Deducting Mortgage Points on Your Tax Return

If you bought a home or refinanced your home in 2013, mortgage points you paid on the new loan are tax deductible. But depending on whether you purchased a home last year, or simply refinanced the one you already had, when you can deduct the mortgage points varies, as explained in this brief video…

Check out our other articles and tips pertaining to Mortgage points and mortgages in general by clicking on the Boston Mortgage Info link to your right under Boston Real Estate Categories.

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Boston Area Real Estate News – November 2013

Boston Area Real Estate News - November 2013

In our Boston Area Real Estate News for November 2013:

No Mortgage Limit Changes Before Spring

Housing Inventory Fell In September

IRS Delays Start of Tax Filing Season (Again)

 

No Mortgage Limit Changes Before Spring

No Mortgage Limit Changes Before SpringMortgage lenders will get at least six months' notice before the government reduces the limit on the size of loans that taxpayer-owned Fannie Mae and Freddie Mac can back.

The Federal Housing Finance Agency, which has already said it was considering lowering the cap to wean the housing finance system off its dependence on the government, said any change would be phased in to avoid economic disruptions.

The housing finance industry had expected officials to lower the limits on Fannie Mae and Freddie Mac-backed loans on January 1, 2014. While it will get more time to prepare for any changes, a decision on whether to lower the limits, and by how much, would still be made later this month (November).

Currently, Fannie and Freddie cannot back loans of more than $417,000 in most markets, although the cap ranges as high as $625,500 in some pricier areas – and up to $721,050 in Hawaii.

Lowering the caps, which were raised in 2008 to help keep the mortgage market liquid during the financial crisis, could make it harder for Americans to obtain home loans and drive up mortgage costs, unless the private market steps in to fill the void.

The two firms do not directly make loans. They purchase mortgages from lenders, which they either keep on their books or bundle into securities that they offer to investors with a guarantee. Those investors pay Fannie and Freddie a "guarantee fee" when they buy the securities.

Some in the industry and lawmakers have tried to challenge the FHFA's legal authority to reduce the loan limits. In addition, a bipartisan group of lawmakers in the House of Representatives have called on the agency to drop its plans to change them altogether. We'll keep you posted on any changes, whatever they may be, right here at this website. Stay tuned!

 

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Housing Inventory Fell in September

Housing Inventory Fell in SeptemberThe number of homes listed for sale dropped slightly in September but a growing number of housing markets are witnessing higher levels of for-sale inventory compared with one year ago.

Nationwide, there were 1.94 million homes listed for sale in September, down by 1.7% from August but still the third highest level this year, according to a report from Realtor.com. Listings were down by 2% from one year earlier, but nine of the top 30 metro areas saw year-over-year increases in the number of homes for sale.

The housing market has seen brisk sales through the third quarter of this year, but there are signs that severe inventory crunches from earlier this year are slowly beginning to ease as rising prices give more sellers the incentive to test the market.

Home listings tend to slow in September as the school year begins, and the drop in listings last month was lower than normal.

The National Association of Realtors estimated recently that housing inventory stood at 2.21 million units in September, which was unchanged from August but up by 1.8% from last year's levels. That marks the first time in more than 2 and 1/2 years that the Realtors group has reported year-over-year gains in unsold home inventories.

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IRS Delays Start of Tax-Filing Season (Again)

IRS Delays Start of Tax-Filing Season (Again)The IRS announced recently that it will delay the start of tax-filing season by up to two weeks because of the government shutdown. However, taxpayers will still be responsible for turning in their 2013 returns by April 15. (Did you really expect a delay there too?)

This will be the second year that the IRS has delayed accepting tax returns due to legislative matters. Just after Jan. 1 this year, Congress approved a fiscal deal that adjusted tax rates and caused the IRS to push the start of tax-filing season from January 22nd to January 30th. Some taxpayers even had to wait until February or March to file.

The IRS says it will begin accepting tax returns between January 28th and February 4th. The agency plans to announce in December a final date for when the filing season will officially kick off. We'll update you here when that final date is announced.

Easy Tax Mistakes Made By Boston Area Home Owners

tax mistakes that can get you in trouble with the IRSEven though we’re still six months or so away from that dreaded tax filing season, we wanted to bring to your attention some easy tax mistakes Boston area home owners often make and end up paying more than necessary to Uncle Sam. Making any one of these tax mistakes as they relate to your Boston area home can cost you money, or worse, draw the IRS to your doorstep for an audit.

Tax Mistakes #1 – Property Taxes in the Wrong Year

You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some tax jurisdictions bill a year behind — in other words, you don’t get billed for 2013 property taxes until 2014. This doesn’t really concern the IRS. Be sure to enter on your federal tax forms what you actually paid in 2013 regardless of the date of the bill. Don’t claim the wrong amount based on dates.

Tax Mistakes #2 – Deducting the Wrong Tax Amount

Most people have an escrow fund held by their mortgage lender to pay your property taxes. Don’t deduct the amount escrowed, deduct the amount the escrow service pays the taxing authority. The amount you regularly pay into your escrow account each month to cover property taxes is more than likely more, or may be a little less than your actual property tax bill.

You might have a tax bill for $1,500, but your mortgage lender may have collected $1,600 in escrow during the year as a part of your monthly payment. Only deduct the $1,500 tax bill amount, not 12 months of the escrowed tax amounts you pay with your mortgage payment.

Tax Mistakes #3 – Claiming Too Much Interest Deduction

You can deduct mortgage interest only up to $1 million of mortgage debt. If you have $1.5 million in mortgage debt, deduct only the mortgage interest on the first $1 million.

Tax Mistakes #4 – Deducting Points on a Refi

When you first buy your Boston area home, you can deduct all points the year you bought it. However, when you refinance a mortgage, you have to deduct points over the life of your new loan, not all the year you refinanced. If you paid $4,000 in points to refinance a 30-year mortgage, your tax deduction is around $133 per year.

Tax Mistakes #5 – Not Keeping Track of Capital Gains

If you sold your Boston area home last year, don’t forget to pay capital gains taxes on any profit. Tax laws allow you to exclude $250,000 (or $500,000 if you’re a married couple) of any realized profits from taxes. If your cost basis for your home is $200,000 (what you paid for it plus any improvements) and you sold it for $400,000, your capital gains are $200,000. If you’re single, you owe taxes on $150,000 of gains. See IRS Publication 523 for more details on capital gains when selling your Boston area home.

For more tax related tips and articles as they pertain to your Boston area home, click over to our Taxes section under Boston Real Estate Categories to your right.

Boston Area Real Estate Moves With Surprising Tax Implications

Everyone knows that owning Boston area real estate offers significant tax advantages. A recent survey of people who had bought homes in 2012 showed 79 percent said the mortgage interest and property tax deductions were “extremely important” factors to their decision to become homeowners in the first place.

These two deductions are just the tip of the iceberg of all the real estate-related tax guidelines, advantages and disadvantages.

Boston area real estate moves with tax implicationsBoston Area Real Estate Moves That Trigger Surprising Tax Issues

Refinancing

Homeowners have been on a refinancing spree this year, spurred by continually low interest rates and a new resurgence in home values and equity. When you refinance into a lower interest rate mortgage than you previously had, the focus tends to be on the fact that your monthly payment is lower or that you can pay your home loan off faster with the same payment every month.

What many fail to calculate for is that the tax deduction based on your mortgage interest is the largest tax perk of home ownership. Most homeowners are eligible to deduct 100% of the interest they pay on a mortgage up to $1 million on their primary residence. So, if you reduce the interest you pay, you also reduce your mortgage interest deduction.

Believe it or not, less than 30 percent of homeowners take their mortgage interest deduction every year. This is thought to be because at lower income and home price levels, the standard deduction is higher than the itemized deductions for which many homeowners would be eligible. If you do itemize every year and/or you have a relatively high (or growing) adjusted gross income, you might be surprised at your tax bill the year after you refinance to a lower interest rate.

Remodeling

When you remodel your home, whatever you do, save your receipts. And this is not a ‘save them until tax time’ recommendation, it’s a ‘save them until you sell the place’ mandate!  The money you invest into improving your home over time gets added to your purchase price, or cost basis, when you sell, bringing down the amount the IRS considers to be profit or gain and reducing your chances of incurring capital gains tax. (Single home owners can realize $250,000 of “gains” above the cost basis of their home tax-free; marrieds, $500,000.)

Many remodeling projects popular with homeowners these days trigger local and state tax credits. If you are remodeling and improving your home’s efficiency at the same time, visit your state, county and city websites to see what tax credits or other financial incentives you might qualify for.

Whether or not your remodeling projects are eco-friendly, if you use a home equity line to finance them, chances are good that you can deduct the interest from that loan (up to $100,000) on top of your home mortgage interest deduction.

There are many Boston area real estate moves that may affect your taxes if you own your own home, so be sure to consult with your accountant or tax attorney, or do a lot of research and study on this topic yourself. The money you save in taxes could blow your mind. But the money you give to Uncle Sam if you don’t do your homework, can blow your budget.

Taxes: Preparing for Next Tax Season Now

Now that the April 15th tax deadline has come and gone, it’s time to start thinking about taxes for next year.

Most people are so glad to have tax season over with, the last thing they want to think about is taxes again, but now is actually the best time.

For those of you who are industrious and want to get a jump on next year’s taxes, we have a lot of tax tips at our site. Just click on the link “Taxes” under the Boston Real Estate Categories in the column to your right.

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