Q. We bought a house in January. What bills can be deducted from our income tax next year? Our costs are down payment, closing fee, mortgage insurance, house insurance, taxes (included in mortgage payment), water and trash bills. We are renting the house out. We installed a new furnace right after we bought the house.
A. Your expenses fall into three categories. The first consists of costs any owner can take as income tax deductions. That includes property taxes actually paid, whether at closing or through the mortgage company. Interest paid on your mortgage is also deductible, and that would include any "points" you may have paid as extra interest at closing.
Two more categories apply because this is income property and not your own residence. Some expenses may be deducted against this year's rent: mortgage insurance premium, landlord insurance, water and trash bills and repairs.
The third category is complicated. As landlords, you should have professional help with setting up bookkeeping as well as tax returns. Some items can be deducted by the owners of rental property, but only over a period of years, under the heading of "depreciation." They include the purchase price of the house (not including the lot,) closing fees, and permanent improvements like that new furnace.
Q. My husband and I bought a home five months ago. When we inquired about the property lines, the broker said the lot included the backyard to the edge of the woods.
After we bought the home, a survey showed the lot ended six feet beyond the back of the house. More than half the backyard is not ours. We discovered the previous owner was aware of the property lines. Do we have any legal recourse against the broker for misrepresenting the property, or the seller for withholding the information?
A. I spoke with a lawyer about your question. He says if you have any recourse, it may be against both parties, because when an agent tells you something, it is as if the principal (the seller) had made the statement.
In general, the seller is responsible for revealing any material defect that is not determinable by a reasonably prudent inspection. Certainly the loss of half a backyard is a material matter, serious enough to have influenced your decision to buy.
I think it's logical to assume that the backyard ends where it seems to end. Certainly many buyers do just that. My lawyer says, though, that a prudent inspection should include a survey. If a court decided it was your responsibility to determine the boundary lines before you bought, you might not collect any damages.
I asked whether the broker could plead that she relied on the seller's information. The lawyer just laughed and said, "That's another one for the courts to decide." At any rate, he feels it is worth taking the whole thing to an attorney.
Q. Could you please explain points? Do you just get them when you make the down payment, or do you earn more over the years?
A. Sorry to be the one to break the news, but where a mortgage loan is concerned, you don't get points. Quite the opposite, you pay them. They're nothing like the points you accumulate as a frequent flyer.
One point means one percent. Lenders often charge them, one time only, as extra upfront interest when you place a mortgage. Here's a typical final exam question for beginning sales agents:
"Mr. and Mrs. B. are buying a house for $200,000 and putting 20 percent down. They're getting a 4 percent mortgage, and their lender is charging two points on the loan. Besides other closing costs, how much cash will they need to close?"
There are more ways to get this wrong than you'd think. Some students just multiply everything in sight, perhaps hoping that 4 percent of $200,000 will do. Wrong. So is 4 percent of anything. That's the interest rate charged on the loan for the next 30 years, but the instructor included it in the question just to be nasty. It has nothing to do with the answer.
Unlike the loan's interest rate, points are charged only once, upfront. Students who know that two points mean two percent may say the buyer needs $4,000. Wrong again. Points are charged on the loan, not on the whole purchase price. If the buyers are putting 20 percent down, that's $40,000, and they're borrowing $160,000.
Of course, $3,200 is also a wrong answer. The instructor is being tricky again. At closing, the buyers will need cash for the down payment as well as the points. If you said they'd need $43,200, you get a gold star.
But not, I'm afraid, a free airline ticket.
• Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (include a stamped return envelope), or readers may email her through askedith.com.
© 2012, Creators Syndicate Inc.