Listed below are examples of frequent tax-related questions with corresponding answers. While many issues may seem straightforward, the answers to many of these questions illustrate the complexity of the U.S. taxation system. For further assistance with these or any other tax issues, please contact us.

Although the information provided herein is derived from data published by the Internal Revenue Service, it is not considered authoritative, and should only be used as a general guide to understanding the underlying issues. Authoritative guidance should be obtained from a tax professional or directly from the Internal Revenue Code, Regulations, Revenue Proclamations, Publications, Bulletins, Announcements, etc.

I received a Form 1099-MISC instead of a Form W-2. I’m not self-employed. I do not have a business. How do I report this income?
If payment for services you provided is listed as non-employee compensation on Form 1099-MISC, you are being treated as a self-employed worker, also referred to as an independent contractor. You do not necessarily have to “have a business”, but simply perform services as a non-employee to have your compensation treated this way. There is no statutory definition of an employee, but from common law three basic areas have been identified:

• behavioral control,
• financial control, and
• type of relationship.

If you meet the definition of an employee, your options include contacting the employer for corrected forms or reporting the misclassification on your Form 1040 to reduce your liability for Social Security and Medicare taxes.

I received a Form 1099-MISC for an employee bonus. How do I report it?
Employee bonuses should be reported on Form W-2, not on Form 1099-MISC. Contact your employer and ask them to issue the correct form. If they will not issue you a Form W-2 for the bonus, you may need to complete Form 4852, Substitute for Form W-2, Wage and Tax Statement. The bonus amount is added to your other Form W-2 wages reported on your Form 1040, 1040A or 1040EZ.

I am self-employed. How do I report my income?
You are a sole proprietor if you are the sole owner of a business that is not a corporation. Report your income and expenses from your sole proprietorship on Form 1040, Schedule C, Profit or Loss from Business.

If the total of your net profit from all businesses is $400 or more, you must also pay into the Social Security system by filing Form 1040, Schedule SE, Self-Employment Tax.

Are alimony payments considered taxable income?
Alimony, separate maintenance, and similar payments from your spouse or former spouse are taxable to you in the year received.

A payment to or for a spouse or former spouse under a divorce or separation instrument is alimony, if the spouses do not file a joint return with each other, if the following conditions are met:

1) The payment must be made by cash, check, money order, etc.
2) The instrument does not designate the payments as “not alimony”
3) The spouses are not members of the same household at the time the payments are made.
4) There is no liability for payments after the death of the recipient spouse.
5) The payment is not treated as child support.

Are child support payments considered taxable income?
No. Some types of income taxpayers receive are not taxable and child support is one of them.

Is money received from a legal settlement taxable?
For court awards and damages, to determine if settlement amounts you receive by compromise or judgement must be included in your income, you must consider the item that the settlement replaces. Following are some examples of settlement items reportable as ordinary income:

• Interest on any award.
• Compensation for lost wages or lost profits in cases. Other than those where the payments are for wages lost as a result of physical injury.
• Punitive damages
• Amounts received in settlement of person rights (if you did not contribute to the plan).
• Damages for a) patent or copyright infringement b) breach of contract. c) interference with business operations.
• Any recovery under the Age Discrimination in Employment Act.
• Injury to your reputation.
• Alienation of affection.

Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).

Damages for emotional distress due to a physical injury or physical sickness are not taxable.

Punitive damages are taxable. It does not matter if they relate to a physical injury or a physical sickness.

I received damages for emotional distress suffered as a result of employment discrimination. Is the money I received taxable?
Emotion distress is not considered a physical injury or physical sickness; therefore, damages for emotion distress are includible in income except to the extent they are paid for medical care attributable to emotional distress.

Do I have to pay tax on reinvested dividends?
Dividend reinvestment plans let you choose to use your dividends to buy (through an agent) more shares of stock in the corporation instead of receiving the dividends in cash. If you are a member of this type of plan and use your dividends to buy more stock at a price equal to its fair market value, you must report the dividends as income.

I am receiving long-term disability. Is it considered taxable?
Generally, you must report as income any amount you receive for your disability through an accident or health insurance plan paid for by the employer.

If both you and your employer have paid for the premiums of the plan, only the amount you receive for your disability that is due to your employer’s payments is reported as income. If you pay the entire cost of a health or accident insurance plan, do not include any amounts you receive for our disability as income on your tax return. If you pay the premiums of a health or accident insurance plan through a cafeteria plan, and the amount of the premium was not included as taxable income to you; the premiums are considered paid by your employer, and the disability benefits are fully taxable.

Pensions and Annuities: General

Am I considered covered by an employer sponsored retirement plan for the year if I do not participate in the plan or if I did not work long enough to be vested?
If your employer’s plan has a separate account for each employee and any amount was contributed or allocated by you or your employer to your account, you are considered covered. This is called a defined contribution plan. With this type of plan, it does not matter if you have worked long enough to be vested.

In the other type of plan, the plan employer must make enough contributions (together with earnings) to provide the retirement benefit promised in the retirement plan. This is called a defined benefit plan. In this type of plan, if you meet the minimum age and years of service requirements to participate in your employer’s plan, you are considered covered even if you decline coverage. It does not matter if you are vested for this type of plan, either.

This is the first year that I received retirement benefits. Are any of my benefits taxable?
If you receive retirement benefits in the form of pension or annuity payments, the amounts you receive may be fully taxable, or partly taxable in the year received.

Pensions and Annuities: Contributions

What is the 2003 limit for elective deferrals to 401(k) plans? What are the limits for other types of pension plans?
Elective deferrals into a section 401(k) plan are limited to $12,000 for 2003, and will increase to $13,000 for 2004. In addition, employees age 50 or over may be eligible to make additional contributions to 2003. The same dollar limitations apply to 403(b) plans.

Pensions and annuities: Distributions, Early Withdrawals, 10% Additional Tax

How long do I have to roll over a retirement distribution?
You must complete the rollover by the 60th day following the day on which you receive the distribution. This 60-day period is extended for the period during which the distribution is in a frozen deposit in a financial institution.

If we cash in a pension plan while in our thirties, what forms do we need to fill out?
You will need to file a Form 1040 and show the amount of withdrawal from your pension. Since you took the withdrawal before reaching age 59 ½, you will need to pay a 10 percent additional tax on early distributions from qualified retirement plans that is reported on page 2 of Form 1040. This tax applies to the distribution that you must include in gross income. It does not apply to any part of a distribution that is tax free, such as amounts that represent a return of your cost or that were rolled over to another retirement plan. If you meet an exception to all or part of the penalty, you may need to file Form 5329 with your return.

Can I withdrawal funds penalty free from my 401(k) plan to purchase my first home?
If you are under the age of 59 ½, you cannot withdraw funds from your 401(k) plan to purchase your first home without being subject to a 10 percent additional tax on early distributions from qualified retirement plans. However, depending on the rules for your 401(k), you may be able to borrow money from your 401(k) to purchase your first home. Your plan administrator should have written information about your particular plan that explains when you can borrow funds from your 401(k) as well as other plan rules.

If I can’t withdraw funds penalty free from my 401(k) plan to purchase my first home, can I roll it over into an IRA and then withdraw that money to use as my down payment?
Yes, if you are receiving a distribution from a 401(k) that is eligible to roll over into an IRA and you meet all of the qualifications for an IRA distribution for a first-time homebuyer. Your plan administrator is required to notify you before making a distribution from your 401(k) plan whether that distribution is eligible to be rolled over into an IRA.

Can a person make a contribution to a SEP-IRA and a Roth IRA, too?
Yes, you can make a contribution to a SEP-IRA and a Roth IRA.

If I am covered by an employer sponsored retirement plan for part of the year, but work the rest of the year for an employer without retirement plan, how much of my earnings may I deduct for a traditional IRA?
The amount you can deduct will be determined by your modified Adjusted Gross Income (AGI) and filing status.

What is the basis of property received as a gift?
To figure the basis of property you get as a gift, you must know its adjusted basis to the donor just before it was given to you. You also must know its fair market value (FMV) at the time it was given to you. If the FMV of the property at the time of the gift is less than the donor’s adjusted basis, your basis depends on whether you have a gain or loss when you dispose of the property. You basis for figuring gain is the same as the donor’s adjusted basis, plus or minus any required adjustments to basis while you held the property. Your basis for figuring a loss is the FMV of the property when you received the gift, plus or minus any required adjustments to basis while you held the property.

I have investment property. Can you explain the term basis of assets?
Increases to basis include but are not limited to:

• improvements
• assessments for local improvements
• sales tax
• the cost of extending utilities lines to the property
• legal fees such as the cost of defending or perfecting title
• zoning costs

Decreases to basis include but are not limited to:

• depreciation
• nontaxable corporate distributions
• casualty and theft losses
• easements
• rebates from the manufacturer or seller

I sold my principal residence this year. What form do I need to file?
If you meet the ownership and use tests, you will generally only need to report the sale of your home if your gain is more than $250,000 ($500,000 if married filing a joint return). This means that during the 5-year period ending on the date of the sale, you must have:

• owned the home for at least 2 years (the ownership test), and
• lived in the home as your main home for at least 2 years (the use test). If you owned and lived in the property as your main home for less than 2 years, you may still be able to claim an exclusion in some cases.

If I take the exclusion of capital gain tax on the sale of my old home this year, can I also take the exclusion again if I sell my new home in the future?
With the exception of the 2-year waiting period, there is no limit on the number of times you can exclude the gain on the sale of your principle residence so long as you meet the ownership and use tests.

How do you report the sale of a second residence?
Your second home is considered a capital asset. Use Form 1040, Schedule D to report sales, exchanges, and other disposition of capital assets.

When my stock split, the stock distributed to me was different than my original shares. How do I figure the basis of the shares of the two different kinds of stock?
Usually, the company issuing the new type of stock will send you letter explaining the tax consequences of the stock distribution, including how to calculate the basis in the two different types of stock. Information may also be available on the company’s web site.

How do I compute the basis for stock I sold, when I received the stock over several years through a dividend reinvestment plan?
This means that you deem that you sold the oldest shares first, then the next oldest, then the next-to-the-next oldest, until you have accounted for the number of shares in the sale. In order to establish the basis of these shares, you need to have kept adequate documentation of all your purchases, including those that were through the dividend reinvestment plan. You may not use an average costs basis. Only mutual fund shares may have an average cost basis.

How do I find out my cost basis for mutual funds if I do not have all of the records?
You need to reconstruct your records the best that you can. Contact your broker or the mutual fund company for assistance.

Another source of information is your prior year tax returns. If your mutual fund has been reinvesting dividends, those reinvested dividends (which have been used to purchase additional shares in the fund) should have been reported as dividend income on your tax return each year. To compute your total basis, add to the cost of the original shares purchased the amount of all dividends automatically reinvested that were previously reported as income on your prior tax returns and any shares you subsequently purchased. If you receive a distribution that is identified as a return of capital, you must reduce your total basis by that amount.

How do I report incentive stock options on my tax return?
If your option is an incentive stock option, you do not include any amount in your gross income at the time the option is granted, or at the time you exercise it. However, you may have income for Alternative Minimum Tax in the year you exercise. If the special holding periods are met, any income or loss from the sale of the stock is treated as a capital gain or loss. However, if you do not meet the special holding period tests, you may have compensation income when you sell the stock.

How do I determine the cost basis of stock bought through an employee stock purchase plan (ESPP)?
Your starting basis is what you paid to buy the shares. This amount is increased by the compensation income amount, if any, you must declare on your income tax return when the stock is sold. Sales commissions can also increase the basis in your stock but will not affect the amount of compensation that must be declared.

Does the holding period for new shares I received as a result of a stock split start on the purchase date of the original stock or on the date of the stock split?
The holding period of the stock you received as a result of the stock splits begins on the same day as the holding period of the original stock.

I buy and sell stocks as a day trader using an online brokerage firm. Can I treat this as a business and report my gains and losses on Schedule C?
A business is generally an activity carried on for a livelihood or in good faith to make a profit. Rather than being defined in the tax code, exactly what activities are considered business activities has long been the subject of court cases. The facts and circumstances of each case determine whether or not an activity is a trade or business. Basically, if your day trading activity goal is to profit from short-term swings in the market rather than from long-term capital appreciation of investments, and is expected to be your primary income for meeting your personal living expenses, i.e. you do not have another regular job, your trading activity might be a business.

If your trading activity is a business, your trading expenses would be reported on Form 1040, Schedule C, Profit or Loss from Business (Sole Proprietorship) instead of Form 1040, Schedule A, Itemized Deductions. Your gains or losses, however, would be reported on Form 1040, Schedule D, Capital Gains and Losses, unless you file an election to change your method of accounting.

If your trading activity is a business and you elect to change to the mark-to-market of accounting, you would report both your gains and losses on Part II of Form 4797, Sales of Business Property.

If I sell one mutual fund and use the proceeds to buy another, do I have to report the capital gains or can I wait until I sell and don’t buy another fund? Does it matter if I stay within the same family of funds?

You would have to report any capital gains realized on the sale. Even assuming this transaction meets the requirements of an exchange, rather than a sale, the exchange of shares of one fund for those of another is a taxable exchange. This is true even if both funds are within the same family of funds.

What kinds of property can be depreciated for tax purposes?
Only property used in a trade or business or in an income production activity can be depreciated. Additionally, the property must be something that wears out or becomes obsolete and it must have a determinable useful life substantially beyond the tax year. The kinds of property that can be depreciated include, but are no limited to, machinery, equipment, buildings, vehicles, and furniture. Depreciation is a complex topic.

I have a home office. Can I deduct expenses like mortgage, utilities, etc., but not deduct depreciation so that when I sell this house, the basis won’t be affected?
If you have qualified business use of your home and enough gross income from that business use to entitle you to a deprecation deduction, you are required to reduce your basis in the home by the amount of depreciation allowed (deducted) or allowable (could have been deducted).

Whether you choose to deduct the depreciation on your current return(s) will not matter. For tax purposes, you will still be treated as if you had taken the allowable deduction and your basis will have to be reduced.

How many years do I depreciate a new furnace installed as an improvement on residential rental property and what method do I use to compute the depreciation?
Replacement of a furnace in a residential rental property is a capital improvement to the structure. The furnace is in the same class of property as the property in which it is installed. Since the property is residential rental property, the furnace is, generally, depreciated over a recovery period of 27.5 years using the straight-line method of depreciation and a mid-month convention.

I purchased a snow blower and a lawn mower strictly for use at a residential apartment building I own. Can I elect the section 179 deduction to fully deduct the costs of the snow blower and lawn mower?
You cannot claim section 179 expense for property held to produce rental income (since it is use in connection with the furnishing of lodging). These amounts are classified as 5-year property.

I expensed equipment and furniture (not used for residential rental property) two years ago under section 179, but stopped doing business last year. Does any of this have to be recaptured and claimed as income, even though the items have not been sold?
If you claim a section 179 deduction for the cost of property in the year you place the property in service, and in a subsequent year, you do not use it more than 50 percent for business, you may have to recapture part of the section 179 deduction.

I received income for renting out my timeshare for a week. I understand that I don’t have to report income from any rental less than 15 days, but the property management company reported that income to the IRS. Do I have to report it when I file?
If you use the dwelling unit as a home (based on degree of personal use) and you rent it for fewer than 15 days during the year, do not include any of the rent in your income and do not deduct any of the renal expenses.

I am renting a house to my son and daughter-in-law. Can I claim rental expenses?
In general, if you receive income from the rental of a dwelling unit, such as a house, apartment, or duplex, there are certain expenses you may deduct. Besides knowing which expenses may be deductible, it is important to understand potential limitations on the amounts of rental expenses that may be deducted in a tax year. Whatever expenses you are allowed to deduct will reduce the amount of taxable rental income. For example, if you have no significant personal use, but rent the dwelling unit to your son and daughter-in-law at less than fair market rental value, then you may only deduct rental expenses up to the amount of actual rental income (received). If you do not have significant personal use and rent to your son and daughter-in-law for more than 14 days per year, then the expenses will also be limited to the amount of rental income, but the excess expenses may be “carried over” to a future year.

We are selling rental property and have never claimed depreciation. What do we do about this when we file our taxes?
When reporting the sale of or computing gain or loss on rental property, you are required to make an adjustment to your basis for allowable depreciation regardless of whether the deduction was taken.

If you have unclaimed depreciation for two or more years, you may be eligible to file an Application for Change in Accounting Method to claim the depreciation that should have been taken. The application must be timely filed for the same tax year in which you sell the rental property or an earlier tax year.

Can I sell rental property and reinvest it into rental property without paying capital gains tax?
No. However, rental property may be exchanged directly for other rental property of like kind. Gain realized from such an exchange is deferred.

Can we move into our rental property, live there as our main home for two years, and sell it without having to pay capital gains tax?
You may be able to exclude your gain from the sale of your main home that you have also used for business or to produce rental income if you meet the ownership and use tests.

However, if you were entitled to take depreciation deductions because you used your home for business purposes or as rental report, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997.

My university required each incoming freshman to come to school with their own computer. Is there any way to deduct the cost of the computer from my tax liability?
The cost of a personal computer is generally a personal expense that is not deductible. However, if the school bills everyone, as a condition of attendance or enrollment for proprietary computer devices and/or software available no where else, then this may qualify as an expense towards either the Lifetime Learning Credit or Hope Credit.

What educational expenses are deductible?
You may be able to deduct work related educational expenses as an itemized deduction on Schedule A of Form 1040 (minus 2% of AGI). To be deductible, your expenses must be for education that:

• Maintains or improves skills required in your present job; or
• Serves a business purpose and is required by your employer, or by law or regulations, to keep your present salary, status, or job.

Certain restrictions also apply.

Am I eligible to claim both my job education expenses (minus 2% of AGI) and the Lifetime Learning Credit on my taxes?
If you are eligible to deduct educational expenses and are also eligible for the lifetime learning credit, then it is possible to claim both, as long as you do NOT use the same educational expenses to claim both benefits. Your expenses must be divided between the two.

Is the exclusion from income of up to $5,250 of employer-provided educational assistance under a qualified program still available?
Yes, and beginning in 2002, it also applies to employer-provided educational assistance for graduate level courses.

I have a child attending a private Catholic grade school. Is any or all of the tuition I pay deductible or a tax credit?
Other than a medical deduction for tuition in the case of a special school for physical or mental disability, tuition for primary or secondary education is neither deductible as an educational expense nor as a charitable condition, and there are not tax credits for the tuition.

Starting in 2002, you can use distribution from a Coverdell Education Savings Account (formerly, Education IRA) for primary school tuition if other requirements are met.

I will be homeschooling my child next year and would like to know if school related expenses, such as curriculum, school supplies, field trip activities, etc. are deductible?
There is no deduction for your child’s homeschooling expenses.

Can I take a deduction for the interest I paid on my student loan?
Prior to 2002, deduction of student loan interest was limited to the first 60 months of required interest payments, and, was subject to income limitations. Beginning in 2002, interest paid over any period of time on a qualified education loan is deductible. There are also income limits.

There is no deduction if you file as married filing separately, if you are claimed as a dependent, or if the loan is from a related party or a qualified employer plan.

Is the $2,500 maximum deduction for student loan interest per PERSON, or per RETURN? I am a married filing jointly, and have paid over $3,000 of qualified interest payments for my husband and me. Are we allowed to deduct $5,000 ($2,500/person) or only $2,500 total on our return?
The deduction is limited to $2,500 per return. If you file as “married filing separately”, there is no deduction.

Last year, my parents took out a student loan for me in their name and I also took out a student loan. My parents received Form 1098-E for their loan and I also received Form 1098-E for my loan. Can we both claim the interest from the loans on our tax returns? Last year, I was not their dependent.
In order for a taxpayer to claim a deduction for student loan interest, the loan must be incurred for the taxpayer, the taxpayer’ spouse, or a person who was the taxpayer’s dependent when the taxpayer took out the loan. Since you were not your parents’ dependent when they took out the student loan, the interest they paid on the loan does not qualify for deduction. However, the student loan interest payments you made on the student loan you took out on your behalf are eligible for deduction, provided all the other requirements are met.

Moving Expenses:

I moved to a different state to accept a new job. Will I be able to deduct all of my moving expenses?
When moving expenses coincide closely with a job transfer or the start of a new job, some of those expenses may qualify for deduction as an adjustment to income on Form 1040, U.S. Individual Income Tax Return. You must have moved far enough, and, generally, closer to your new job than you were before you moved. You must have started and kept full-time work for a specific period after the move. Not all moving expenses are deductible. Deductible expenses are generally limited to one-way transportation, including lodging, of your household members along the most direct route to your new residence, and transportation, parking and storage of household goods. You cannot deduct a reimbursed expense, unless the reimbursement has been counted in your wages.

Gambling Losses:

How do I deduct and substantiate my gambling losses?
You can deduct gambling losses only if you itemize deductions. Claim your gambling losses as a miscellaneous deduction on Form 1040, Schedule A, Itemized Deductions. They are not subject to the 2% limit of your Adjusted Gross Income. The amount of losses you deduct cannot total more than the amount of gambling income you have reported on your return. It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.

1. An accurate diary or similar record regularly maintained by the taxpayer, supplemented by verifiable documentation usually is acceptable evidence for substantiation of wagering winnings, and losses. In general, the diary should contain at least the following information:

a) date and type of specific wager or wagering activity;
b) name of gambling establishment;
c) address or location of gambling establishment;
d) name(s) of other person(s) present with you at gambling establishment; and
e) amount(s) won or loss.

2. Verifiable documentation includes, but is not limited to, wagering tickets, cancelled checks, credit records, bank withdrawals, and statements of actual winnings or payment slips provided by the gambling establishment. When possible, the diary and available documentation generated with the placement and settlement of a wager should be supported by such documentation as hotel bills, airline tickets, gasoline credit cards, or affidavits or testimony from responsible gambling officials regarding the wagering activity.

I donated a used car to a qualified charity. I itemize my deductions, and I would like to take a charitable contribution for the donation. Do I need to attach any special forms to my return? What records do I need to keep?
If you claim a deduction on your return of over $500 for all contributed property, you must attach a Form 8283, Noncash Charitable Contributions, to your return. If you claim a total deduction of $5,000 or less for all contributed property, you need only complete Section A of Form 8283. If you claim a deduction of more than $5,000 for an item or a group of similar items, you generally need to complete Section B of Form 8283, which requires a qualified appraisal by a qualified appraiser.

You will need to obtain and keep evidence of your car donation and be able to substantiate the fair market value of the car. If you are claiming a deduction of $250 or more for the car donation, you will also need a written acknowledgement from the charity that includes a description of the car and a statement of whether the charity provided any goods or services in return for the car and, if so, a description and estimate of the fair market value of the goods or services.

Is the interest amount that we paid to the IRS deductible?
Interest and penalties paid to the IRS on Federal taxes are not deductible.

I went through a divorce last year and paid a lot of legal fees. Are these deductible on my tax return?
Legal fees incurred or paid for a divorce are personal in nature, and are not generally deductible. However, legal fees incurred or paid for the production or collection of taxable income may be deductible. You may deduct legal fees for collecting alimony because alimony is taxable income.

Where are fees and commissions for investments deducted?
If they are deductible, investment expenses other than investment interest are taken as miscellaneous deductions on Form 1040, Schedule A, Itemized Deductions. These deductions must be reduced by 2% of your adjusted gross income.

Commissions and fees for the acquisition or sale of an asset are added to the basis of that asset and are not deductible.

Fees for managing investments, such as custodial fees and management fees, are deductible.

Is a real estate investment considered investment property? Is the interest deductible as investment interest if you cannot deduct it as mortgage interest?
If you borrow money and use it to buy property you hold for investment, the interest you pay is deductible as investment interest subject to certain limits. Investment interest does not include any qualified home mortgage interest or any interest taken into account computing income or loss from a passive activity.

My father is in a nursing home and I pay for the entire cost. Can I deduct the expenses on my tax return?
You may deduct qualified medical expenses you pay for yourself, your spouse, and your dependents, including a person you claim as a dependent under a Multiple Support Agreement. You can also deduct medical expenses you paid for someone who would have qualified as your dependent for the purpose of taking personal exemptions except that the person did not meet the gross income or joint return test.

Nursing home expenses are allowable as medical expenses in certain instances. If you, your spouse, or your dependent is in a nursing home, and the primary reason for being there is for medical care, the entire cost, including meals and lodging, is a medical expense.

I have a mortgage for my primary residence and a second mortgage for land that I intend to build a home on. Can the interest be deducted for the second mortgage?
Unless you have begun construction of a home on the bare land that you can occupy within 24 months, the land would be considered an investment and the interest you paid on the second mortgage would not qualify as deducible mortgage interest. However, it would constitute investment interest if you itemize your deductions.

Is interest on a home equity line of credit deductible as a second mortgage?
You may deduct Home Equity Debt Interest, as an itemized deduction, if you legally liable to pay the interest, pay the interest in the tax year, secure the debt with your home, and do not exceed your Home Equity Debt Limit.

I refinanced my home last year and paid points. Are they all deductible this year?
Points paid to refinance your home are not, deductible in their entirety in the year paid. They are “amortized” or deducted over the life of the loan.

Is personal credit card interest tax deductible?
No. Personal interest is not deductible.

My spouse and I are filing separate returns. How can we split our itemized deductions?
If you and your spouse file separate returns and one of you itemize deductions, the other spouse will have a standard deduction of zero. Therefore, the other spouse should also itemize deductions.

While it is generally more advantageous to file jointly, there are special circumstances that may make it beneficial to file separately, such as substantial medical or unreimbursed employee expenses.

You may be able to claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse. Deductible expenses that are paid out of separate funds, such as medical expenses, are deductible by the spouse who pays them. If these expenses are paid from community funds, the deduction may depend on whether or not you live in a community property state. In a community property state, the deduction is, generally, divided equally between you and your spouse. Otherwise, you can agree to divide the deduction for jointly paid expenses in any manner you choose.

Are expenses for smoking cessation programs deductible?
You can include in medical expenses amounts you pay for a program to stop smoking. Unreimbursed amounts you pay for participation in a smoking cessation program and for prescribed drugs designed to alleviate nicotine withdrawal are expenses for medical care that are deductible subject to the 7.5% of adjusted gross income limitation if you itemize deductions on Form 1040, Schedule A, Itemized Deductions.