November 14, 2011
Conventional wisdom would tell us that if we did not pay for an expense, we certainly could not deduct it on our tax return. Seems like there are always exceptions to the rules and the tax world is no different. Medical expenses, property taxes and points paid on a mortgage can all be paid by someone else and potentially be your tax write-off. Many people who do their own tax returns tend to miss these unexpected deductions.
With the current economic conditions of high unemployment and homeowners underwater with their mortgages it has become fairly common for parents/grandparents to step in and pay bills for the kids/grandkids. Recent tax court rulings have concluded that if your parent pays a medical bill for you it can be characterized as a gift of funds to you hence, your tax deduction. If the payment is made directly to the medical service provider there are also no gift tax implications.
Otherwise there is a gift filing requirement for gifts over $13,000 in one year. Real estate taxes paid by your parent would also be considered a gift (subject to gift tax filing requirements over $13K), and deductible by you.
Many times a home buyer will negotiate for the seller to pay points to their bank enabling them to get a lower interest rate. As long as the home is going to be your principal residence you can deduct the points on your tax return even though the seller paid them.
Santa Claus could be busy till April 15th this year!
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).
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