Tax Q&A: Mortgage Madness

Editor's Note: Tracy Byrnes will be answering questions throughout the tax season to help guide you through your return. Please send her an email to ask a tax-related question. She will pick a few each week to answer for all of our readers.

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Is mortgage interest only deductible from the first two liens on a primary residence? Also, can a state stamp tax paid in a mortgage closing qualify as a state tax that can be written off as an itemized deduction? -- R.N.

As we mentioned in our piece last week, you can deduct the interest on home mortgage loans up to $1 million. So it doesn't matter how many loans you have on your residence. What matters for deductibility purposes is whether the loans were used to purchase or improve your home, says Mark Luscombe, a principal federal tax analyst with CCH, a provider of tax and business-law information.

If the loans were used to purchase or improve your residence, you can deduct interest on up to $1 million.

If the purpose of the loans was to buy a new car or take a trip around the world, it's a different story. Typically, you can deduct interest only on home equity loans up to $100,000.

And as far as your stamp tax goes, it's normally just another name for "transfer tax," which you pay at closing, and is generally not deductible, says Luscombe. Just add it to your cost basis so all is not lost.

My mother had a joint brokerage account in her name and my name. She utilized the account for her own purposes, but put my name on it to ease transfer if she died. Upon her death, the brokerage transferred all of the stock to a new account in my name. When I sell some of the stock, do I use the step-up basis, or her original cost basis? -- M.R.

Presuming the money was included in her estate and was then left to you at her death, you would get the step-up in basis, says Bob Scharin, editor of Warren, Gorham & Lamont/RIA's Practical Tax Strategies, a monthly journal written for tax professionals

I'm also assuming that you were on the account in name only -- you didn't use any of it. In addition, I'm assuming that your mom reported all the income on her return so the assets were truly hers.

This isn't a unique situation. Many people will put their name on a loved one's account for the same reason you did, or for what we Sicilians call a "God forbid" situation. If, let's say, your loved one got sick (God forbid) and was unable to make a transaction, you would be able to do it because your name was on the account. It's like giving you power of attorney.