Most homeowners don't think of their residences as a perfectly legal tax shelter, but that's what homes are. In addition to being a place to live, your house, condo or other dwelling can save thousands of tax dollars, which renters don't get to enjoy.
Not all of these 10 most-often-forgotten homeowner tax deductions will apply to every residence. However, just one or two overlooked residential deductions can save tax dollars.
* If you purchased a house, condo or other dwelling last year and paid a loan fee to obtain a mortgage, that fee, usually called points, is tax-deductible. Each point equals 1% of the amount borrowed.
If your home acquisition mortgage is below $1 million, you can claim the fee paid to obtain the mortgage on Schedule A. If the IRS Form 1098 received from your lender did not include the loan fee, add it to your tax-deductible mortgage interest for 2002.
* If you changed job locations and also moved to a different residence last year, whether you are a renter or a homeowner, you may be entitled to deduct your household moving costs if you meet the "distance test."
To qualify, your new job must be at least 50 miles farther from your old home than was your old job site. The distance from your new home to your new job location is irrelevant.
To illustrate, suppose your old job location was 10 miles from your old home. If your new workplace is at least 60 miles from your old home (10 plus 50) in this example, you are entitled to deduct your residential moving costs.
Presuming you passed the moving expense distance test, you must also be employed at least 39 weeks during the next 52 weeks in the vicinity of your new job location. However, you need not work for the same employer. If you are self-employed, you must work at least 78 weeks during the next 104 weeks in the vicinity of your new job site.
* If you refinanced in 2002 and paid a loan fee to the lender, it is tax-deductible. But the bad news is it can only be deducted over the life of your refinanced mortgage, typically 30 years.
For example, if you paid a $2,000 mortgage refinance fee or points to obtain a 30-year home loan, your deduction is $66.66 each year for the next 30. A better alternative would have been to obtain a so-called "no-cost" refinanced mortgage at a slightly higher deductible interest rate.
* If you have refinanced for a second, or perhaps third, time, any undeducted loan fees from your prior home loan refinance can be deducted in full at the time of your last refinance.
Suppose you refinanced in 2001, paid a $1,000 loan fee and deducted $33 of it on your 2001 income tax returns. But you refinanced again in 2002. Be sure to deduct the remaining $967 of undeducted loan fees from your previous refinance on your 2002 income tax returns.
* If you sold your home or refinanced its mortgage and if the lender required a mortgage prepayment penalty, be sure to deduct it on your 2002 returns as itemized interest. The IRS form 1098 received from your old lender might not include the prepayment penalty, so be sure to double-check.
* If you took over an existing mortgage, whether you formally assumed it or bought "subject to," you're entitled to your share of the prorated mortgage interest for the month of the sale.
For the month of the home sale, the interest should be prorated between buyer and seller according to the days of their ownership by the closing settlement agent. Your tax-deductible share should be listed on your closing statement.
* If you bought or sold a home, your closing settlement statement prorated the property tax between the buyer and seller. It doesn't matter whether the buyer or seller sent the payment to the local tax collector.
Be sure to remember to deduct your share of the prorated property tax shown on your closing statement.
* If you prepaid your property taxes and January mortgage payment in December 2002, you can deduct them on your tax returns for that year.
Double-check the IRS form 1098 to be certain it includes your extra December payment with its tax-deductible interest. If not, add the amount of prepaid mortgage interest you paid in late 2002 to your deductible interest amount.
* Virtually all FHA, VA and PMI (private mortgage insurance) home loans have escrow impound accounts for timely payment of property taxes and homeowner insurance. Be sure to deduct the property taxes your lender remitted to the local tax collector from your escrow account in 2002.
This amount is usually shown on your IRS form 1098 or other year-end statement received from your loan servicer. However, be aware your monthly payments into your escrow account are not tax-deductible until the lender remits payment to the tax collector, often many months after you made the payment.
* Internal Revenue Code 163(c) allows homeowners living on leased land to deduct their ground rent payments if the ground lease is for at least 15 years, including renewal periods, the lease is freely assignable to a buyer of your home, the land owner's interest is primarily a security interest (such as a mortgage), and you have a current or future option to buy the land beneath your residence.
If you do not have an option to buy the land beneath your residence, your land lease payments do not qualify as tax-deductible itemized interest.
If you purchased your house or condo last year, you probably paid nondeductible closing costs, such as a transfer tax, recording fees, escrow attorney or title charges, and other nondeductible home purchase costs.
Be sure to add these expenses to your home's purchase price cost basis because doing so might save you tax dollars when you eventually sell your residence. Consult your personal tax advisor for more details on these and other homeowner tax benefits.
Robert J. Bruss is a syndicated columnist as well as a real estate investor, lawyer, broker and educator in the Bay Area.