Below is information about Mortgage Related Deductions for 2016 courtesy of Clayton Scott with Penrith Home Loans. It is highly recommended that you seek professional tax advice regarding the below potential deductions.
Points Paid on a Home Purchase in 2016
Closing Disclosure Page 2, Section A – If the origination charges on Page 2, Section A of the Closing Disclosure include points paid to your mortgage company in exchange for a lower interest rate, you can deduct those points in the year paid… even if they are paid by the seller. Other fees in this section (application, underwriting, processing, etc.) are NOT tax deductible. Only bona fide points are deductible if they are expressed as a percentage of the loan amount and paid in exchange for a lower interest rate.
Points Paid on a Mortgage Refinance in 2016
Closing Disclosure Page 2, Section A – If the origination charges on Page 2, Section A of the Closing Disclosure include points paid to your mortgage company in exchange for a lower interest rate, you can deduct those points in the following manner:
· You can deduct over the life of the mortgage all points paid on the portion of the mortgage proceeds that were not used for home improvements (for example, if you refinance your mortgage to reduce your interest rate, but do not take any cash out for home improvements).
· You can deduct this year all points paid on the portion of the mortgage proceeds that were used for home improvements (if you received cash-out and are using that cash-out for home improvements). Remember, any points paid on the portion of the mortgage NOT used for home improvements must be spread out over the life of the loan. For example, assume you refinance an old $200,000 mortgage into a new $300,000 mortgage and walk away with $100,000 to be used for home improvements. In this case, 1/3 of your points are fully deductible this year and 2/3rds of your points are deductible over the life of the loan.
· As outlined above, other fees itemized in this section are NOT tax deductible.
Upfront Mortgage Insurance
Closing Disclosure Page 2, Section B – You can generally deduct upfront mortgage insurance on FHA and conventional loans over 84 months if you qualify for the mortgage insurance deduction. However, you may be able to fully deduct the VA funding fee and/or the RHS guarantee fee on your 2016 tax returns, if:
· You qualify for the mortgage insurance deduction, and,
· If your loan was guaranteed by the Veterans Administration or the Rural Housing Service.
Monthly Mortgage Insurance
If you paid monthly mortgage insurance in 2016, this may also be tax deductible. The Form 1098 you will receive from your lender should show not only the total interest paid during the year, but also your mortgage insurance premiums paid during the year, which may qualify to be treated as deductible mortgage interest.
Potential limit on this deduction: If your adjusted gross income on Form 1040, line 38, is more than $100,000 ($50,000 if your filing status is married filing separately), the amount of your mortgage insurance premiums that are otherwise deductible is reduced and may be eliminated. See Line 13 in the instructions for Schedule A (Form 1040) and complete the Mortgage Insurance Premiums Deduction Worksheet to figure the amount you can deduct. If your adjusted gross income is more than $109,000 ($54,500 if married filing separately), you cannot deduct your mortgage insurance premiums.
Property Taxes (actual and pro-rated)
Closing Disclosure Page 2, Section F – Property taxes itemized in this section are generally tax deductible in the year they are paid. However, property tax escrows in section G are NOT tax deductible until they are actually paid by your mortgage company to the municipality (city, state, county).
Closing Disclosure Page 2, Section F – Mortgage interest is calculated in arrears. This means that your monthly mortgage payment actually covers the month that just passed. For example, your February payment covers the interest for the month of January, your January payment covers the interest for the month of December, and so on. Oftentimes, when you refinance a mortgage or buy a new home, you “skip” a month’s worth of mortgage payments. That is why you sometimes pay “pre-paid interest” or “daily interest charges” in Section F of the Closing Disclosure. These daily interest charges cover the interest for the current month. If your mortgage interest is deductible, then pre-paid interest that you pay in this section is also deductible (this will be included in the 1098 statement that you receive from your mortgage company).
Previous Year Points Not Yet Deducted
You may be able to deduct the remaining portion of the original points paid on an old mortgage if you refinanced that old mortgage in 2016. For example, assume you paid points on a refinance transaction 3 years ago. You probably were not able to deduct all the points you paid in the year they were paid. Instead, you had to spread that deduction out over the 30-year life of your mortgage. So, assume you’ve deducted 3/30ths of those points so far, and you refinanced your mortgage again in 2016. You can now deduct the remaining 27/30ths of those old points that you have not yet deducted.
A pre-payment penalty paid on an old loan would be deductible on your 2016 tax returns as long as the new loan was taken out with a different lender than the old loan.
Other Closing Costs
Closing costs not mentioned above are not tax deductible. However, they are added to your “tax basis” for purpose of calculating your capital gain when you sell the property. In other words, you may be able to reduce your capital gains tax (if applicable) when you sell the property in the future because your home purchase closing costs get added to your cost basis.
Distinction Between a Qualified Residence and an Investment Property
Everything mentioned above pertains to a mortgage transaction involving a primary home or vacation home that is elected as a “qualified residence” for tax purposes. If your transaction involved an investment property, see IRS Publication 527.
PLEASE NOTE: THIS ARTICLE AND OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 936.
Almost every area of the Portland Metro saw double-digit appreciation in 2016. The median sales price of homes in 2015 was $308,000, while median sales price of homes in 2016 was $347,000. Click here to see the full Market Action report from RMLS.
|Area||2016 Median Sales Price||Price % Change over 2015|
|Lake Oswego/West Linn||$525,000||13.4%|
|NW Washington County||$475,000||10.2%|
- Rent Control: House Bill 2001 would repeal the state’s ban on measures regarding rent control. It would also cap rent increases across the state at 5% through July 1, 2018. Another similar bill, House Bill 2003 would repeal local regulation rent control bans, but doesn’t put a cap on rent control increases.
- No-Cause Eviction Ban: House Bill 2240 would keep landlords from terminating month-to-month contracts without a cause. It also mentions that in certain cases landlords would be responsible for giving 90 days notice of eviction, and provide up to 3 months of relocation assistance.
- Right to Rest Act: House Bill 2215 would allow the homeless the ability to use open public land for eating and sleeping.
- Homestead Exemption: Senate Bill 151 would exempt $10,000 of a home’s value from property taxes.
- Rent Guarantee Program: House Bill 2724 would provide support to landlords who rent to low-income tenants in the event rent is late or any rented property suffers damage.
- Affordable Home Ownership Grant Program: House Bill 2570 would allocate $25 million toward grants for a low-income home ownership program.
Many of us just enjoyed a holiday season filled with gift giving and receiving. Others are out there trying to reap the benefits of mistakes we make around our home, letting them know it’s easy for them to break in and take our belongings for their own use. Click to find ways to keep crooks at bay from prowling around your home. The first suggestion was especially something I would never have thought about!
A recent Oregonian article examines an analysis completed to determine whether or not housing costs are being affected by AirBNB rentals in the city. The analysis, put together by a group called FiveThirtyEight, found that Portland has the second highest number of commercial rentals, after Honolulu. They considered commercial rentals to be ones which are rented out for at least 180 days per year. The overall findings seem to indicate that the city's AirBNB rental market isn't affecting housing and rental costs – yet.
Today ithe National Parks system turns 100! When it was established in1916, it included only 35 National Parks and monuments, and today the National Parks system manages more than 400 sites (including historic places like Gettysburg and the Oregon Trail). To celebrate its centennial birthday, National Parks is offering free admission all weekend long. Check out some of Oregon's national sites.
A recent interesting article from The Atlantic's City Lab examines how home buyers are being forced to change their expectations with their budgets, especially within Portland city limits.
City officials decided last year to refrain from expanding Portland's Urban Growth Boundary (UGB), which essentially means the boundaries of city limits will not expand. This forces the city to become more dense, and to grow upwards rather than outwards. But when the zoning laws remain stagnant, new development opportunities aren't arising, and home prices surge.
Fannie Mae's HomeReady Program was designed to help offer relief to loan borrowers who have smaller down payments or lower credit scores.
Fast Facts of the HomeReady Program
⇒ Borrowers can make a down payment equal to 3% of purchase price
- FHA loan programs typically require at lease 3.5% down, and conventional loan programs typically require at least 5% down
⇒ There are no first-time homebuyer requirements, borrowers may qualify even if having previously purchased real estate
- Many other programs are only suited for first-time homebuyers
⇒ Condos are eligible for the program
⇒ The program's loan pricing is very competitive
- Borrowers with a credit score of 680+ will qualify for the best conventional rates and fees; borrowers with credit scores below 680 may still qualify for competitive rates and fees
- Borrowers may own other real estate
⇒ Currently there is no maximum on the purchase price of the subject property, but the maximum loan amount is capped at $417,000
⇒ Gifts are allowed from relatives
- Many other programs require said gifts to be verified in borrowers accounts for an extended period of time before borrowers are able to use the money toward a home purchase
⇒ Mortgage insurance premiums (MIP) can drop off at an 80% loan-to-value (LTV) ratio
- FHA loans typically need to be refinanced to drop MIP
Rental Income on an Accessible Dwelling Unit (ADU) is Allowed
⇒ An individual renting a room in the house is permitted up to 30% of the buyers' qualifying income if:
- The renter has lived with, and paid rent to, the borrower for the previous 12 months (rent payments made directly to a third-party company do not qualify)
- The renter can provide appropriate documentation to demonstrate a history of shared residency (i.e. driver's license copy, bank statement or utility bill showing the renter's address being the same as the borrower's address)
The renter can demonstrate the payment of rental payments to the borrower (i.e. copies of checks) for:
- The previous 12 months, or
- At lease 9 of the most recent 12 months, provided the rental income is averaged over a 12-month period
Income Limits May Apply
⇒ While some areas have no income restrictions, most Portland Metro areas will have a maximum $73,300 annual income for all borrowers on the mortgage
- To search income limits in specific areas, click here
Understanding lending and various loan programs can be confusing and challenging. If you need assistance in distinguishing between programs, I am more than happy to connect you to resourceful industry experts. Don't hesitate to reach out. To find out more information about Fannie Mae's HomeReady Program, click here.
Seller's Market. Competing Against Cash Offers. Student Loan Debt. Poor Credit Score.
A myriad of reasons may make buyers feel like their being edged out of the competition. After the 2008 economic downfall, it's reasonable to see why Americans would not consider owning a home to be a strong investment or a good way to build wealth. According to a recent article by NPR, however, the millenial generation is trying to turn the trend toward homeownership again.
How Can Buyers Compete in this Market?
While there may be a variety of ways to address competition, I'm going to detail one program in particular that strives to help renters-turned-homeowners.
Home Partners of America is a company offering a Lease With a Right to Purchase (RTP) program. They are a group of private investors that began in 2012; they currently operate in 36 markets nationwide, and have had more than 4,500 successful transactions.
What Does Home Partners Do?
Home Partners of America has a mission of making homewonership a reality for more people. Through their RTP program they work with renters to find a good property in a good location, will purchase the property, and rent it back to the residents. A resident's financial obligation is limited to one year of rent, and may elect to rent the property for up to five years. After the initial one year financial obligation is over however, residents can choose to move out after each one year lease term without penalty, can rent for up to five years, and may purchase the home back from Home Partners any time during the tenancy.
Transparencies for Rental and Purchase Prices
Renters living in a market with uncertainty about landlords selling and uprooting tenants, or landlords significantly increasing monthly rent year-over-year can take solace with Home Partners' price transparancies.
Currently, in Portland, Home Partners' rent schedule will increase 3.75% each year. Purchase price schedules allow for a 4% increase each year.
For example, if residents find an approved property and the purchase price, inclusive of closing costs, is $200,000, the rent and purchase price schedules would be as follows:
|Cost Basis: $200,000||Monthly Rent – 3.75% annual increase||Right to Purchase Price – 4% annual increase|
Benefits of Leasing with a Right to Purchase
- Residents with credit scores as low as 550 may qualify
- Home Partners of America makes all-cash offers on properties, making a strong offer to the sellers
- Home Partners will complete any repairs or approved requested renovations, which is then included into the cost basis of the final purchase price
- Residents may rent the property from Home Partners for up to five years, and can walk away at the end of each one year lease term with no penalty
- Monthly rent costs are transparent and determined up front so residents can plan accordingly
- At any point within the five years, residents can purchase the property from Home Partners for the determined price set forth at the beginning of the initial contract
- If residents choose to purchase the property, they will not be competing against other buyers
Who and What Qualifies for the Program?
Among a few other basic resident requirements, Home Partners will evaluate household rent-to-income and debt-to-income rations, rental and housing history, employment history, criminal history, FICO scores, and other standard application elements.
Properties participating in the program must also meet several criteria:
- Located in an approved community, which is based on default high school attendance zones, ranked in the top 50%
- List price between $100,000 and $625,000
- Minimum of 2 bedrooms
- Lot size of 3 acres maximum
- Single-family home or fee-simple townhome
- No condominium associations, commercial, or multi-family properties
- HOAs allowed on a case-by-case basis
- Pools not permitted in properties located in OR or WA
- Sale must be traditional or For Sale By Owner; no REO, short sales, or auctions
Might this be the Right Choice For You?
Previous residents who have benefitted from Home Partners of America's RTP program have included those who have experienced mortgage denials; short-sale or foreclosure incidents; life-events like medical, job loss, divorce or bankruptcy; first-time homebuyers; or those wishing to relocate and want to test the waters before buying, have a home to sell, or their workplace's relocation department are promoting renting versus purchasing a home.
If you feel that the RTP program would suit you well, please don't hesitate to reach out to me. Together we can connect you with the right home and put you on a path toward homeownership.
The above information is deemed reliable as of the publishing date. Exceptions may apply in some markets.
The National Association of Realtors (NAR) conducted a HOME consumer survey for Q2 in which respondents were asked about their confidence levels in our nation's economy. Included in the survey were questions regarding respondents' housing expectations, and whether student loan debt is hindering their ability or desire to take out a mortgage loan. The details of the NAR's news release can be read here.
If you're considering selling your home, or are curious to see how much your home may be worth, click here to find out more.