On December 20, 2006, President George W. Bush signed into law new tax legislation that provides for the itemized deduction on federal tax returns of the cost of mortgage insurance paid by eligible borrowers for the 2007 tax year. In the past, borrowers could not deduct the cost of mortgage insurance for tax purposes. The legislation affects borrowers with mortgage insurance contracts issued between January 1 and December 31, 2007. These MI premiums paid during 2007 may qualify for tax deductibility on borrowers’ 2007 federal tax returns as follows:
- Borrowers with adjusted gross incomes of $100,000 or less may deduct 100 percent of their MI premiums.
- For adjusted gross incomes above $100,000, MI deductions are phased out at 10 percent increments, for every $1,000 (or $500 for a married individual filing a separate return) or fraction thereof of income above.
- $100,000 (or $50,000 for a married individual filing a separate return).
Make sure you take advantage of every break the IRS will give. Here are a few:
Points: According to the IRS, points must paid for the use of money, (for example, to obtain a lower interest rate) in order to be tax deductible. Origination fees that constitute a “service fee” are not tax deductible. IRS Publication 936 lists a general rule that states, “You generally cannot deduct the full amount of points in the year paid. Because they are prepaid interest, you generally must deduct them over the life (term) of the mortgage.” However, there are conditions which, if met, make discount points tax deductible in the year they are paid. (For more details on points and deductions, see http://www.irs.gov/publications/p936/ar02.html#d0e942.)
Pre−payment penalties: Sometimes, circumstances cause you to pull out of your mortgage sooner than expected. Fortunately, pre−payment penalties are tax deductible, which helps ease the pain.
Pro−rated real estate taxes: Even if the seller sent the tax collector the check, chances are you paid a pro−rated portion of the taxes for the year at closing.
Pro−rated mortgage interest: Depending on when in the month the home sale closes, you will pay either a hefty or a tiny amount of pro−rated mortgage interest for that month. Big or small, you can write that off. The Final Closing/Settlement Statement will show just how much they’re due.
Home construction loan interest: As long as the construction period doesn’t last more than two years before you make the new place your “principal residence,” you can write off the interest for that construction loan.
It pays to pay attention—all these write−offs can add up to some serious savings when tax time comes around.
“Points” paid to secure a home loan to buy or improve your principal residence are tax deductible; even if the Seller pays them for you, according to the IRS. A mortgage discount point is equal to 1% of the loan amount. Points are sometimes paid to get a more favorable interest rate and can be paid by either the Buyer or the Seller in a transaction.
Discount points are deductible in full in the year paid if they meet the following criteria:
· They are paid to buy your primary home.
· Your settlement statement identifies the amount as points.
· The amount is computed as a percentage of your loan.
· The amount is not more than is generally charged in your area for a similar size loan. Any additional amount will be treated as interest paid in advance and not deductible.
You may also choose to amortize the discount points over the life of the loan. They are immediately deductible even if financed over the life of the loan.
Points paid to refinance your existing home must be deducted over the life of the loan.
Always consult a tax specialist before taking these deductions.
There’s a buyer for every home. Sometimes this is hard to believe if the buyer for your home remains elusive. What can you do to expedite the sale of your home?
The first step is to enlist the help of a professional Realtor® who knows your area well and has a great marketing plan. With his or her assistance, your home will have the greatest possibility of finding the buyer for your home. A Realtor® will use various advertising and marketing techniques to reach the greatest number of prospects in the least amount of time.
The second step is to price your home realistically. While you undoubtedly want the most for your home, knowledgeable buyers will not consider an overpriced home. When setting a sales price, rely in the CMA (Comparative Market Analysis). The analysis will provide valuable information on current listings and recent solds.
Call Teresa today for professional advice on selling your home.
A home warranty is a contract that guarantees that certain systems in the home are in good working order. If they fail, the warranty company will repair or replace them.
Home warranties can provide added security and peace of mind for all parties involved. Before buying a home warranty be sure that you review the list of all components that are insured. Most programs cover major systems such as heating and cooling, plumbing, electrical as well as built-in appliances and water heaters. Most contracts do not include the roof, foundation or structural components.
Be sure to find out the cost as well as the deductible amount for any repairs. Some programs limit the amount of service calls permitted. There may be a cap on the dollar amount the company will spend on a contract, as well as limiting the replacement cost.
Home warranties are great tools. Their effectiveness depends on a clear understanding of how they work.
Q: How do I choose between renting or buying?
A: Owning a home offers tax benefits, as well as the freedom to make decisions about where you live. Homeowners, unlike renters, can secure a fixed-rate loan and lock in their monthly payments, so they can make investment plans knowing their expenses won’t change substantially. Renters are at the whim of their landlord, who can raise the rent each year without a renter’s input. Homeowners, on the other hand, are in control of their property and decide whether they allow pets, decorating, or permanent improvements.
Q: Should I buy first, or sell first?
A: The answer to this question lies squarely with you. Do you need the equity that’s built up in your present home to complete the purchase of a new home? If so, you either need to sell first or consider a bridge loan or house sale contingency. If not, you may choose to buy first and sell later. Before making a final decision, give me a call to discuss this question. We will touch on every aspect of what it may mean for your particular situation.
It’s a good time to trade up to a home that suits your circumstances better than the one you have now. Before interest rates go up any more, you will be able to afford a larger mortgage, and your present home will be affordable to a larger group of people.
If you want to buy before selling, you have to decide how to do it before your home equity is available to you. That could be tricky. Here are some ways to do it:
* Some home builders offer plans that allow up to 100 percent of the purchase price to be financed by a qualified buyer. If you take this route, financial advisors suggest taking a short-term adjustable rate mortgage (ARM) with an eye toward refinancing when you receive the proceeds of your home sale.
* You could take a second mortgage on your home to cover the down payment.
* In some cases, you can take a first mortgage on the new home and second mortgage to be paid off when you sell the one you have now. Any second mortgage should be a low-rate ARM.
In all cases, it’s important to be realistic about the amount of cash your home will generate. It’s better to plan on the low side of what the proceeds may be than to be overly optimistic about the amount of money the sale will bring.
Request your free report “How to Improve Your Credit Score”. This report contains useful tips on how to increase your credit score to more easily obtain a home loan. Simply email me at Teresa@TeresaButler.com to request your free report.