Overview

•You can fully deduct most interest paid on home mortgages, but you first must distinguish qualified mortgage interest.

•You might be able to deduct points, also known as loan origination fees, maximum loan charges, or loan discounts.

•If you have a vacation home and you didn´t rent it out, you can fully deduct the mortgage interest.

You can deduct qualified mortgage interest on your main home and a second home if you itemize deductions on Schedule A. You must be legally liable for repayment of the loan to deduct the loan interest.

You can increase the amount of your deduction by making extra mortgage payments during the year. Ex: If you pay your January mortgage payment in December, you´ll have 1 month´s extra interest to deduct. This might work in your favor if you´re bunching other deductions, like charitable donations.

Qualified Mortgage Interest

You can fully deduct most interest paid on home mortgages, however there are exceptions. You must first separate qualified mortgage interest, which is usually deductible, from personal interest, which isn´t.

Home mortgage interest is interest on debt that´s secured by a main home or second home. It´s considered interest on acquisition debt or interest on home-equity debt. Acquisition debt is debt incurred to buy, build, or improve a home. Home-equity debt is debt incurred for any purpose other than buying, building, or improving the home.

However, home-equity debt isn´t a home-equity loan or line of credit. You secure a home-equity loan with your home, but part of the money might be:

•Acquisition debt if you use it to build an addition to your home

•Home-equity debt if you use it to pay for college or to buy a boat

You can fully deduct interest you pay on acquisition debt if the debt isn´t more than $100,000 – $50,000 if married filing separately – any time during the tax (year). You can also deduct the full amount of interest you pay on home-equity debt if the debt isn´t more than the lesser of:

•$50,000 – $100,000 if married filing jointly – any time during the tax year

•The difference between the fair market value of your home and the remaining acquisition debt

Ex: In 2005, Christopher purchased his main home for $500,000. Four years later, when he owed $400,000 on the original mortgage, he took out a $60,000 home-equity loan and used the proceeds to build a sunroom and install an indoor pool. Since his home is now worth $700,000, he decides to take out another $130,000 home-equity loan and buy a sailboat.

On his return, he can deduct the interest he pays on:

•The $400,000 left on the original mortgage (acquisition debt)

•The $60,000 sunroom / pool loan (acquisition debt)

•$100,000 of the sailboat debt (home equity debt). He can´t deduct the interest paid on the remaining $30,000 of sailboat debt since it´s more than the $100,000 limit on home-equity debt.

For Alternative Minimum Tax (AMT) purposes, you can´t deduct interest paid on loan proceeds you didn´t use to buy, build, or improve your home (Ex: like the sailboat debt above).

Under mortgage-interest rules, you can treat all debt incurred before Oct. 14, 1987, and secured by a main or second home as acquisition debt. This debt is referred to as grandfathered debt. It isn´t subject to the ($1,000,000 cap, However it reduces the $1,000,000 and $100,000) limits if you incurr any more debt on the home after Oct. 13, 1987.

Ex: Stacey´s main home is worth $3.2 million, and she has a $2 million outstanding debt on the residence – all incurred before Oct. 14, 1987. She can deduct all the interest she pays on the $2 million debt on her 2011 return. However, if she borrows more money, even for a home improvement, she can´t deduct the interest. She would have already exceeded the $1 million acquisition-debt limit and the $100,000 home-equity debt limit. If you´re offered a home-equity loan or line of credit that´s more than the fair market value of your home, you might not be able to deduct all of the interest on these home-equity debts. Figuring your mortgage-interest limits in this situation can be complex.

Ex: Eileen bought her home in 2006 for $155,000, and took out a $147,250 mortgage (acquisition debt). In January 2011, she took out a home-equity loan to consolidate her other debts at a lower interest rate (home-equity debt).

When she took out the loan, her remaining mortgage principal was $138,600 and the fair market value of her home was $165,000. The lender allowed her to borrow up to 110% of her home´s fair market value. So, she borrowed $42,900, the maximum amount allowed.

The lender calculated the maximum amount she could borrow as:

1.$165,000 (fair market value) x 110% = $181,500 (limit)

2.$181,500 (limit) ­ $138,600 (existing mortgage) = $42,900

In 2011, she can´t fully deduct the interest paid on her home-equity loan since she exceeded the home-equity debt limit. The maximum amount she can deduct is the interest on the lesser of:

•$26,400, which is the difference between the fair market value of her home ($165,000) minus the remaining acquisition debt ($138,600):

◦$165,000 (fair market value) ­ $138,600 (acquisition debt) = $26,400

•$100,000

Since $26,400 is less than $100,000, the maximum amount she can deduct is the interest on $26,400. Since she borrowed $42,900, the interest on $16,500 of her home-equity debt isn´t deductible:

•$42,900 (amount borrowed) ­ $26,400 (maximum amount she can deduct) = $16,500

Deducting Points

Points are also known as:

•Loan-origination fees

•Maximum loan charges

•Loan discounts

They’re equivalent to mortgage interest paid up front when you receive your mortgage. One point equals 1% of the mortgage loan amount.

To deduct points as mortgage interest, you must pay points only for the use of money. You can´t deduct fees paid to cover services like:

•Lender´s appraisal fee

•Notary fees

•Mortgage-note preparation

Since points represent interest paid in advance, you usually must deduct them over the life of the loan. However, you might be able to deduct all points incurred to finance the purchase or improvement of your main home in the year you paid the points.

Deducting Points in the Year Paid

You can fully deduct points in the year you paid them if all of these apply:

•You’re using a cash method.

•You secured the mortgage loan with your main home.

•The charging of points is an established business practice in the area.

•The point weren´t paid in place of amounts that ordinarily are stated separately on the settlement statement, ––like:◦Appraisal fees

◦Inspection fees

◦Title fees

◦Attorney fees

◦Property taxes

•You didn´t borrow the funds used to pay the points. You can´t claim this deduction if the lender withheld the amount of the points from the loan proceeds.

•The settlement statement – usually a HUD-1 – clearly states the amount of points paid in connection with the closing.

•You used the mortgage to purchase or build your main home.

•The points are as a percentage of the amount of the mortgage´s principal.

If you don´t meet any of these conditions , you must deduct points over the life of the loan.To see if you can fully deduct points you paid in the year you paid them, see the flowchart in the Interest Expense chapter of IRS (Publication 17): Your Federal Income Tax.

If you qualify to deduct all points in the year you paid them, but you don´t benefit from itemizing deductions for the mortgage´s first year, you can still deduct the points over the life of the loan.

Ex: Avery bought his first home in November 2011, and he´s filing as head of household. He paid 3 points ($3,000) to get a 30-year $100,000 mortgage, and he made his first mortgage payment on Jan. 1 2011, . For 2012, his itemized deductions, including points paid, total only $3,700 – less than his standard deduction. Since his standard deduction is more than his itemized deductions, he should deduct his points over the life of the mortgage loan.

Deducting Points Over the Life of the Loan

You must deduct points over the life of a loan if either applies:

•You paid points to refinance a home mortgage – also known as a “re-fi.”

•The points are for a second home you bought

You can fully deduct the part of the points for the improvement in the year you paid them with your own funds if both of these apply:

•You use part of the refinanced mortgage proceeds to improve your main home.

•You meet the first 6 points under “Deducting Points in the Year Paid ”

You can deduct the rest of the points over the life of the loan.

You must usually amortize points deducted over the life of the loan using the original issue discount (OID) rules. Since OID rules are complex, you can use a simplified method. You can deduct the points equally over the life of the loan if you meet these conditions:

•You use the cash method of accounting. Most individuals use this method.

•You secured the loan with your home.

•The loan´s length isn´t more than 30 years. (For loans of more than 10 years, the loan´s terms must be the same as other loans offered in your area for the same or longer period.)

•Either◦The loan amount is $250,000 or less.

◦You paid no more than 4 points for a loan of 15 years or less – or no more than 6 points for a loan longer than 15 years.

Ex: Devin bought his first home in November 2011, and he paid 3 points ($3,000) for a 30-year (360 months) $100,000 mortgage. He made his first mortgage payment in December 2011. To deduct points equally over the life of the loan, he would calculate it as:

•$3,000 (points paid) / 360 (monthly payments) = $8.33 (amount deducted per month)

For 2011, he can deduct only 1 month´s worth of points, or $8.33.

Each year from 2012 through 2041, he can deduct $100 of his points:

•$3,000 (points paid) / 360 (monthly payments) x 12 (payments per year) = $100

In 2041, he can deduct only 11 months´ worth of points, or $92.

Loan Ends Early

If you´re deducting points over the loan´s life and you pay the mortgage off early, you can deduct the remaining points in the year you pay off the mortgage.

However, you might not be able to do this if you refinance your mortgage. If you refinance with a new lender, you can deduct the remaining points on the original loan when you pay off the loan. However if you refinance the mortgage with the same lender, you must deduct the remaining points over the life of the new loan.

Ex: Brandon refinanced his original home mortgage in 2011. The original 30-year loan, which he took out in July 2000, was for $125,000. He paid 2 1 / 2 points ($3,125) for the loan:

•$125,000 (mortgage amount) x .025 (points paid) = $3,125

He made his first payment on Sept. 1, 2001, and he´s been deducting points over the life of loan. From September 2001 through December 2008 (88 months), he deducted $764:

1.$3,125 (points paid) / 360 (monthly payments) = $8.68 (amount deducted per month)

2.$8.68 x 88 months = $764

He made his last payment on the original loan on Feb. 1, 2011. On Feb. 20, 2011, he took out a 15-year (180 months) $110,000 re-fi loan with a new lender, and he paid 2 points ($2,200):

•$110,000 (loan amount) x .02 (points paid) = $2,200

He made his first payment on his new loan on April 1, 2011. He must deduct the points on the re-fi loan over the life of the loan. So, he can deduct $110 for 2011:

1.2,200 (points paid) / 180 (monthly payments) = $12.22 (amount he can deduct per month)

2.$12.22 (amount he can deduct) x 9 months = $110 2011 deduction for new loan)

He also can deduct all the remaining points from his old loan on his 2011 return. So, he can deduct $2,361 for 2011:

•$3,125 (points on original loan) ­ $764 (points deducted before 2011) = $2,361 (2011 deduction for old loan)

So, on his 2010 return, his total deduction for points paid will be $2,471:

•$110 (new loan) + $2,361 (old loan) = $2,471 (total deduction)

Ex: If Brandon took out a new loan with the same lender, he would have to deduct the points remaining from his original loan over the life of the new loan:

1.$3,125 ­ $764) + ($8.68 monthly deduction x 2) = 2,344 (remaining points)

2.$2,344 (remaining points) / 180 (monthly payments) = $13.02 (amount deducted per month)

So, his 2010 deduction for points paid on his old loan would be $135:

•($8.68 X 2) + ($13.02 X 9) = $135

And his total 2010 deduction for points paid for the old and new loans would be $245:

•$135 (old loan) + $110 (new loan) = $245

If you claim a deduction for points paid, it´s in addition to the deduction for the normal monthly interest payments you made on both loans.

Seller-Paid Points

Points the seller pays for the buyer´s loan are usually considered to be paid by the buyer. So, the buyer can deduct them. When you deduct points paid by the seller, you must subtract the amount of points the seller paid from your home´s basis.

Reporting Home Mortgage Interest on Schedule A

If you paid $600 or more in mortgage interest, your lender must send you and the IRS a Form 1098. However, if your mortgage interest totals less than $600, your lender isn´t required to send you this form.

On Form 1098:

•Box 1 shows the interest you paid, not including points.

•Box 2 shows points you might be able to deduct. You usually see an amount in this box only if this is the mortgage you took out when you bought the home.

•Box 3 shows a refund of interest made if you overpaid the amount you owed.

•Box 4 shows the mortgage insurance payment you made, known as PMI.

•Box 5 can contain various information, like:

◦Address of home being mortgaged

◦Amounts paid out of escrow for real-estate taxes and homeowner´s insurance premiums

You enter deductible interest (box 1) and points (box 2) reported on Form 1098, on Schedule A, line 10. You might be able to deduct the Form 1098 amounts if they meet the guidelines discussed earlier.

Enter these amounts on Schedule A:

•On line 11, Deductible mortgage interest you paid that was not reported on Form 1098

•On line 12, Points not reported to you on Form (1098)

If the recipient of the interest is an individual, enter on the dotted lines below line 11 the recipient´s:

•Name

•Address

•Identifying number, usually the Social Security number

Rental Property

Deduct mortgage interest on rental property as an expense of renting the property. This mortgage interest is reported on Schedule E, not Schedule A. Also, if you paid points when you took out the mortgage on your rental property, you can´t deduct the points in the year paid You must amortize the points over the life of the loan.

Personal and Rental Use of Same Property

If you personally use part of your property and rent out another part of it that you don´t personally use, you must prorate property expenses. Prorate expenses that apply to the entire property – like mortgage interest and real-estate taxes – based on the percentage of space rented.

You can only deduct the rental portion of expenses from rental income. If you itemize, you can use Schedule A to deduct the personal portion of:

•Real-estate taxes

•Mortgage interest

•Casualty losses

You can´t deduct the personal portion of other expenses, like utilities.

To learn more, see the Rentals and Royalties tax tip

Vacation Homes

If you didn´t rent out your vacation home, you can fully deduct the mortgage interest on the vacation home. Use Schedule A to deduct the interest.

If you personally used the vacation home and rented it out for fewer than 15 days:

•You don´t need to report the rental income.

•You can deduct the mortgage interest you paid.

If you rented out the home for 15 days or more:

•You must report the rental income.

•You can deduct expenses related to renting the property.

Report the mortgage interest for the time you rented out the property on Schedule E. Deduct the remainder of the mortgage interest you paid as a deduction on Schedule A. The split is based on a ratio between the number of days rented and either of these:

•Number of days you owned the home during the year

•Number of days you used the home for personal purposes

In many of the markets with high foreclosure rates, foreclosure inventories will cause temporary price swings as inventories rise and fall, but even in these cities, in the long run, local economies will be the key.
The evidence is now clear that a slow but continuous economic recovery is underway, but housing markets won’t feel much benefit until next year. Consumers are in no particular hurry to buy a house because they don’t see home prices going up. But at this time, no market has seen an increase in prices.

“Local price increases of 3 to 4 percent are possible, but 1 to 2 percent are more likely. Markets that are struggling with employment are going to have a hard time while others will do noticeably better.
Monitoring a market is popular with investors who rent out their properties because of the local data and forecasts on rents. Statistics show that more people today want to rent than to buy, and some leading real estate economists believe that many retirement and second-home markets that are flooded with foreclosures are going to take a ten years or more for prices to recover.

“In markets where investors are active, like Miami it’s not so bad because the demand is great.
Housing markets are going to continue to improve as long as there is job growth, even 2% a year, and economic growth will determine rental increases as well as home values. Overall rents are going to reflect population flows. “In a recession people tend to sit still. When things pick up, people are more willing to move to where there are jobs,” he said.
For long term investors, however, projecting rental cash flow ten or twenty years down the road is difficult even at the local level because of the sensitivity of rents to local economic conditions.
My advice to the long term investor is to reduce risk by buying a more expensive property in a desirable neighborhood where you will be able to charge a premium rent. In lower cost properties, rents may become comparable to the monthly costs of owning a home. Renters in a lower cost property are more likely to buy than those in a higher cost property.
From Real Estate Economy Watch January 2012

Lower mortgage rates

The average on the 15-year fixed mortgage ticked down to 3.23 percent from 3.24 percent. That’s up from 3.21 percent two weeks, also a record low.

Mortgage rates are lower because they tend to track the yield on the 10-year Treasury note, which fell below 2 percent this week.

That’s up from 3.21 percent two weeks, also a record low.
Mortgage rates are lower because they tend to track the yield on the 10-year Treasury note, which fell below 2 percent this week.

Still, cheap mortgage rates have done little too boost the depressed housing market. Many Americans either can’t take advantage of the rates or have already done so.

High unemployment and scant wage gains have made it harder for many people to qualify for loans. Many don’t want to sink money into a home that they fear could lose value over the next few years.
Previously occupied homes are selling just slightly ahead of 2010′s dismal pace. And new-home sales in 2011 will likely be the worst year on records going back half a century.

Builders are hopeful that the low rates could boost sales next year. Low mortgage rates were cited as a key reason the National Association of Home Builders survey of builder sentiment rose in December to its highest level in more than a year.

But so far, rates are having no major impact. Mortgage applications have fallen slightly in recent weeks, according to the Mortgage Bankers Association.

To calculate the average rates, Freddie Mac surveys lenders across the country Monday through Wednesday of each week. The average rates don’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.
The average fee for the 30-year loan rose to 0.8 from 0.7; the average on the 15-year fixed mortgage was unchanged at 0.8.

For the five-year adjustable loan, the average rate declined to 2.86 percent from 2.88 percent. The average on the one-year adjustable loan rose to 2.80 percent from 2.78 percent.
The average fee on the five-year adjustable loan rose to 0.7 from 0.6; the average on the one-year adjustable-rate loan was unchanged at 0.6.

KIRKLAND, Wash. (Jan. 5, 2011) – December‟s volume of pending sales around Western Washington nearly matched the total for the same month a year ago, which was the best December since 2006. Sellers accepted offers from 4,359 buyers last month, only 40 fewer than a year ago when members of Northwest Multiple Listing Service reported 4,399 pending sales of single family homes and condominiums. In 2008, members notched 3,255 pending sales, down from 2007‟s total of 3,950 pendings and the 2006 figure of 5,744 mutually accepted offers.

Eight counties had year-over-year increases in pending sales for December, with two others equaling the year-ago totals. “If you were in any mall in Washington state in December, you got the feeling that the economy is headed in the right direction,” said OB Jacobi, president of Windermere Real Estate Company and a member of the board of directors of Northwest Multiple Listing Service. “That increase in consumer confidence is the boost the real estate market needs,” he suggested.

Closed sales, another barometer of activity, improved on November‟s volume, but dipped about 6 percent when compared to figures from twelve months ago. MLS members reported 4,430 closings across its 21-county service area during December. A year ago, brokers logged 4,711 completed transactions.

For 2010, Northwest MLS members tallied 52,408 closed sales of single family homes and condos (combined), up slightly from the previous year when there were 52,105 completed transactions.
“Despite the expiration of the tax credit, King County saw about 3 percent more home sales in 2010 than in 2009,” Jacobi noted. The area-wide median price for last month‟s closed sales of homes and condos was $255,000, up slightly from November‟s figure of $250,000, but down about 3.8 percent from a year ago when the median selling price was $265,000. In King County, where 40 percent of last month‟s closings occurred, the median sales price was $342,400, about 2.2 percent lower than a year ago when it was $350,000.

Listing activity tapered off last month compared to 12 months ago. Northwest MLS members added 5,460 new listings of single family homes and condominiums during December. That‟s down 7 percent from a year ago when 5,873 sellers listed their homes with a member-broker.

Last month‟s additions boosted system-wide inventory to 32,171 at month end. That number nearly equals the selection of a year ago when the NWMLS database encompassed 32,152 active listings, although thirteen counties have fewer properties for sale than at this time a year ago.

Measured by months supply (the time, in months, that it would take to sell existing inventory at the current rate of sales), there is a supply of less than 7.4 months across the NWMLS market area. (A market with a supply of approximately six months is considered balanced, favoring neither buyers nor sellers.)

Nationwide, the National Association of REALTORS® reported a 9.5-month supply. Both King and Snohomish counties have less than a 6-month supply. “Buyers are taking their time and looking for the „perfect‟ house,” Jacobi observed. “One of our agents worked with a couple for over a year before a higher-end home they’d been eying for months had a price drop and they jumped on it,” he noted, adding, “Whether it’s a starter home or a luxury property, to sell in today’s market a great home also needs to have a great price.” Lawrence Yun, NAR chief economist, described continuing gains in home sales as encouraging and believes all the indicator trends are pointing to a gradual housing recovery. “In addition to exceptional affordability conditions, steady improvements in the economy are helping bring buyers into the market,” he commented. However, he cautioned, further gains are needed to reach normal levels of sales activity, and home price prospects will vary depending largely upon local job market conditions.

NAR president Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., expects good buying opportunities to continue. The third generation real estate professional noted serious buyers have a lot of opportunities during the winter months since “traditionally there are far fewer buyers competing for properties at this time of year.” He believes buyers will enjoy favorable affordability conditions into the new year, even though he expects mortgage rates will gradually rise as 2011 progresses.

This news release is courtesy of the NWMLS

Northwest Multiple Listing Service, owned by its member brokers, is the largest full-service MLS in the Northwest. Its membership includes more than 24,000 brokers and agents. The organization, based in Kirkland, currently serves 21 counties in Western and Central Washington.

For more events in the City of Sammamish follow this link: sammamish events.

We’re all in this together. Many homeowners across the country who haven’t been able to sell their homes have chosen to lease them instead and, in most cases, the expenses of maintaining the home are covered by the rent. It’s working as a viable solution for homeowners who find they must move.

The number of homeowners choosing to lease their property is matched by the number of people looking to rent a home. Rental property vacancy rates are at historic lows and the trend for the rental market is on a rapid rise.

If you’d like to consider the alternative of renting your home instead of selling, then there are important facts property owners should know about the rental process.
Here are several:
• Finding qualified tenants requires state-of-the-art marketing, and careful and thorough screening of the tenant’s credit, employment, residential history, and criminal records.
• The management of funds and accounting procedures are regulated by Washington state, and there are strict laws regarding security deposits, and end of lease refunds.
• In Washington State we must abide by landlord/tenant act, fair housing rules, and discrimination laws.
• The day-to-day oversight of the property is complex— handling repairs, managing non-compliant tenants, dealing with late or absent rent payments, and administering legal notices—and are often best handled by property management professionals, especially if owners do not live close by.

Our company Three Keys Property Management (3KEYS) is not a traditional management company. Our staff includes licensed real estate brokers with years of experience in both property management and home sales. We are a technology-oriented company who markets its rental properties with the same investment in time and materials that are used to market homes for sale. Our property marketing program uses technology to its fullest extent and includes video tours, posting all rentals onto the Multiple Listing Service and over 60 websites and social networking sites. Each of our rental properties has its own website and is set up to encourage instant communication from prospective tenants.

The 3KEYS alternative to selling your home provides quality services, excellent communications, and systems in place to provide you the “best-of-the best.” We have low property management fees, so renting your home costs you less. We only ask this of you: If you are happy with our services, please refer your friends and family to us.
We’d be happy to discuss with you the 3KEYS property management program and your specific needs. You can reach us by phone at (425) 449-5990 or by email at info@threekeyspm.com .

Property management rent your home Seattle rentals best Seattle property management company rental management sell versus lease homes for rent in Seattle should you rent?

The article: By Lucia Mutikani – 1 hr 9 mins ago
WASHINGTON (Reuters) – Groundbreaking for new homes jumped in August to a four-month high, a tentative sign of stability in the housing market after steep declines brought by the end of a home buyer tax credit.

Analysts said the data on Tuesday, which came as Federal Reserve policymakers met to assess the economy, further allayed fears that the recovery from the worst recession since the Great Depression was at risk.
http://news.yahoo.com/s/nm/us_usa_economy