Don’t-Miss Home Tax Breaks

Tax time has arrived, from the mortgage interest deduction to energy tax credits, here are the tax tips you need to get a jump on your returns.

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Deficit Reduction Commission Releases Report Proposing Changes to the Mortgage Interest Deduction

Deficit Reduction Commission Releases Report Proposing Changes to the MID

The bipartisan Deficit Reduction Commission has released its final report, which includes a recommendation to modify the Mortgage Interest Deduction (MID) – a recommendation that could negatively affect millions of American homeowners.

The proposed changes would eliminate an owner’s ability to credit for equity and reduce the mortgage cap by 50% from $1 million to $500,000. Additionally, home owners with a second home or investment property would lose their ability to claim a tax credit for their non-primary residences. The commission is mandated by law to report recommendations to President Obama, and commission members will be asked to review the report and register their vote for or against on Friday. With thousands of prospective buyers and existing property owners in the Charleston area, the reduction or elimination of the MID could have serious effects on the Charleston real estate market.

“Over the last 12 months, the local real estate market has shown consistent signs of improvement and the removal of one of the key benefits to homeownership could devastate this recovering market,” said Jeremy Willits, 2010 President of the Charleston Association of REALTORS®.

The changes would also negatively affect current homeowners, particularly for first-time buyers who purchased in recent years and rely on the MID as a tax deduction. New and recent owners who have higher principal balances on their mortgages will see the most dramatic impact, as they pay greater interest and receive more substantial credits. Those who have owned their property longer or have smaller principal balances will feel a slightly lesser impact as they have had less interest on which to claim the MID.

Federal government incentives for homeownership have existed for more than 150 years, largely due to the positive impact homeownership has shown in fostering communities, creating social stability, building individual wealth over the long term, and contributing significantly to the economy.

While the MID isn’t believed to be a significant factor in a consumer’s decision to purchase a home, it has been proven to make ownership more affordable by reducing the financial burden associated with paying a mortgage. Furthermore, by utilizing the mortgage interest deduction when filing annual tax returns, many owners are able to receive tax refunds or reduce their tax payments, which feeds back into the overall economy through consumer spending.

The Charleston Trident Association of REALTORS® will continue to work with legislative partners and industry leaders on a local, state and national level to ensure a model for responsible, sustainable home ownership. 




Newly appointed NAR President Ron Phipps said in a statement, “Recent progress has been made in bringing stability to the housing market and any changes to the MID now or in the future could critically erode home prices and the value of homes by as much as 15 percent, according to our research. This would negatively impact home ownership for millions of Americans, including those who own their homes outright and have no mortgage”.

In addition to its local and state counterparts, The National Association of REALTORS® (NAR) is actively engaged on behalf of the nation’s 75 million home owners and 1.1 million Realtors® to ensure that the current deduction is not repealed or modified.

Reprinted from Charleston Trident Association of REALTORS®

FANNIE MAE FREEZES FORECLOSURES

Thursday, 07 May 2009

By Ashley Fletcher Frampton
aframpton@scbiznews.com

Mortgage-backer Fannie Mae said it singled out South Carolina for an unusual court-ordered freeze on home foreclosure sales because the state gives local judges the authority to dismiss delayed cases, which other states do not.

Fannie Mae isn’t seeking a similar temporary freeze in other states, said Brian Faith, spokesman for the mortgage company.

“In South Carolina, judges have the discretion to cancel an ongoing foreclosure process if there is a significant delay between the foreclosure judgment date and the actual foreclosure sale,” Faith said in a statement.

If masters-in-equity — the special county judges that usually handle foreclosures in South Carolina — were to dismiss delayed cases, “the process begins anew, which leads to higher costs and losses,” Faith said.

“The court ruling effectively addresses this situation,” he said.

Fannie Mae suspended its foreclosure proceedings in late 2008 and during the first of quarter of 2009 while it reviewed cases for potential workout strategies, Faith said. In some cases, that created significant delays.

At Fannie Mae’s request, the S.C. Supreme Court issued a temporary restraining order late Monday afternoon on foreclosure sales for some homes. It targets properties that could be eligible for a mortgage modification program that President Barack Obama’s administration is rolling out. The program offers more affordable mortgage payments to homeowners whose loans are backed by Fannie Mae or Freddie Mac and who meet certain other criteria.

Fannie Mae did not want homeowners potentially eligible for the program to lose their homes in foreclosure before they had a chance to participate. The mortgage company estimates that more than 1,000 homes in South Carolina were headed to foreclosure sales this week. It filed the petition for a temporary restraining order on Friday.

Obama announced the Home Affordable Modification Program in February, but details were not outlined until April 6.

Masters-in-equity say they are still sorting through the implications of the S.C. Supreme Court order, which requires lenders seeking foreclosure to submit affidavits by May 15 stating whether loans in default are eligible for the modification program.

Homes not eligible will continue in the foreclosure process, according to the restraining order.

Published May 7, 2009

If you have questions regarding the real estate market in the greater Charleston, South Carolina area please do not hesitate to call or e-mail Owen at 843.224.5398 or Owen@OwenTyler.com

CAN LOAN MODIFICATION HELP YOU

What is a Loan Modification?

Whether it's called a loan modification, mortgage modification, restructuring, or workout plan, it's when a borrower who is facing great financial hardship, having difficulty making their mortgage payments and is facing foreclosure, works with their lender to change the terms of their mortgage loan to make it affordable. The workout plan varies by lender, but changes could include temporary or permanent changes to the mortgage rate, term and monthly payment of the loan, the past due amount could be rolled into the loan, and the new balance re-amortized.

What is a loan modification under Obama's plan?

Under the Homeowner Affordability and Stability Plan President Barack Obama announced on Feb. 18, 2009, the goal of Obama's "Make Home Affordable" loan modification plan is to reduce the amount struggling homeowners owe per month to sustainable levels. According to plan details:
· The lender would first be responsible for bringing down interest rates so that the borrowers monthly mortgage payment is no more than 38 percent of his or her income.
· Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent.
· Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.
· Borrowers will be put on a trial modification at the new interest rate and payment for three months. If they make all their payments on time, the modification will be implemented at the new rate and be fixed for five years.

Under Obama's plan, loan modifications will be standardized, with uniform loan modification guidelines used by Fannie and Freddie Mac, and then they will be implemented throughout the entire mortgage industry.

Who is eligible for a loan modification?

To qualify, you must:
· Have originated your mortgage before Jan. 1, 2009.
· Be an owner-occupant.
· Have an unpaid balance that is equal to or less than $729,750 (for a single-family home).
· Have trouble paying your mortgage due to financial hardship. That could be because you have had an increase in your mortgage payments, or because your income was reduced or you suffered a hardship (like medical problems) that increased your bills, or, you can show that you soon will be unable to make your payments. You will be required to enter an affidavit of financial hardship.
· Your monthly mortgage payment must also be more than 31% of your gross (pre-tax) monthly income.

According to the Department of Treasury: Anyone with high combined mortgage debt compared to income or who is underwater (i.e., has a combined mortgage balance higher than the current market value of his house) may be eligible for a loan modification. This initiative will also include borrowers who show other indications of being at risk of default. New borrowers will be accepted until Dec. 31, 2012.

Who's not eligible for a loan modification?

Speculators or those who bought homes for investment purposes -- are not eligible. All homes must be owner/occupied. Also, if you cannot afford the home due to job loss or a complete inability to pay, you will not be eligible. Also, mortgages with amounts above the conforming loan limits would not be eligible.

How does someone get a loan modification?

First, gather this information:
· Information about the monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources.
· Your most recent income tax return.
· Information about your assets
· Information about any second mortgage on the house.
· Account balances and minimum monthly payments due on all of your credit cards.
· Account balances and monthly payments on all your other debts such as student loans and car loans.
· A letter describing the circumstances that caused your income to be reduced or expenses to be increased (job loss, divorce, illness, etc.).

Second, call your mortgage servicer and ask to be considered for a "Home Affordable Modification." The number is on your monthly mortgage bill or coupon book. Honestly state your situation. They will assess your financial state through phone calls and paperwork to determine whether you qualify for a loan modification. Keep copious, detailed notes on who you speak with and details of the conversations so you have documentation down the road if you are faced with foreclosure.

Third, depending on the direness of your financial difficulties, its always good to hire legal counsel. Get a referral from your local state bar association.

Fourth, call a local HUD-Approved Housing Counseling Agency for guidance.

How do loan modifications benefit lenders and borrowers?

A loan modification is usually a win-win situation: the lenders get their money in a reworked fashion and borrowers get a new chance to support their mortgage payments at a reduced cost.

Also, under the Obama plan, there are incentives for both lender and borrower. According to the Treasury:
· Pay for Success Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive pay for success fees awarded monthly as long as the borrower stays current on the loan of up to $1,000 each year for three years.
· Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
· Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.
· Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration -- together with the FDIC -- has developed an innovative partial guarantee initiative. The insurance fund to be created by the Treasury Department at a size of up to $10 billion will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index. Also, banks would rather have you stay in your home than risk foreclosure since they stand to lose more money through foreclosure. Think about it: a bank would need to make any repairs to the home, pay real estate agents to list it, and then perhaps list it at a discounted price.

And, if the real estate market is slow, the price could be further reduced.

AMERICAN RECOVERY AND REINVESTMENT ACT - $8,000 TAX CREDIT

"The new credit can get money in the pockets of first-time homebuyers quickly," said IRS Commissioner Doug Shulman. "For people who recently purchased a home or are considering buying in the next few months, there are several different ways that they can get this tax credit even if they've already filed their tax return."

How the tax credit works
The bill provides up to an $8,000 refundable tax credit (or up to 10% of the purchase price). If the property is $75,000, the credit is only $7,500.

• The credit is available to first-time buyers of a principal residence on or after January 1, 2009 and before December 1, 2009. This is someone who did not own another main home at any time during the three years prior to the date of purchase.

• The credit does not require repayment. The credit will be claimed on a tax return to reduce the purchaser's income tax liability.

• If the buyer's tax liability in the given year is less than $8,000, the IRS will send a refund for the balance.

According to the 2008 IRS Tax Tables: A single filer would need $46,600 in taxable income to have $8,000 in tax liability. A couple would need $58,600 in taxable income to have $8,000 in tax liability.

• Taxpayers whose income is more than $75,000, or $150,000 for joint filers can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

Exceptions
If any of these conditions exists, the credit will not be available.

• Income exceeds the phase-out range. $95,000 for individuals, $170,000 for couples.

• The home is purchased from a close relative. This includes spouse, parent, grandparent, child or grandchild.

• You stop using your home as your main home.

• If the home is sold prior to three years of ownership, the tax credit must be repaid.

• You are a nonresident alien.

How to file
(This information published by the Internal Revenue Service. IRS Newswire, March 18, 2009)

For people who recently purchased a home or are considering buying in the next few months, there are several different ways that they can get this tax credit even if they've already filed their tax return.

The credit may be claimed on 2008 tax returns due April 15 or on 2009 tax returns next year.

The Treasury Department encourages taxpayers to explore these options to maximize their credit and get their money back as fast as possible.

The filing options to consider are:

• File an extension - Taxpayers who haven't yet filed their 2008 returns but are buying a home soon can request a six-month extension to October 15. This step would be faster than waiting until next year to claim it on the 2009 tax return. Even with an extension, taxpayers could still file electronically, receiving their refund in as few as 10 days with direct deposit.

• File now, amend later - Taxpayers due a sizable refund for their 2008 tax return but who also are considering buying a house in the next few months can file their return now and claim the credit later. Taxpayers would file their 2008 tax forms as usual, then follow up with an amended return later this year to claim the homebuyer credit.

• Amend the 2008 tax return - Taxpayers buying a home in the near future who have already filed their 2008 tax return can consider filing an amended tax return. The amended tax return will allow them to claim the homebuyer credit on the 2008 return without waiting until next year to claim it on the 2009 return.

• Claim the credit in 2009 rather than 2008 -This could benefit taxpayers who might qualify for a higher credit on the 2009 tax return. This could include people who have less income in 2009 than 2008 because of factors such as a job loss or drop in investment income.

If you have questions about the $8,000 tax credit or are interested in buying or selling property in the Lowcountry, please don't hesitate to call Owen at 843.224.5398 or e-mail Owen@OwenTyler.com.