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9 Easy Mistakes Homeowners Make on Their Taxes

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By: G. M. Filisko
Published: January 30, 2014

Don’t rouse the IRS or pay more taxes than necessary — know the score on each home tax deduction and credit.

Sin #1: Deducting the wrong year for property taxes

You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some taxing authorities work a year behind — that is, you’re not billed for 2013 property taxes until 2014. But that’s irrelevant to the feds.

Enter on your federal forms whatever amount you actually paid in 2013, no matter what the date is on your tax bill. Dave Hampton, CPA, tax manager at the Cincinnati accounting firm of Burke & Schindler, has seen home owners confuse payments for different years and claim the incorrect amount.

Sin #2: Confusing escrow amount for actual taxes paid

If your lender escrows funds to pay your property taxes, don’t just deduct the amount escrowed, says Bob Meighan, CPA and vice president at TurboTax in San Diego. The regular amount you pay into your escrow account each month to cover property taxes is probably a little more or a little less than your property tax bill. Your lender will adjust the amount every year or so to realign the two.

For example, your tax bill might be $1,200, but your lender may have collected $1,100 or $1,300 in escrow over the year. Deduct only $1,200. Your lender will send you an official statement listing the actual taxes paid. Use that. Don’t just add up 12 months of escrow property tax payments.

Sin #3: Deducting points paid to refinance

Deduct points you paid your lender to secure your mortgage in full for the year you bought your home. However, when you refinance, says Meighan, you must deduct points over the life of your new loan. If you paid $2,000 in points to refinance into a 15-year mortgage, your tax deduction is $133 per year.

Sin #4: Misjudging the home office tax deduction

The deduction is complicated, often doesn’t amount to much of a deduction, has to be recaptured if you turn a profit when you sell your home, and can pique the IRS’s interest in your return. But there’s good news – there’s a new simplified home office deduction option if you don’t want to claim actual costs. If you’re eligible, you can instead claim $5 per sq. ft. up to 300 feet, or $1,500.

Sin #5: Failing to repay the first-time home buyer tax credit

If you used the original home buyer tax credit in 2008, you must repay 1/15th of the credit over 15 years. If you used the tax credit in 2009 or 2010 and then sold your house or stopped using it as your primary residence, within 36 months of the purchase date, you also have to pay back the credit.

The IRS has a tool you can use to help figure out what you owe.

Sin #6: Failing to track home-related expenses

If the IRS comes a-knockin’, don’t be scrambling to compile your records. Many people forget to track home office and home improvement expenses, says Meighan. File away documents as you go. For example, save each manufacturer’s certification statement for energy tax credits and lender or government statements to confirm property taxes paid.

Sin #7: Forgetting to keep track of capital gains

If you sold your main home last year, don’t forget to pay capital gains taxes on any profit. You can exclude $250,000 (or $500,000 if you’re a married couple) of any profits from taxes. So if your cost basis for your home is $100,000 (what you paid for it plus any improvements) and you sold it for $400,000, your capital gains are $300,000. If you’re single, you owe taxes on $50,000 of gains. However, there are minimum time limits for holding property to take advantage of the exclusions, and other details. Consult IRS Publication 523.

Sin #8: Filing incorrectly for energy tax credits

If you made any eligible improvements in 2013, such as installing energy-efficient windows and doors, you may be able to take a 10% tax credit (up to $500; with some systems your cap is even lower than $500). But keep in mind, it’s a lifetime credit. If you claimed the credit in any recent years, you’re done. Fill out Form 5695.

The first part of the form, which covers systems eligible for a larger tax credit through 2016, such as geothermal heat pumps, can be complex and involves crosschecking with half a dozen other IRS forms. Read the instructions carefully.

Sin #9: Claiming too much for the mortgage interest tax deduction

Taxpayers are allowed to deduct mortgage interest on home acquisition debt up to $1 million, plus they can also deduct up to $100,000 in home equity debt.

This article was original published in January 2011.

This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.

“Visit HouseLogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.”

8 Places to Go When Your Mortgage Lender Says No

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By: Dona DeZube
Published: February 4, 2014

New mortgage rules draw some pretty clear lines about who should — and shouldn’t — get a mortgage. If you fall outside the lines and your lender says no, you have eight other options.

New mortgage rules are pretty clear about what you have to do to convince a lender you’re a qualified mortgage borrower. Meant to measure your ability to repay, the new rules created a list of eight things lenders had to check to make sure you could repay your mortgage.

Those protections help ensure we’re not going to see a repeat of the mortgage crisis any time soon. The new rules are also designed to reward banks for staying away from risky products like interest-only loans. But if you can’t meet any of the eight standards you’re going to find it harder to get a new mortgage or refinance your existing mortgage.

The NATIONAL ASSOCIATION OF REALTORS® predicts the changes will slice about 5% to 7% of borrowers out of the market.

Where do you turn if you’re in that 5% to 7% or you like your balloon loan and want to refinance into another balloon loan?

The fine print in the new rules created some exemptions that you can use to try again if you don’t meet one or two of the eight qualified mortgage checks, or if you want to go with a loan product that the rules discourage lenders from making.

1. Your State Housing Finance Authority

State Housing Finance Authorities specialize in helping first-time and low-to-moderate income homebuyers and homeowners. They’ll often give you a below-market interest rate or the option of putting down as little as 3%.

In exchange, you’ll likely have to agree to complete a financial education course and prove every penny of your income.

Historically, HFAs have had much lower rates of late payments and foreclosures than for-profit lenders, so they’re exempt from the rules.

2. An Itty-Bitty Bank

Banks and credit unions that have less than $2 billion in assets and make 500 or fewer first mortgages don’t have to follow the same rules as larger lenders.

That’s because they didn’t make the risky loans that led to high foreclosure rates during the mortgage crisis. Plus, they tend to hold on to the loans they make (rather than selling them to investors). That makes it easier for the bank to work with customers who run into financial trouble.

Small lenders can charge higher fees and interest rates than big banks, which they need to do if you have a tiny loan amount, because some fees, like a title search, cost the same no matter how big or small your loan is.

If, for example, you had a $20,000 mortgage, the fee cap would limit you to $1,000 in fees, which probably isn’t enough to cover a title search and appraisal. Although the bank would still earn interest on your loan, it would have to pay the fees for you — and no bank wants to do that.

Some small lenders can still make balloon loans, where you owe one big payment at the end of your loan. A balloon loan has a lower monthly payment than a regular mortgage loan where each month you pay back some of the money you borrowed instead of just interest.

The catch is that the small lender has to hold on to your loan for at least three years and can’t sell it into the secondary market.

So you’ve got to persuade the bank that your mortgage is a good investment. Small bankers can be very conservative lenders, which is another reason they didn’t end up with a lot of foreclosures on their hands during the real estate crisis.

Right now, any lender who meets the size rule can use the small lender exemption. Starting Jan. 10, 2016, only small lenders in rural underserved areas will get to use the exemption, so don’t delay trying this avenue unless you live in a sparsely populated place.

3. A Government-Guaranteed Loan

The new rules set a clear line for how much of your income, max, you should be using for debt: 43%. If you’re above that limit because you have too much debt or not enough income, there’s a work-around.

You can go over the 43% limit if your loan is guaranteed by Fannie Mae, Freddie Mac, the Federal Housing Administration, the VA, or the U.S. Department of Agriculture’s rural housing loan program.

4. Community Development Nonprofits

Nonprofit lenders who work with low- and moderate-income borrowers don’t have to follow the new mortgage rules. As long as they don’t make more than 200 loans a year, they can create special loan programs to help the people in their community.

Community Development Financial Institutions set up shop in areas undergoing revitalization. They target a particular community for assistance, including homebuyer incentives. CDFI lenders also don’t have to follow the new mortgage rules.

5. Homeownership Preservation and Foreclosure Prevention Programs

If you’re underwater on your mortgage, meaning you owe more than your home is worth, you can still get a loan from a foreclosure prevention program or a homeownership stabilization organization. Because these groups have a history of knowing how to help troubled homeowners, they don’t have to follow the new mortgage rules.

6. A Safer Loan

If you’re in a dangerous, unfair loan right now and you want to refinance into a safer loan, your lender doesn’t have to follow the eight standards when it gives you a better loan. There’s an exemption from the ability to repay standards when a lender is moving a borrower out of:

  • An adjustable-rate mortgage that’s about to adjust to a much higher payment.
  • An interest-only loan.
  • A loan with negative amortization (meaning the amount you owe can go up even if you make all your payments).

Your new standard loan:

  • Has to have a fixed rate for the first five years.
  • Must lower your monthly payment.
  • Can’t have fees of more than 3% of the amount you’re borrowing.

7. A Work-Around

If you’re rich enough that your bank has assigned you a personal wealth manager, that’s the person to talk to when it’s time to refinance. Your bank will want to keep you as a customer and will find a work-around to fund your loan.

For example, if you’re using more than 43% of your income for debt but you can show you have millions in assets, your personal banker will make the case that you’re quite able to repay your mortgage even though you don’t meet the debt-to-income rule.

8. Another Kind of Loan

The new mortgage rules don’t apply to all loans. It specifically doesn’t include:

  • Open-ended loans.
  • Timeshare loans.
  • Reverse mortgages.
  • Temporary loans, including bridge and construction, and the construction phase of construction-to-permanent loans.
  • Loans from the bank of Mom and Dad.

If one of those types of loans will work instead of a mortgage, you won’t have to meet the new mortgage rules.

“Visit HouseLogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®.”

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About Jerome & Angel DiPentino

Jerome & Angel DiPentinoFormer owners of Premier Properties Real Estate Inc., Jerome and Angel DiPentino, shaped their business into a “boutique real estate firm” in Longport, New Jersey as the community’s leading real estate agency in 1990.

Premier Properties has joined forces with Long & Foster Real Estate – the largest real estate company in the Mid-Atlantic region. Long & Foster provides a one stop shopping experience with real estate, mortgage, title and insurance. While our name has changed, The Premier Team still prides itself on providing that “boutique real estate feel” in Longport. Read More...

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Jerome DiPentino and Angel DiPentino | Broker/Sales Associates
Jerome Cell: 609-432-5588 | Angel Cell: 609-457-0777
Long & Foster Real Estate, Inc | 2401 Atlantic Avenue - Longport, NJ 08403 | Office: 609-822-3339
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