Tax Tips for Home Buyers and Sellers

Primary residence buyers and sellers understand the fundamental tax benefits of owning a home. Many though aren't aware beyond the typical deductions of mortgage interest and real estate taxes what and when other home buying or selling expenses can be deducted.

To claim deductions you must itemize on Schedule A form 1040 and under IRS rules if you itemize you can't claim the standard deduction. To see more tax information for first-time homeowners pick up Internal Revenue Form 530 for 2005. Many deductions or costs have exceptions that you must meet to claim a deduction or cost basis expense. Here are some basic guidelines that buyers and sellers should be familiar with before entering a contract to purchase or sell a home.

Deductions

• Mortgage interest. Your main or a second home must secure mortgages.
• Late payment charges on a mortgage. Only deductible if it wasn't for a specific service in connection with your loan.
• Mortgage prepayment penalties. Only deductible if it wasn't for a specific service in connection with your loan.
• Real estate taxes. Property taxes actually paid in the tax year.
• Home improvement, mortgage and refinancing loan origination points. You must meet set guidelines or spread costs over life of the mortgage.

Costs

• Transfer taxes. State, county or local. Charges you paid charged by governments when a home is bought or sold.
• Owner's title insurance.
• Recording fees. Fees charge by governments to have mortgages, satisfactions, deeds and other legal documents registered into databases.
• Legal and Abstract fees.
• Property surveys.
• Real estate brokerage commissions.
• Local assessments that increase the value of your property. New sidewalks, streets, sewer and water systems are costs.
• Special homeowners association condominium assessments that cover capital improvements such as a new roof, not roof repairs.
• Charges for installing utility services for new construction.

Don't plan on taking as a cost or deduction.

• Mortgage principal payments.
• Mortgage insurance premiums.
• FHA and VA funding fees.
• Credit report fees.
• Loan application fees.
• Loan assumption fees.
• Notary fees.
• Mortgage note preparation costs.
• Appraisal fees by mortgage lender.
• Home inspections.
• Moving costs. Unless you relocated to a new job, restrictions apply.
• Cleaning costs when moving in or out of a home.
• Condominium homeowner association assessments.
• Condominium homeowner association application, move-in and move-out fees.
• Rent for occupancy before closing.
• Homeowner's insurance premiums.
• Wages for household help.
• Depreciation.
• Contributions to a tax escrow accounts that were not paid to a taxing authority.
• The cost of cable-TV, electricity, gas, telephone or water.
• Charges for services such as trash collection or periodic service charges for lawn mowing or snow shoveling when in violation of local ordinances.
• Repairs. An expense that keeps your home in ordinary and efficient operating condition such as fixing gutters leaks, broken windows and cracked drywall.
• Gifts to buyers or sellers such as flowers, gift baskets or entertainment.
• Your own labor for an improvement. An improvement is based on the actual costs of material labor except your own.