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10539 Professional Circle - Suite 100
- Reno, NV 89521
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29 Jan
Tax season is here
Now that tax season is here, I thought it would be a good idea to post an article about some of the write-off benefits of owning a home…
For many years, the federal government has encouraged home ownership by providing significant tax benefits that are not available to renters. It’s getting close to the April 15 tax deadline, so let’s take a look at some of the tax benefits.
If you purchased a home during 2007, you will find you no longer will be able to use the 1040EZ form. You now will be able to deduct interest paid on your home mortgage and your property taxes on Schedule A of the long form 1040.
In addition, you also will have the opportunity to itemize other expenses as well on Schedule A of the 1040. You may have expenses such as medical, business or charitable, which you wanted to deduct from your income in the past but, because you were renting, the total of these expenses did not exceed the amount of the standard deduction. Now you can deduct these items in addition to your interest and property taxes.
The deduction for interest only can save you a tremendous amount of federal income tax. During the early years of your mortgage particularly, the majority of your mortgage payment is interest. Let’s take a look at an example.
Let’s say you have financed a $250,000 mortgage at 6.25 percent, payable over 30 years. Your monthly principal and interest payment is $1,539, or $18,468 per year. In the first year of the loan, you will pay approximately $15,625 toward interest and $2,843 in principal. The $15,625 interest amount is deductible.
Simply stated, say you make $100,000 per year and your tax rate is 25 percent. Prior to owning a home, you could deduct only your standard deduction. Now your interest deduction alone would be $15,625. This is more than your standard deduction. Your taxable income would be less, and you could save approximately $1,525 in income tax, depending on the amount of your standard deduction.
That’s not the only benefit of home ownership.
During the first year of home ownership, you also may be able to deduct part of the dollar amount paid to the lender for points because these are considered upfront interest. The amount should appear on your mortgage interest statement for the year.
Although the amount of interest will decrease each year as you pay down the principal, it still will be a sizeable deduction each year. Your lender will send you an annual statement showing the exact amount of interest you have paid. Interest on a second mortgage often is tax deductible as well. If you have a significant amount of equity in your home, obtaining a second mortgage is a good way to pay off high credit card debt and increase the amount of deductible interest.
Property taxes also are deductible on your federal return. Usually, the amount of your property taxes will increase each year as your property increases in value as well as being based on changes in the tax rate in your area. If your lender is paying your property taxes, this amount also will be shown on your annual mortgage statement.
If you own rental property, the rent must be claimed as income on Schedule E of the 1040. However, the expenses for interest, taxes, insurance, utilities, maintenance, repairs, as well as depreciation, can be deducted against the income, often resulting in a reduction of your taxable income.
It’s important to keep good records of the improvement costs you have added to your home and any other costs to obtain or refinance a home mortgage. These costs add to the original cost of your home to establish the basis of the home. This total amount will be subtracted from the amount you receive when you sell the home to determine a gain or loss from its sale.
Take a look at the amount you currently are paying for rent and check with a lender to see how much in mortgage payment that amount would equal.
It’s a great time to purchase a home with today’s low rates and innovative programs. Contact your lending professional today.
-Pam Robinson, Reno Gazette Journal 1/26/2008
I gave an update on this topic in late November. (see http://renofinehomesblog.com/2007/11/25/clubcorp-purchase-of-arrowcreek-country-club-moves-forward/) I stated that the main issue holding up this deal was a lawsuit filed by 14 of the country club’s equity members. In December ClubCorp, Terra Brook (the current owner of ArrowCreek Club) and 13 of the 14 litigants settled their suits. However, there was 1 hold out from the original 14. My understanding is that a verbal agreement has been reached with the remaining litigant so that the purchase can move forward. Obviously ClubCorp wil still have to complete their due diligence before a final deal can be executed.
This is a big win for the country members and the community as whole. ClubCorp is a top notch golf course oeprator and currently owns (or manages) some of the finest courses in the country including Hilton Head, Firestone Country Club, and Barton Creek Country Club. They have a very strong reciprocal program within their extensive network where members can play by paying cart fees only (and a small annual program fee).
ClubCorp has an outstanding reputation in the golf community; this change should bring more members and home buyers to the ArrowCreek community.
This is big boost from the Federal Government to help our market. We’ve been seeing quite a difference in the rates between conforming and non-conforming “Jumbo” loans. This measure is another reason it’s a great time to buy!
House OKs Lift on Fannie, Freddie Loan Limits
The economic stimulus package hammered out between the White House and Congress on Thursday lifts the size of home loans that may be bought or insured by Fannie Mae and Freddie Mac.
The Fannie/Freddie cap would rise to $729,750 for one year. Currently Fannie and Freddie are capped at $417,000.
The measure also would permit the Federal Housing Administration to indefinitely insure loans up to that same level. Currently, FHA loans may not exceed $367,000.
“The stimulus package announced today is a positive step toward strengthening the housing market and our economy,” NAR President Dick Gaylord said in a public statement. “The increase in loan limits should provide liquidity to the mortgage market in all parts of the country allowing qualified home buyers who may have been on the sidelines to enter the market.”
The measure is also expected to make jumbo loans more affordable because it will make them more attractive to investors, who since summer have shunned home loans that don’t pass through Freddie or Fannie.
“In high-cost states, many home buyers with good credit could save $3,000 to $5,000 per year by not being forced into the current jumbo mortgage market,” Gaylord said. “Currently, only families in lower cost areas are able to qualify for these types of affordable loans. Such a move would stimulate home sales and help stem the rise in foreclosures, reducing the number of foreclosures by as much as 210,000.”
In particular, prospective home buyers in costly regions like California, Northern Virginia, and New York have faced higher mortgage rates and tougher loan terms, and those areas would get relief under the plan, says Susan Wachter, a professor of real estate and finance at the Wharton School of the University of Pennsylvania.
“This is meaningful because the mortgage crisis and meltdown is geographically concentrated,” she says. “This response will assist the stressed areas.”
Source: Reuters, Patrick Rucker (01/24/08) and REALTOR Magazine Online
24 Jan
New Federal Mortgage Forgiveness Debt Relief Act of 2007 Gives Home Buyers A Tremendous Opportunity
In December Congress passed sweeping legislation intended to help home sellers with foreclosures, short sales, deed in lieu of foreclosures, and loan modifications. Prior to this bill discharged debt had been considered ordinary income to the borrower for income tax purposes. Under certain circumstance (see below) taxpayers may now exclude this amount and the associated tax liability.
- Rules for debt forgiveness: The debt must have been discharged by the lender in 2007, 2008 or 2009.
- The amount of debt that can be excluded is limited to $2 million.
- The exclusion can be used only if the loan was taken out to acquire, build or substantially improve a principal residence. Forgiveness of debt on vacation homes, second homes and investment property doesn’t qualify.
- Debt forgiven on a cash-out refinance or home equity loan must be apportioned between the amounts used for home acquisition, construction or improvement and amounts used for other purposes such as tuition, travel or repayment of other debts. Only the allowable portion qualifies for the tax break, says John W. Roth, a senior tax analyst at CCH, a provider of tax services, software and information in Riverwoods, Ill.
Consult a qualified tax professional for more information and advice about your situation.
I came across an excellent web site that offers a wide range of advice and solutions to common, and not so common, mortgage questions. The site includes a very active forum where community members can post questions or comments and receive answers from mortgage experts. The postings include many topical subjects:
- Short Sales
- Quit Claims
- Deed in Lieu Process
- Credit Ratings
I attended the yearly conference for the Builders Association of Northern Nevada last week at the Peppermill. There were 500+ people in attendance at the Forecast Presentation in the morning. Our broker at Remax was one of the guest speakers. It was very informative and validated what I’ve been saying about the market. Which is: 2008 will remain soft for most if not all of the year and we will see a turn in 2009. Rates are low and the market normally starts to pick up again after an election and everyone knows who will be in office (no matter which party). The next day the Reno Gazette Journal wrote this article:
Economic theme for ‘08: Caution and uncertainty Economists and real estate experts put different spins on the forecast for 2008 during the annual Northern Nevada Building Conference, which was put on by the Builders Association of Northern Nevada on Wednesday at the Peppermill Hotel-Casino convention center. They used such words as “uncertainty,” “drag” and “adjustments” in describing the state of Northern Nevada’s economy after a rough 2007.They turned such phrases as “inventory problem,” “feeling pain” and “no quick change” in assessing the new year.But those addressing Wednesday’s “Forecast 2008 and Beyond” economic forum said they believe better times await. The question of when is hinged to the housing slump.With an easing in late 2007 in the decline of median home prices, “You can make a case that the downward slope has started to flatten,” said Wayne Capurro, president of the Reno-Sparks Association of Realtors. “We believe the market is leveling off.”And Nevada’s top-in-the-nation ranking in foreclosures is heavily influenced by Clark County, he said, where the Las Vegas region’s foreclosure rate is three times that of Reno-Sparks.Re/Max realty broker Amy Lessinger also put a positive spin on the market before about 500 people attending the forum sponsored by the Builders Association of Northern Nevada Sales and Marketing Council.”Median prices are still dropping. But every time it falls, we get closer to the bottom,” she said.But that could take much, if not all, of 2008, said John Mitchell, retired Western region economist for US Bank.”Mortgage rates are down, and that will help you through the inventory problem,” he said. “Housing adjustments are under way, but it’s just not over. I’m not sure we’ve hit bottom yet. I think you’re talking 2009.”Mitchell called the past year a “wild time” in the housing industry with sizable drops in new homes built and even steeper declines in new-home permits.”It’s not pretty,” he said of the building sector that has fallen even as other economic indicators remain steadier.”So, where are we going? I’m not in the camp that thinks there will be recession in 2008,” he said. “We’ve been headed for recession since 2001, but we don’t seem to have gotten there yet.”Commercial real estate experts presented a rosier picture. The industrial sector is strong with growth in outlying areas, and the office market is solid in select locales, such as downtown Reno.”We’re seeing … the largest industrial construction boom in our market history,” said Tim Ruffin, senior vice president at Colliers International.And he expects a promising 2008 in retail, led by the development of the Legends at Sparks Marina project anchored by outdoor retailer Scheels, set to open later this year.But overall, he said, “caution and uncertainty will characterize 2008.”Mitchell, too, sees a brighter longer term, citing continued population and job growth in Northern Nevada despite widespread losses in construction.”It’s a drag, but so far it has not stopped growth,” he said. “It will continue to be very slow in 2008 as you work through these adjustments.”And, he noted, the region’s assets that helped fuel economic prosperity over the past decade haven’t gone away.”Your location adjacent to (California), the university, transportation, recreation, these are all advantages,” he said.”But you have this temporary problem in construction. You’re working through it. Long term, the outlook is good. Short term, there’s no quick change.” RENO GAZETTE-JOURNAL
January 17, 2008
Today Foreclosures.com lists 1766 residential properties (1 – 4 units) that are in the pre-foreclosure stage in Washoe County, Nevada. As I wrote in my Jan. previous post, this is a wonderful opportunity to get a great deal. Many incorrectly think that foreclosures mostly affect the entry level market, when in fact, they affect all price levels. For example, of the 1766 Washoe County pre-foreclosures, 61 are in zip code 89511 located in South Reno, of which 31 (51%) have a stated market value of > $500K. Five homes are in the $1M - $2M range, of which 3 are in ArrowCreek.
In Incline Village there are 28 homes in the pre-foreclosure stage, of which 14 have a stated market value of > $500K.
Reno overall has 1054 homes in the pre-foreclosure stage (wow!), of which 57 have a market value of > $500K. They are scattered across the high end neighborhoods.
If you are considering buying a luxury home in Washoe County now is an excellent time to do so.
Pre-Foreclosures offer an Opportunity for Reno Area Home Buyers
There is a lot of hype about buying homes that have been foreclosed. In Nevada most foreclosures are non-judicial, meaning that they can be accomplished without a court order. This occurs when the loan contract has a power of sale clause which authorizes the lender/bank to sell the property in the event of default to satisfy the loan balance. Although there is an opportunity to get a good deal, I recommend looking at property that is in the pre-foreclosure stage for the following reasons:
· Sellers are much easier to deal with than lenders. Lenders typically have to get approval to accept offers which can greatly delay the process. It is in the seller’s best interest to try to sell the home instead of facing a foreclosure on their record, and they will normally be as flexible as possible.
· Homes are usually in better condition in this stage because the owners are still living there.
· Inspections are easier to make. After the bank takes over, the utilities are usually turned off making home inspections difficult. Utilities usually have a re-connect fee that the buyer is forced to pay in order to have the inspections completed.
I subscribe to Foreclosures.com’s database that includes a pre-foreclosure section. The first step in this process is a Notice of Default. Here’s their description of the pre-foreclosure process:
- A Notice of Default and Election to Sell is recorded in the county in which the property is located. It is also mailed by certified mail on the date of recordation to the borrower. The borrower then has 35 days in which to cure the default.
- The borrower must file a Notice of Intent to Cure at least 15 days prior to the sale date and then pay the amount due by noon on the day before the sale date.
- If the terms of the loan document allow for acceleration in the event of default, the entire balance of the loan may be called due in the Notice of Default and Election to sell. However, if the borrower cures the default plus costs within the 35 day period, acceleration is not permitted.
- The sale date shall be not less than three months from the recordation of the notice of default and election to sell. The sale will be conducted at the time and place designated in the notice of default and election to sell. The successful bidder receives a trustee’s deed on completion of the sale. The lender usually bids in the amount of the balance due plus costs. If no one else bids, the property reverts to the lender.
- The lender has three months following the sale date to sue for any deficiency balance. The owner in default has no right of redemption in non-judicial foreclosure.
The N. Nevada Real Estate Market continues to struggle. The median sales price for homes sold decreased to $282,500, down 5.8% from the median price of $300,000 in November. This is a 19.3% decrease from the median sales price of $350,000 in December, 2005.
The number of homes sold increased slightly from 205 homes sold in Nov., 2007 to 213 sold in Dec., 2007. However, this is 25.3% lower than the 329 homes sold two years ago in December, 2005. At the end of December the residual inventory of single family homes for sale (on MLS) decreased slightly to 2.841 homes. However, many sellers take their homes off the market for the Holiday Season; I expect this number to jump in January putting further pressure on prices.
Data is courtesy of my Broker at RE/MAX Realty Affiliates and NNRMLS. It includes residential (site/stick built) single family homes in Washoe County.)