Monthly Archives: December 2011
Did you know owning a home can actually save you money? As a homeowner there are numerous tax benefits that most people don’t even know exist. As you prepare your taxes for the upcoming year, keep these several tax deductions in mind.
1. Mortgage Interest is Tax-Deductible
There are many tax benefits when you own a home, and one of the biggest incentives is your mortgage interest being tax-deductible. When you purchase a home, the interest you pay on your mortgage is tax-deductible, up to a limit of $1 million. This deduction can be applied to any home type, whether it is your first or second home. However, there are regulations that you spend a certain amount of time at the home. For example, 14 days each year, or 10 percent as much time as it is rented.
2. Tax Free profits
Another great tax benefit in owning a home comes when you decide to sell your home. Unlike other profits, the profit you make when you sell your home does not get taxed. You are legally allowed to exclude up to $250,000 in profit from the sale of your principal home. If you file taxes jointly, the amount jumps up to $500,000.
However, in order to receive this tax benefit, the home must be your primary residence, and you have to have lived there for at least 2 of the previous 5 years. Also, you can only claim this exemption once every two years. Which makes sense, otherwise everyone would constantly be moving.
3. Property Taxes Deductible
A third tax benefit as a home owner is claiming property taxes as income tax deduction. This can be done for both your primary and secondary residences.
4. Moving Expenses Deductible
When you buy a new home there can be a lot of moving expenses that come along with it. A benefit of being a homeowner is that the government allows you to write off many of your moving costs as long as it’s at least 50 miles closer to your job than your old home. In order to qualify for this deduction you must continue to work full-time in the general area of your job for 39 weeks during the following year.
If you are self-employed and work in your home, any move that is 50 miles or greater can have deductible moving expenses. In order to qualify for this deduction you must work full-time near the new location for 78 weeks during the next 24 months.
Of course, because tax rules vary based on income and other factors, be sure to consult an accountant or financial advisor about your particular situation
Today, December 22, 2011, the House and Senate leaders have agreed to extend the two month package that includes a payroll tax cut as well as unemployment benefits. The FICA tax relief was originally a one year stimulus for 2011 in order to help stimulate the U.S. economy.
How is the U.S. payroll tax extension going to affect consumers?
The government had reduced the FICA payroll tax from 6.2 percent to 4.2 percent for 2011 only. However, the package has been extended an additional two months through February 29, 2012. This is good news for consumers, so that taxes will not be increasing in the upcoming year. However, two months is not a long time, so it is expected that negotiators will create a yearlong stimulus to help with these critical areas.
How does the payroll tax cut affect American workers?
The payroll tax holiday is going to benefit 160 million workers. According to NBC Politics, “For a worker making $60,000 a year, a two-month payroll tax cut would mean $200 in additional take-home pay, or about $25 per week.”
What does this mean for homebuyers?
Well, in order to extend this stimulus package for the additional two months, its total cost will be $33 billion. The way it is going to be paid back is through increasing mortgage fees for home purchases and refinances starting January 1, 2012. These fees are expected to raise $35.7 billion over a 10 year period.
What are the requirements for the government housing agencies?
Fannie Mae and Freddie Mac: Increase loan guarantee fees by 10 basis points or more versus current levels, and do not decrease other costs to compensate
FHA: Increase mortgage insurance premiums by 10 basis points
This means on average the monthly mortgage payments will be raised by as much as $15 on mortgages of $210,000; however, it will vary.
How will this affect FHA insured homeowners?
Any FHA Streamline Refinance must meet a minimum of 5 percent savings as required by the FHA Streamline Refinance guidelines. With the increase in the mortgage insurance premiums by 0.10 percent it will make it much more difficult to be eligible.
If you are a FHA insured homeowner and wanting to refinance via the FHA Streamline Refinance, then it is highly encouraged to get your loan application in and processed now before the end of the year.
If you are currently in the process with purchasing a mortgage, then you should not be subject to these increased fees. Anyone purchasing or refinancing after January 1, 2012, will be experiencing the increased fees.
Last week, congress announced that they are requiring Fannie Mae, Freddie Mac and FHA to implement increased loan fees. These fees will go towards paying off the $140 billion borrowed from the government 3 years ago in order to stay afloat. The following is being required:
- Fannie Mae and Freddie Mac : Increase loan guarantee fees by 10 basis points or more versus current levels, and do not decrease other costs to compensate
- FHA : Increase mortgage insurance premiums by 10 basis points
What Fee Is Being Increased?
The fee that is being increased in not directly a consumer fee, but rather a lender fee. Let me explain why. Fannie Mae and Freddie Mac do not make home loans, they simply provide the financing for lenders by purchasing the home loans from them. The fee that is then being charged is to the lender, but will be incorporated into the overall monthly mortgage payment of the consumer.
When Are The Fees Effective?
These increased fees will become effective starting January 1, 2012.
How Much Is The Fee?
For some consumers, the increase in the monthly payment may not even be noticed because it may be as low as $10. The fee will be combined into the overall monthly mortgage payment. A monthly payment is estimated to increase about $10 per every $100,000 borrowed. However, the fees range per homebuyer, depending on the risk level of each loan.
Who Is Affected By The Fee?
The increased fees will affect homebuyers or homeowners refinancing starting January 1, 2012. In order to avoid this fee, one should purchase their home loan or refinance no later than the end of December 2011.
The Holiday season is a stressful time and the last thing one wants to worry about is experiencing a foreclosure and then eviction during Christmas and New Year’s. In a recent article found from CNNMoney.com (2011), it is stated that Fannie Mae, Freddie Mac and other large banks are halting evictions temporarily this Christmas season.
The moratorium will last from December 19, 2011 to January 2, 2012. This does not mean that they are going to stop the proceedings for foreclosures, but one will be able to stay in their home during the holiday season.
Terry Edward, the executive vice president for Fannie Mae stated, “No family should have to give up their home during this holiday season.”
This small grace period from the lenders can be appreciated for keeping families in their homes during this holiday season. However, there are only several banks that are offering this grace period including Chase, Bank of America and Wells Fargo. Other banks may still continue in the eviction processes that are not committed to this grace period for the holiday season.
In the article it also explained that halting this foreclosure process for a few weeks will benefit tens of thousands of homeowners. Many families can be thankful for the grace period that banks are giving foreclosed homeowners.