2. All costs related to my home are deductible.
There are no two ways about this one. It's flat-out false.
"Some buyers think, hope, they can write off everything connected with the house," says Tollaksen. "Not so. Association fees and property-insurance costs are not deductible."
Neither, in most cases, is private mortgage insurance, which your lender probably required if your down payment was less than 20%. However, a new law changes the deductibility of PMI for mortgages originated or refinanced between Jan. 1, 2007, and Dec. 31, 2009.
If you got your mortgage and policy in that time frame, you might be able to deduct your insurance-premium payments. The law also extends beyond private insurance to others, including FHA, VA and rural housing.
There are some limits, though. The PMI deduction is phased out for taxpayers with adjusted gross incomes exceeding $100,000 and is totally eliminated once adjusted gross income reaches $110,000.
Don't try to deduct basic maintenance, repair or home-improvement costs either.
Tollaksen says, "I've had people say, 'I put a new roof on my home; can I deduct that?' No."
If you try to write off these expenses, expect to hear from the Internal Revenue Service and to pay a higher tax bill (and possible penalties and interest) after you refigure your taxes without the disallowed deductions.
However, you still need to keep track of these expenses.
"If you convert the home to rental property or sell it," she says, "these costs will affect the property's tax basis."
A home's basis is critical when it comes time to sell. And selling is also a tax area in which many people fall for myth No. 3.
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