you paid points, TurboTax will ask some qualifying questions and will determine for you if you must spread out the points over the life of the loan or may deduct them all at once.
If you paid a lump sum premium for mortgage insurance (MIP or PMI) as part of your closing, you can deduct that over seven years (84months) as a mortgage insurance deduction. This is in addition to any mortgage insurance premium that you pay monthly which is reported on your 1098. TurboTax will not figure out the deductible portion of your lump sum mortgage insurance premium. You will have to figure it out yourself. If you closed in June, then you can claim 6/84 of the total for this year. If you have a VA loan and paid a VA funding fee, or you have a rural housing loan and paid the insurance fee for that loan, the lump sum is fully deductible this year.
