The Pointing You Home Real Estate Blog

As the time to file income taxes approaches, we need to take a new look at the changing tax landscape for homeowners. The dynamic atmosphere in Washington, D.C. has a different effect each year on which tax breaks are proposed, rescinded, changed, and extended for taxpayers who own a home.

1. Mortgage Interest Deduction

The mortgage interest deduction has always been the most-beloved tax benefit of home buyers in the U.S. New homeowners’ monthly mortgage payments are made up almost entirely by interest for the first few years. Their ability to deduct that interest can result in a healthy reduction in tax liability. Affordability for first-time home buyers is directly linked to their ability to deduct the interest on their mortgage.

Homeowners who itemize their deductions can deduct the interest paid on a mortgage with a balance of up to $1 million. While there is some movement to limit the total itemized deductions for taxpayers with higher incomes (over $400,000), the current deductions holds for all tax brackets. Americans save around $100 million every year by deducting mortgage interest on their tax returns.

2. Home Improvement Loan Interest Deduction

The interest on home equity loans used for “capital improvements” to a home can also be a tax deduction. On loans with balances of up to $100,000, the interest is tax-deductible for a homeowner who uses the loan to make improvements to the home such as adding square footage, upgrading the components of the home, or repairing damage from a natural disaster. Maintenance items like changing the carpet and painting a home are usually not included as capital improvement projects.

3. Private Mortgage Insurance (PMI) Deduction

Homeowners who make a down payment of less than 20 percent are usually paying some sort of Private Mortgage Insurance. PMI (sometimes abbreviated MIP or just MI), can be a few dollars to hundreds of dollars per month, and it is a large portion of many homeowners’ mortgage payments.

If your mortgage was originated after Jan 1, 2007, and you have PMI, it can be a tax deduction. The deduction is phased out, 10 percent per $1,000, for taxpayers who have an adjusted gross income between $100,000-$109,000 and those above that level do not qualify. The extension of this tax deduction in 2013 was one of many last-second saves by real estate industry advocates.

4. Mortgage Points/Origination Deduction

Homeowners who paid points on their home purchase or refinance can often deduct those points on their tax returns. Points, often called origination fees, are usually percentage-based fees which a lender charges to originate a loan. A one percent fee on a $100,000 loan would be one point, or $1,000.

On a home purchase loan, taxpayers can deduct the entirety of the points that they paid in the same year. On a refinance loan, the points must be deducted as an amortization over the life of the loan. Many taxpayers forget about this amortized benefit over time, so it’s important to keep good records on the deduction of points on a refinance.

5. Energy Efficiency Upgrades/Repairs Deduction

Homeowners can deduct the cost of the building materials used for energy efficiency upgrades to their home. This is actually a tax credit, one which is applied as a direct reduction of how much tax you owe, not just a reduction in your taxable income.

10 percent of the total bill for energy-efficient materials can be used as a tax credit, up to a maximum $500 credit. Insulation, doors, new roofs, and many other items qualify for the energy efficiency credit. There are also individual limits for certain items, such as $150 for furnaces, $200 for windows, and $300 for air conditioners and heat pumps.

6. Profit on Sale of Real Estate Deduction

If you’ve sold a home in the past year, you’re likely aware that individuals can claim up to $250,000 of profit from the sale tax-free, and married couples can claim up to $500,000 tax-free. Of course, there are some requirements to escaping the capital gains tax on this profit.

The home must be a primary residence. This means that you must have lived in the home, as your primary residence, for two of the past five years. You could rent it out for years one, three, and five, while living in it for years two and four. In this way, a homeowner could potentially claim this tax break on multiple homes within a fairly short time frame, but each tax-free sale must occur at least two years apart from the previous tax-free transaction.

7. Real Estate Selling Cost Deduction

For those lucky folks whose profits on the sale of their home might exceed the $250k/$500k limits, there are still some ways to reduce the tax burden. The costs of selling the home can be significant, and those in themselves can be claimed as tax deductions.

By adding up all of the fees paid at closing, capital improvements made to the home while you owned it, money spent to make repairs to damaged property, and marketing costs necessary to sell the home, you can add a significant figure to the cost basis of your home. This basically raises the original price you paid for the home. Your cost basis begins with the original price of the home, and then adds in the improvement and selling costs. When the new cost basis price is compared to your selling price, it reduces your potentially-taxable profit on the home significantly.

8. Home Office Deduction

The home office tax deduction is often cited as a deduction that increases your likelihood of being audited. While the raw numbers might add some credibility to that perception, it’s really the way a home office is deducted that gets some taxpayers into audit purgatory.

This deduction, when used correctly, is just as safe as any other. Homeowners deduct a percentage of their mortgage, utilities, and repair bills in direct proportion to the amount of their home that is dedicated office space.

There are a few hard and fast rules to live by when deducting the costs of your home office. The home office must be your principal place of business (the primary office location where you get the majority of your work done). It needs to be exclusively used for business (it can’t be your kitchen by day and office by night). You need to be realistic with its size and use (unless you enjoy audits).

9. Property Tax Deduction

New homeowners often don’t know that their property taxes are deductible. While it may sound strange to have a tax-deductible tax, the overall effect is that you don’t pay income tax on money that was spent on property taxes.

Homeowners should be careful to only deduct the amount of property tax actually paid to their local municipality for the year. This is not necessarily the amount you paid to your escrow account, and should not include any other city/county fees that might potentially be on the same bill as your property taxes.

10. Loan Forgiveness Deduction

The Mortgage Debt Forgiveness Relief Act of 2007 was created when short sales were becoming a new and growing part of the real estate market. An underwater homeowner might convince their lender to agree to a short sale of their home at $100,000, even though they owe $150,000 on their mortgage. While the lender forgives the extra $50,000 owed after the short sale, the government views it as $50,000 in taxable income (a gift from the lender to the borrower).

The Debt Forgiveness Act temporarily relieved the taxpayer of that burden, but was set to expire this year. Through much effort, it was extended along with many other homeowner tax relief measures this year and homeowners can continue to claim this tax relief in 2013.

IRS-suggested disclaimer: To the extent that this message or any attachment concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. This message was written to support the promotion or marketing of the transactions or matters addressed herein, and the taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

Sam DeBord is a Realtor® and Managing Broker at Coldwell Banker Danforth & Associates. Find him on SeattleHome.com.

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National home prices continued to post strong annual gains into February, while quarterly increases stabilized, Clear Capital reported Tuesday.

Home prices in February were up 6.1 percent year-over-year, the strongest yearly growth since August 2010 when the home buyer tax credit influenced demand, according to Clear Capital’s Home Data Index (HDI).

The robust yearly gains, however, are expected to ease since they’re compared to market lows.

“While February’s yearly growth of 6.1% is encouraging, let’s keep in mind this rate of growth is measured against the market’s bottom, which we reported in our March 2012 Market Report,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital.

Quarter-over-quarter, national home prices grew as well, rising at a slower, but perhaps more normal pace.

“Consumer confidence continues to be vital to a broader housing recovery, and national quarterly home prices expanding 1.0% in the midst of winter is confirmation the recovery has legs. While 1.0% is weaker in comparison to more recent rates of quarterly growth, the positive trend continues to support homebuyer confidence and is on par with the new normal,” Villacorta added.

Despite the winter season, all four regions managed to move in a positive direction, though the quarterly gains were mostly flat for all regions except the West, where prices rose 2.1 percent quarter-over-quarter. The South, Northeast, and Midwest saw increases of 0.8 percent, 0.7 percent, and 0.4 percent, respectively.

The West also led other regions with its year-over-year gain of 13.6 percent. In the South, prices rose 5.1 percent during the same time period, while the Midwest saw a 4 percent gain and the Northeast a 2.6 percent increase.

After tracking performance among metro areas, Clear Capital found the strongest metros were able to sustain price gains into February, while the bottom performing markets began to see a quarterly descent in prices.

The metro areas that posted the strongest quarterly gains were Atlanta (+3.5 percent), Las Vegas (+3.4 percent), Phoenix (+3.3 percent), Sacramento (+3.1 percent), and Houston (+2.7 percent). With the exception of Houston, the metros in the top five also posted double-digit increases year-over-year.

According to Clear Capital, 11 out of 15 of the lowest performing metros experienced price declines in February quarter-over-quarter, though nine of the 11 metros fell less than half a percent.

The metros that posted the biggest quarterly declines were Columbus (-1.2 percent), Detroit (-0.9 percent), Charlotte (-0.4 percent), St. Louis (-0.4 percent), and Raleigh, North Carolina (-0.3 percent).

Despite the quarterly price decreases among the 11 metros, Clear Capital noted just six of the markets saw home values decline over a one-year period.

“Overall, the U.S. housing market continued to hold up well in February and with spring just around the corner, we head into the more active home buying season on solid ground,” Clear Capital concluded.

To read the original article, click here.

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The process of selling a home is primarily practical: You have to hire an agent, make repairs, apply for a loan, set up showings, and do 1,001 other miscellaneous tasks to put your house on the market. However, all these practical considerations mean nothing without the right motivation behind them.

As you prepare to sell, make sure your goals are clear, in the forefront of your mind. It is important to have a strong, positive motivation to keep you going when the selling process becomes tiresome or challenging. Write down ways in which you want to improve your quality of life, and then list the items that can be accomplished by moving into a new home.

These items can be anything and will differ from person to person. You might need more space to accommodate a growing family. Or maybe you are looking to downsize after all your children have moved out. Perhaps you are tired of the rush of the city or your job is taking you elsewhere or you want a better neighborhood for your kids. Regardless of your specific motivation, it must be powerful enough to drive you to action.

It’s time to stop wishing and time to start working! Don’t be satisfied until you have reached the goal you have set for yourself.

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The Appraisal Institute, the nation’s largest professional association of real estate appraisers, today cautioned homeowners and potential homebuyers that bad neighbors can significantly reduce nearby property values.

Bad neighbors can include homeowners with annoying pets, unkempt yards, unpleasant odors, loud music, dangerous trees and limbs, or poorly maintained exteriors. A homeowner or prospective homebuyer should visit a street on several days at various times to learn more about what is happening in the neighborhood. A home’s proximity to a bad neighbor also can impact the rate of potential decline in value.

“I’ve seen many situations where external factors, such as living near a bad neighbor, can lower home values by more than 5 to 10 percent,” said Appraisal Institute President Richard L. Borges II, MAI, SRA. “Homeowners should be aware of what is going on in their neighborhood and how others’ bad behaviors could affect their home’s value.”

Appraisers refer to this as external obsolescence, which is depreciation caused by external factors not on the property. According to The Appraisal of Real Estate,13th Edition (Appraisal Institute, 2008), external obsolescence may be caused by economic or locational factors, and may be temporary or permanent, but it is not curable by the owner, landlord or tenant.

The Appraisal Institute urges homeowners to take the following steps when dealing with troublesome neighbors:

1. Speak with other neighbors. Get consensus when identifying issues, and approach the bad neighbor together.
2. Look up original and updated subdivision restrictions. If talking to the neighbor doesn’t work, see if they’re violating any restrictions. If so, writing to the code office of the municipality and reporting the bad neighbor could spur an investigation into the nuisance. Depending on the offense, a call to the local health department also may be warranted.
3. Hire an attorney. If all else fails, the cost of an attorney likely will be less than the home’s potential loss in value.

“Even though homeowners do have some recourse, it’s important for prospective homebuyers to carefully examine the neighborhood where they’re considering living,” Borges said. “That way they can hopefully prevent any problems in the first place.”

Potential homebuyers also should be aware of a property’s proximity to commercial facilities, such as power plants and funeral homes, as these also can negatively affect a home’s value.

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The Planning Commission is scheduled to host a public hearing on Wednesday, March 20 at 7 p.m. on a draft of the Rockville Pike Plan, the document that governs land use and transportation on that well-known stretch of road.

The plan is available to read on the City’s website at rockvillemd.gov/rockvillespike. This version of the plan includes revisions made after a series of interactions between the Planning Commission and the public over the last two years. The plan area is the two-mile stretch of Rockville Pike between Richard Montgomery Drive (just south of Rockville town center) and the southern City limits (just north of Bou Avenue).

The goals for the area include creating a place of pride for the City; improving the experience for drivers, walkers, bicyclists and transit riders; maintaining economic vitality; ensuring that development is supported by sufficient public services and facilities; and improving the environment of the corridor.

After the Planning Commission public hearing, the commission may make further revisions to their draft before sending it on to the Mayor and Council. The Mayor and Council are expected to hold a public hearing and worksessions on the document throughout the summer and fall, ahead of adoption later this year.
To submit written comments about the draft plan to the Planning Commission or to sign up to testify at the commission public hearing, contact Cindy Kebba at ckebba@rockvillemd.gov or by mail at Rockville City Hall, 111 Maryland Ave., Rockville, MD 20850.

For more information on the plan, call Kebba in the Community Planning and Development Services department at 240-314-8233.

See the original article here.

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Here is a excerpt from a fantastic article by Lou Carlozo about improving your home appraisal.

By Lou Carlozo
WASHINGTON | Tue, Jan 22, 2013

MAKE SURE APPRAISER KNOWS YOUR NEIGHBORHOOD

Is the appraiser from within a 10-mile radius of your property? “This is one of the first questions you should ask the appraiser,” says Ben Salem, a real estate agent with Rodeo Realty in Beverly Hills, California.

He recalled a recent case where an appraiser visited an unfamiliar property in nearby Orange County and produced an appraisal that Salem said was $150,000 off. “If the appraiser doesn’t know the area intimately, chances are the appraisal will not come back close to what a property is really worth.”

You can request that your lender send a local appraiser; if that still doesn’t happen, supply as much information as you can about the quality of your neighborhood.

PROVIDE YOUR OWN COMPARABLES

Provide your appraiser with at least three solid and well-priced comparable properties. You will save her some work, and insure that she is getting price information from homes that really are similar to yours.

Websites including Realtor.com, Zillow and Trulia offer recent sales prices and details such as the number of bedrooms and bathrooms in a home.

KNOW WHAT ADDS THE MOST VALUE

If you’re going to do minor renovations, start with your kitchen and bathrooms, says G. Stacy Sirmans, a professor of real estate at Florida State University. He reviewed 150 variables that affect home values for a study sponsored by the National Association of Realtors. Wood floors, landscaping and an enclosed garage can also drive up appraisals.

DOCUMENT YOUR FIX-UPS

If you’ve put money into the house, prove it, says Salem.

“Before-and-after photos, along with a well-defined spreadsheet of what was spent on each renovation, should persuade an appraiser to turn in a number that far exceeds what he or she first called out.”

Don’t forget to highlight all-important structural improvements to electrical systems, heating and cooling systems – which are harder to see, but can dramatically boost an appraisal. Show receipts.

TALK UP YOUR TOWN

If your town has recently seen exciting developments, such as upscale restaurants, museums, parks or other amenities, make sure your appraiser knows about them, says Craig Silverman, principal and chief appraiser at Silverman & Co. in Newtown, Pennsylvania.

DISTINGUISH BETWEEN UPSTAIRS AND DOWNSTAIRS

Many homeowners covet that refinished basement, but that doesn’t mean appraisers look at it the same way. “Improvements and additions made below grade, such as a finished basement, do not add to the overall square footage of your house,” says John Walsh, president of Total Mortgage Services in New York. “So they don’t add anywhere near as much value as improvements made above grade.”

According to Remodeling magazine, a basement renovation that cost $63,000 in 2011-12 will recoup roughly 66 percent of that in added home value. That’s not as good as an attic bedroom, which will recoup 73 percent of its cost. Even similar bedrooms typically count for more if they are upstairs instead of downstairs.

CLEAN UP

Even jaded appraisers can be swayed by a good looking yard. “Tree trimming, cleaning up, a few flowers in the flower beds and paint touch up can all help the appraisal,” says Agnes Huff, a real estate investor based in Los Angeles.

That advice holds true indoors, too. “Get rid of all the clutter in your home,” says Jonathan Miller, a longtime appraiser in New York. “It makes the home appear larger.”

GIVE THE APPRAISER SOME SPACE

Don’t follow the appraiser around like a puppy. “I can’t tell you how many homeowners or listing agents follow me around in my personal space during the inspection,” he says. “It’s a major red flag there is a problem with the home.”

And while you’re at it, make the appraiser’s job as pleasant as possible by giving your home a pleasant smell. At a minimum, clean out the litter box. Baking some fresh cookies and offering him one or two probably won’t sway your appraisal, nor should it. But it couldn’t hurt.

To read the complete article made available by Reuters, click here.

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A really helpful article from Zillow.com:

Taxes are due April 15, which means it’s time to start gathering your W2s, 1099s, child care receipts and bank statements.

But before you sit down with your accountant, it’s important for you to know that merely owning a home could mean you qualify for tax breaks. In most cases, you need to itemize your taxes in order to take advantage of these deductions. Yes, it makes the tax-filing process seem impenetrable, but the benefits may outweigh the complications.

Here are a few of the tax breaks you’ll want to investigate:

Mortgage interest paid at settlement

Take a look at your closing statement; one item that’s generally listed there is home mortgage interest. On a mortgage of up to $1 million, you can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). This amount should be included in the mortgage interest statement provided by your lender.

Points

Did you pay points in order to obtain your home mortgage? These fees are included on the income tax deductions list and can be deducted as long as they are associated with the purchase of a home. If you refinanced your home, these points are still deductible, but it must be done over the life of the mortgage.

Property taxes

As long as they are based on the assessed value of the real property, you can deduct your state and local property taxes. However, if your money is being held in escrow for the purpose of paying property taxes, you cannot claim this deduction until the money is actually taken out of escrow and paid. If you do this, check your Form 1098 for the amount you may deduct. Be aware that if you receive a partial refund of your property tax, the amount of the deduction you can claim will be reduced.

Selling costs

If you sold a home in the past year, you may be able to reduce your income tax by the amount of your selling costs. These costs can include things such as repairs, title insurance, advertising expenses and broker’s fees. The IRS only allows the deduction of repair costs associated with selling if the repairs were made within 90 days of the sale. It’s also crucial that the repairs were made with the intent of improving your home’s marketability. Selling costs are deducted from your gain on the sale.

Home office

If you use a portion of your home exclusively for the purpose of an office for your small business, you may be able to claim a deduction on your taxes for costs related to insurance, repairs and depreciation. You may only claim this deduction if the space within your home is used exclusively and regularly as either your principal place of business or a place where you meet and deal with customers or patients. You may also be able to take advantage of this deduction if a portion of your home routinely is used for storing items (product samples, inventory, etc.) used in your business.

In tax year 2010 (the most recent year for which figures are available) nearly 3.4 million taxpayers claimed the home office deduction.

Mortgage insurance premiums

You may be able to deduct the premiums paid for private mortgage insurance for your principal residence and for a non-rental second home.

The deduction begins to phase out once your adjusted gross income reaches $100,000 ($50,000 for married filing separately). In general, you can deduct the premiums paid for the current tax year only. A qualified tax adviser can provide information about rules for mortgage insurance provided by the Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service.

Home improvement loan interest

If you’ve taken out a loan to make improvements on your home, you may be able to deduct the interest on this loan. Qualifying loans are those taken out to add “capital improvements” to your home, meaning the improvement must increase your home’s value, adapt it to new uses or extend its life. New carpeting or painting are not considered capital improvements, while adding a garage, installing a water heater or building a deck are all examples of capital improvements.

Construction loan interest

If you take out a construction loan to build a home, you may qualify to deduct the interest. The IRS only allows a deduction for mortgage interest if the loan relates to a “qualified” home, which means it must either be your principal residence or a vacation home that you will use for personal purposes. You can only use this deduction for the first 24 months of the loan, even if the actual construction takes longer.
Tax codes can be confusing. You may want to consult the IRS website for information concerning deductions and credits. Additionally, consider meeting with a professional to ensure you’re not missing any deductions for which you’re eligible.

Read more: http://www.foxbusiness.com/personal-finance/2013/02/15/eight-tax-breaks-for-homewoners/#ixzz2LTYfFhdw

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Here is a very helpful list compiled by my good friend and mortgage lender Cody Kessler who hosts the Truth in Lending Segment on the radio show each week.  Enjoy!

Questions To Ask Before Accepting A Contract On Your Listing 

1. Please tell me about your company?
a. FDIC Bank / Mortgage Bank / Correspondent Lender / Broker

2. What type of letter has been provided by your company? Pre-Qual / Pre-Approval / Pre-Commitment

3. Did you type and sign the letter, or did someone else in your company review this file and issue it? _________________________________________________________________________________

4. What type of Financing has the buyer been qualified for?
a. Conventional / FHA / VA / USDA / JUMBO
b. Is there any special type of financing being provided?
i. HPAP / HOC / MMP / CDA / DPA

5. Can you please describe the level of due-diligence that you have done on this buyer prior to issuing the letter? ___________________________________________________

a. Have you recently pulled credit on all borrowers?
i. Are there any Major Derogatory credit events in the last 12/24/36 months that would affect qualifying? YES / NO
1. If NO, proceed to next question
2. If YES, continue below
a. What type of credit event? Short Sale / BK / Foreclosure / Tax Lien
b. How were these items addressed and have you seen documentation that they have been resolved? ___________________________________________________

b. Have you been provided with all required years of tax returns?    YES / NO
i. Have you accounted for all unreimbursed business expenses?    Y / N
ii. Are they filed and up to date with payment to include and SE returns?    Y / N
iii. Are any of the borrowers on extension?    Y / N

c. Have all of the Buyers funds to close been verified?    Y / N
i. Have they been sourced and seasoned?    Y / N
ii. Are there any unusual large deposits that can’t be explained?    Y / N
iii. Is the buyer receiving a gift from anyone?    Y / N
1. Have you spoken to the donor to verify?    Y / N

6. Is this buyer prepared to be approved today, excluding the time it takes to go through the underwriting process? Or do they require any “work” to be done on them first? Y / N

7. What are the current turn times for your company? _______________________________________

8. Have you missed any purchase settlements recently?    Y / N
a. NO – continue on
b. YES – ask why and for an explanation ___________________________________________

9. Are you able to ensure that if my clients accept this contract that you and your company can settle on time?____________________________________________________________________________

10. Is there anything else you would like to tell me about this loan and the buyers outside of what we have already discussed? __________________________________________________________________________________

__________________________________________________________________________________

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A great article about how investing in little things can have a big payout.

BY DIAN HYMER, MONDAY, FEBRUARY 18, 2013.

It might seem counterintuitive to invest money in a home you’re selling. Wouldn’t it be better to save that money for improvements on your next home?

Even though the home sale market has improved impressively, buyers still pay more for homes they can move right into without having to do work. This is not to say that buyers won’t buy homes that need updating, but they need to be able to see the potential. And the property needs to be priced right for the market, taking into account work that needs to be done.

For example, recently a home was sold in the desirable Crocker Highlands neighborhood in Oakland, Calif. It was owned by one family for more than 50 years. The property had deferred maintenance and a dated décor.

Read the rest of the article here.

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