I have a tough question here for the community! I just recently purchased a condo for my mother under a Family Opportunity Mortgage Loan and I wanted to see if I am allowed to write off any of the cost associated with the down payment, closing cost, and repairs done to the unit (see list below). My mom is on disability and has very limited income ($795 a month) so I cover the total mortgage payment and HOA fee every month. She covers her power, food, and house hold items. Can I write of the monthly payment for the property or is it just considered a second home? What about the repair work done to the property? Thanks everyone!
Doors replaced $600
AC units $5,500
Hot water heater repair $200
You can deduct mortgage interest that you pay on your main home where you live most of the time, and on any one second home. If you have more than one second home, you will have to decide which interest to deduct. You can consider this your second home even though you do not live there. However, you must be obligated on the mortgage or a co-owner of the home or both.
You can deduct property taxes on all US property that you own, including a first and second home, but the deduction is limited to $10,000 for all state and local taxes including income taxes and property taxes combined.
The part of your mortgage payment that goes to escrow is not tax-deductible as such. A portion may be tax-deductible as property taxes as of the date the property taxes are paid from the escrow account.
HOA fees are not tax-deductible.
Most closing costs are not deductible.
1. You can deduct mortgage interest if you are a borrower on the mortgage or a legal owner of the home and you are the person who paid the interest. At closing, you probably paid a few days of daily interest from the closing date to the end of the month, and this daily interest will be listed on your closing statement. You may deduct this daily interest even if it is not included in the 1098 that you receive from the lender.
2. You can deduct mortgage points if you are the person who actually paid the points and you are either a borrower or a co-owner. Points are a fee the bank charges to buy a discounted interest rate. To be deductible, points must be a percentage of the loan amount and they can’t be designated for as a fee for any other purpose, such as a flat application fee, a bank attorney fee, document preparation fee, or any other fee.
3. You can deduct property taxes that you paid as part of the closing, as long as you are a co-owner of the home. These will also be reflected on your closing statement even though they will likely not be on your 1098. For example, in most jurisdictions, property taxes are paid in advance. The owner might pay in February to cover the entire year of January to December. If you close in July, for example, you will give the seller a credit of property taxes on your closing statement to reimburse the seller for taxes that they paid in advance that cover the period of time that you will on the home. You can deduct these property taxes as if you pay them directly to the city or county.
Home improvements are not tax-deductible. They are added to the cost of basis of the home and may reduce the capital gains tax that you have to pay when you sell. An improvement is something that increases the value of the home or extends the useful life of the home or one of its systems. For example, a new air-conditioning unit extends the life of the home’s climate control system, and new doors likely increase the value of the home. Improvements must also be permanently attached to the real property, that means the land and anything attached to it. That means that a built-in wall oven or built-in refrigerator would be considered an improvement but a standalone stove or refrigerator is not.
Repairs are never tax-deductible and are not adjustments to the home’s cost. Repairs are just something that every responsible property owner is expected to do to maintain the value of their property. Repairs restore or keep the property in as-is condition and do not add value or increase the useful life of the home.
@Mitzi L if you will just work through the program the way it is designed and intended to be used, you will be prompted for everything. For long term residential rental property, it gets reported in the Rental & Royalty Income (SCH E) section of the program. Generally, that's under the Personal Income tab. If you are using TurboTax Self Employed or TurboTax Home & Business, then it's under the Business tab.
For depreciation, all assets get entered/listed in the Assets/Depreciation section of Rental & Royalty Income (SCH E). Once assets are entered, the 4562 will be generated by the program.
Thank you, Carl, I think I got it. I have been trying to work with this section, So many questions in my mind with this Turbotax program which it is my second time this year. I couldn't find where to input on theTurbotax program. The worst issue that I couldn't get through the Turbotax's phone line, the Lady's voice on the recorder stopped me every time I tried for help. However, with your help, I believed I got it. Hopefully I am trying to get this done by this weekend. Thank you for your wonderful information with depreciation.
However, my next question? after I complete this, how can I have one of your expert agents to help for review and submit before I file the Fed and State tax return. how to make appointment? Thank you and God Bless!
how to make appointment?
Fist, you have to be using the online version of TTX. Personally, I don't recommend the online version of someone not familiar with the program. It has it's drawbacks, with the main one being that in *my personal opinion*, it is not user friendly for new or first time user, as well as not being able to see or do things in forms mode. Then with that online version you have to be subscribed to "TurboTax Live" which entitles you to live help from a TTX employed CPA or Tax Pro.
Now I don't know if this is still offered or not, but I do know that at one time you could pay extra for a review by a CPA or Tax Pro. If they still do that, then you won't be offered that option until you start the e-filing process at the very end.
Typically, with all the checks the program performs at the end, chances of a mistake are low. It's not impossible though, as the program can only work with the data that you the user provide. So if you provided incorrect data and answered a question wrong, there's no possible way for the program to know that. Heck, even a CPA or Tax Pro can only work with the information that you provide them.