Three Overlooked Tax Savers

Claim your deduction on Line 12 of your Schedule A (or on line 10 if the seller-paid points were reported to you on Form 1098). You must then lower the tax basis of your home by the amount of your deduction. This will slightly increase your gain when you eventually sell the home, but chances are pretty good that it won't matter. After all, with the relatively generous home-sale-gain exclusion privilege (up to $250,000 for singles and up to $500,000 for joint filers, see our story), it's quite possible you won't owe any federal capital-gains tax when you sell.

An example should help. Suppose your grandmother died on April 5, 2006, and you inherited shares of General Electric (GE), which you subsequently sold in 2007. To figure out your tax gain or loss on those shares, do you have to go back and figure out what Grandma paid for her original shares back in, say, 1947? No. You simply have to figure out what the stock was trading for on April 5, 2006, and calculate the gain or loss from there.

Occasionally, the estate executor will choose to value the estate's assets as of the "alternate valuation date." In that case, your basis is equal to the asset's fair-market value on the date you received it, or six months after the date of death, whichever came first. One other thing: Gains from inherited capital assets automatically qualify for favorable long-term-gain treatment, regardless of the length of time they were actually owned by you or the person who left them to you.

The only downside is that this deal is phased out for a parent (or parents) with adjusted gross income starting at $170,820 and ending at $210,820. Also, if you're married, you generally must file a joint return to claim the credit. To take the credit, fill out Form 8839 (Qualified Adoption Expenses) and file it with your 1040. Then enter the adoption-credit amount on Line 54 of your 1040.