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From: miorelli@pwa-b.UUCP (Bob Miorelli)
Newsgroups: net.taxes
Subject: buying/selling a house and taxes
Message-ID: <190@pwa-b.UUCP>
Date: Fri, 24-Jan-86 10:57:52 EST
Article-I.D.: pwa-b.190
Posted: Fri Jan 24 10:57:52 1986
Date-Received: Thu, 30-Jan-86 06:01:44 EST
Organization: Pratt & Whitney Aircraft, E. Hartford, CT
Lines: 57

Several people have asked about the consequences of buying or selling
a house.  I'll also touch on moving expenses while I'm at it.


First, buying a house --

Your closing statement is gold -- almost all of what you need is
on there.  There are two columns on the back -- amounts paid by
seller and amounts paid by buyer.  You are the buyer.

Any taxes (prepaid property taxes, etc.) go on your Schedule A
(itemized deductions) under real estate taxes.  Any interest
paid (partial months of interest, etc.) go on the interest for
home mortgage line.  Add any points paid to obtain the loan
(Typically 1 to 3 percent of the mortgage).  This is also interest
paid.  Of course, add on any interest paid later on your monthly
mortgage and any taxes paid out of escrow.  Note -- payments into
escrow for taxes are not deducted until the bank pays the taxes on
your behalf.
Now the rest of the stuff.  Legal fees, title search, title insurance,
recording fees, transfer taxes, termite inspection and the like add
to the basis of the property.  In other words they cannot be deducted
on your tax return.  They do add to your 'cost' of buying the home
which becomes important when you sell it.

Now, selling your home.
First, the selling price (Obvious).  But include cost of sale such
as legal fees, points paid by the SELLER (these are NOT interest).

Next, you need to know the basis of the home (what you have invested).
This is the purchase price plus the stuff mentioned above (legal
fees, etc.).  Also add on the cost of improvements, local assessments,
and energy saving devices.  Subtract off any energy credits claimed and
any depreciation if this was ever business property since you owned it.
The difference, of course, is your profit on the sale.
You'll probably roll it into a new house, or if over age 55 you may
exclude that gain.  Otherwise it is taxable, but a loss is NOT deductible.
You'll need to file a form 2119 on the sale.

Now moving expenses.  First, the move must be job related (to get a new
or first job), and be at least 35 miles (the 35 mile test is strange --
if you're close check the formula on the form).  Any cost of transporting
yourself, your family, the dog, etc. and all household belongings
is deductible.  Also cost of getting yourself there (plane, driving (nine
cents a mile here), etc.)  Now, add in the cost of temporary living
expenses while looking for a place to live, cost of househunting trips.
This is limited to $1500.  Now you can take the cost of breaking a
lease, closing costs on the house, etc. up to a $3,000 limit.  But,
the $3,000 includes the stuff that was up to the $1500 limit above.
Any closing costs taken as moving expenses get subtracted from the
basis of the house.  You'll need form 3903 to do this.

-- 

-->BoB Miorelli, Pratt & Whitney Aircraft
           also, H & R Block tax perparer and Instructor
pwa-b!miorelli