Top 10 Homeowner Tax Deductions...

2000 income tax are due in just a few weeks, but there's still plenty of time to gather information for the often overlooked top 10 homeowner tax deductions. Although not all these deductions will apply to every homeowner, adding just one or two of those forgotten tax breaks can be profitable;

1) Loan fee paid to obtain a home acquisition mortgage:

If you bought a home in2000, you probably paid a loan fee to obtain a new home mortgage. These loan fees are usually called "point" and each point equals 1% of the amount borrowed. Loan fees, or points, paid to obtain a principal residence acquisition mortgage up to $1 million are tax-deductible as itemized interest on Schedule A of your income tax returns.

2) Loan fee paid to obtain a home improvement loan or a loan for a second home or vacation home:

If you paid a loan fee to obtain a home improvement loan or a mortgage to buy a second or vacation home, that loan fee is also tax-deductible in the year paid.

3) Loan fee paid to obtain any other real estate loan must be amortized over the life of the mortgage:

If you paid a loan fee to obtain any other real estate loan, such as a second mortgage, a refinanced first mortgage or a mortgage to buy a rental house, the loan fee paid must be amortized (deducted) over the life of the mortgage.

For example, if you paid a $1,000 loan fee to obtain a 30-year refinanced home loan, don't forget to deduct $33.33 each year for the next 30 years.

4) Remember to deduct any loan fees not deducted on a previous mortgage refinance:

If you previously refinanced a home mortgage but you refinanced again in 2000, remember to deduct any loan fee not previously deducted from the prior refinanced mortgage that was paid off.

5) Deduct prorated real estate taxes paid in the year of home purchase or sale:

If you bought or sold your home in 2000, the property taxes were prorated between the buyer and seller at the time of the closing.

Whether you or the other party actually paid the local tax collector, or if the property taxes were paid out of a mortgage escrow account, you can deduct your prorated share. The closing settlement statement is your proof of the deduction.

6) Deduct prorated mortgage interest for the year of home purchase or sale:

Another prorated tax deduction that is often forgotten is the mortgage interest if you or the other party took over an existing mortgage. A formal mortgage assumption is not required. Again, your closing settlement statement shows your share of the prorated mortgage interest.

7) Deduct a mortgage prepayment penalty:

If you paid off an existing mortgage, whether because you sold the property or refinanced it, the prepayment penalty paid to the old mortgage lender is tax-deductible as itemized interest.

8) Deduct prepaid real estate taxes:

Millions of homeowners prepaid their 2001 property taxes in late 2000, usually because they wanted to increase their 2000 itemized income tax deductions. These prepaid property taxes are deductible on your 2000 income tax returns.

9) Remember to deduct property taxes paid from your escrow account:

Millions of homeowners have mortgage escrow accounts through which their loan servicers collect one-twelfth of the estimated property taxes each month, along with the monthly mortgage payment.

When the loan servicer remits the property tax payment to the local tax collector, usually twice a year, those payment amounts become tax-deductible.

10) When ground rent payments are tax-deductible:

Millions of U.S. residences live on leased land where homeowners pay ground rent.

Internal Revenue Code 163 (c) says these land lease payments are tax-deductible as itemized interest if: Internal Revenue Code 163 (c) says these land lease payments are tax-deductible as itemized interest if:

(a) The ground lease is for at least 15 years, including renewal periods.

(b) The lease is freely assignable to a buyer of your home.

(c) You have a current or future option to buy the land beneath your residence.

(d) The landowner's interest is primarily a security interest, similar to a mortgage.

If you do not have an option to buy the land, such as in a mobile home park where you rent a lot, your land lease payments are not tax-deductible as itemized interest.

How to handle nondeductible home purchase closing costs:

At the time of home purchase, buyers are often charged costs such as transfer taxes, recording fees, escrow, attorney and title fees. These expenses are not tax-deductible, but they should be added to your home's purchase price, thus increasing your adjusted cost basis. The result will be to reduce your profit at the time of home sale.

Similarly, if you paid a special property tax assessment in 2000, such as for sewers, streets or sidewalks, that special assessment is not tax-deductible. However, it should be added to your property's adjusted cost basis.

The reason is such civic improvements enhance your property's value, and these improvement costs will reduce your taxable profit when you eventually sell your property.