Dear Tax Talk:
I am going to have to sell my home due to me taking a new job in another state. I have lived in the home for a little more than 15 months, and I figure at best I will break even. However, my mortgage carries a 2 percent prepayment penalty. Is that deductible on my taxes?
-- Brent

Dear Brent,
Because you're breaking even on the sale, you're not concerned with gain on the early sale of the home. However, you should be aware that a job-related move allows you to avoid paying tax on a substantial portion of gain even though you have not lived in and owned the home for the usual two years.

In certain cases, if you pay off a home mortgage early, you may have to pay a penalty. You can deduct that penalty as home mortgage interest, provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. The same is true whether you refinance the mortgage or sell the property.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

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