The Federal Tax Credit for Home Buyers has been extended and expanded! See complete details by clicking on the link on my homepage: Federal Tax Credit for Buyers.
The MORTGAGE DEBT RELIEF ACT OF 2007 has come to the financial aid of most homeowners who lost, or will lose, their primary residences through foreclosure, deed in lieu of foreclosure or short sale during the years 2007 to 2012.
All of these situations involve a certain amount of mortgage debt that has been forgiven by the lender involved. Forgiven debt is generally considered taxable income by the IRS. A taxpayer can now apply to exclude any income resulting from the cancellation of debt up to $1,000,000, or $2,000,000 if filing jointly. The taxpayer must file IRS form 982.
The relief provisions apply to all purchase money and refinance loans but some restrictions apply with regard to refinanced loans. As always, final results in tax situations depend on exact circumstances. Please discuss your circumstances with your tax professional and proceed accordingly.
Also, remember that personal financial losses resulting from the sale or foreclosure of your primary residence are not tax deductible.
Section 121 of the Internal Revenue Code has been altered as of January 1, 2009. This section has to do with the $250,000 ($500,000 if filing jointly) capital gains exclusion on the sale of your personal primary residence.
Previously, the full exclusion applied if the owner lived in the property for any two of the last five years. Effective January 1, 2009, the amount of the exclusion will be based on the PERCENTAGE of time you have personally lived in the home over it's qualified life. The clock starts ticking on January 1, 2009.
If you have lived in your home since you bought it, this new law will have no effect on you. However, if you have a rental that you have planned to move into for two years before you sell it, it could have a considerable impact.
As always, consult your tax professional on the details and the Capital Gains implications for you.
If you bought, sold or refinanced your home last year, you will want to take advantage of every tax deduction available to you! If you intend to buy, sell or refinance this year, you will want to keep these items in mind!
This is a checklist only and not necessarily a complete one. It is intended to point out some easily overlooked and somewhat obscure deductions. I am a Realtor and not a tax expert! You will need to consult with your CPA or other tax professional to examine your individual situation and make sure these provisions apply to you. Always bring a copy of your closing statement to your tax appointment!
1. Very few people forget the basic PROPERTY TAX deduction but the "loose ends" can be easily overlooked!
Most people pay a pro-rated share of the current year's property tax as part of normal closing costs. The amount usually appears only on the closing statement It is paid through escrow to the other party (usually the Seller) who makes the actual payment to the Assessor. The amount is based upon the number of days you own the home during the tax period. This deduction is very often forgotten!
During the first year or two that you own your new home, you will receive supplemental tax bills in addition to the regular tax bill , which the Seller usually forwards to you until the Assessor's office catches up. If your taxes are impounded, you simply send this bill to your bank for payment and they, in turn will send you a year-end statement showing taxes paid. Double check the bank's figures. If you pay the property taxes yourself, don't forget to figure in both bills.
Property taxes are deductible in the year paid. This is important if you prepay the taxes in full instead of in two installments which usually span two different years.
2. PREPAYMENT PENALTIES, charged to you because you paid off a loan too early, are deductible as interest in the year paid.
3. Did you pay your mortgage lender "POINTS" when you bought your personal residence? This loan fee is tax deductible in full as interest in the year your acquired your home. Proof that you paid this fee is usually only on your closing statement.
However, if you paid "POINTS" as a loan fee when you refinanced your existing personal residence, the amount can only be deducted over the life of the loan and can be a fairly small annual amount when spread over many years.
If you refinance again, or sell your home, any remaining, previously undeducted amount representing "POINTS" paid is deductible in the year the event occurs.
4. CASUALTY LOSSES to your property may be deductible if they are not reimbursed by insurance or otherwise. The loss must be sudden, unusual and unexpected. Examples would be earthquake, theft, riot, fire, storm and vandalism. Casualty loss is subject to certain IRS regulations and calculations. Proof of loss and repair/replacement cost verification is necessary.
Damage occurring over a period of time, such as termite damage or wood rot is not deductible.
5. Did you incur MOVING COSTS in changing houses to take a new job? This can be a substantial deduction. The calculation can be quite complicated. Consult your tax professional or the IRS to make sure that you have made the most of the situation.
6. Keep your closing statement in a safe place forever. It documents the many other closing costs everyone pays in a Real Estate transaction such as escrow and title fees, transfer tax and more. When you sell your home, these closing costs figure into establishing the basis for Capital Gains Tax. This is especially important when dealing with rental properties.
************************************************************************************************************* I have tried to set forth some basic information that I believe to be very reliable and hope will be quite helpful to you. Perhaps, at the very least, it has joggled your memory! Happy taxes!
Marlene Prescott Prudential California Realty 714 283-6643 marlenepre@aol.com