Dennis' Mortgage Blog

Question of the week:  What deductions or tax benefits will I get from home ownership when I file my taxes this year?

Answer:  DISCLAIMER: I am not a Certified Public Accountant, nor a tax preparer, the information below is for general information and may vary for your individual situation.  Please consult a tax professional before completing your tax filing with the Internal Revenue Service or State Franchise Tax Board.

Now that we have dealt with legal statements, as a rule most homeowners can deduct the following from their income when filing their income tax returns for their primary residence:

Mortgage interest paid

Property taxes paid

For those with mortgage insurance on either a conventional or FHA mortgage may deduct their mortgage insurance premiums for 2011 but not in 2012 unless Congress acts to retroactively extend the deduction first introduced in 2006 to eligible borrowers. If you are single or married and filing jointly and your adjusted gross income is $100,000 or less you can deduct the entire amount of premiums paid.  If your adjusted gross income is above $100,000 you may still be able to deduct a percentage of the premium on a sliding scale.

If you bought or refinanced your home in 2011 you may be able to deduct some of the closing costs from your transaction.

As a rule of thumb regarding deductions I generally estimate that your tax savings benefit from the deductions allowed for mortgage interest and property taxes equate roughly to the payments you make for property taxes and insurance.  For example if your property taxes and homeowners’ policy add up to $6,000 per year, your federal income tax savings will roughly equate to $6000 for the year.  Note that this is a rough rule of thumb and your savings will differ depending on your specific situation for income and other possible deductions.

The tax benefits of homeownership are one of the “loopholes” that arise in conversations and debates about revising the national tax code.  In the current climate of politics and rhetoric there is not an insignificant number of people, and groups, who desire to eliminate the deductions available to homeowners.  Without any substantial trade-off however, such as lowering of the tax bracket percentages, any move to eliminate these deductions enjoyed by hundreds of millions of families is dangerous politically.  As the debates continue in the coming years as to how to lower the national debt and federal deficits keep attuned to the mention of the homeowner deductions and their future.

Please consult your tax professional regarding your specific benefits from homeownership before completing your tax filings for 2011.

Have a question?  Ask me!

Two major events for the headlines this week.  The President announced a proposal for another new refinance program and the Labor Department announced the jobs numbers for January.  Both announcements, like any from Washington the past few decades it seems, can be viewed as glasses half empty or half full.

On Wednesday President Obama gave a speech following up from comments in his State of the Union address regarding refinancing for homeowners not currently eligible for programs available through the HARP program.  I wrote in detail on my blog about the announcement and the prospect of the program coming to market on Wednesday.  Also included in the announcement was a very good proposal to help clear future housing markets from more REOs from Fannie Mae,  Freddie Mac and FHA and the prospect of yet another multipage disclosure form to add to our nearly forty page loan application packages.  Click here to read the post and learn about the program proposed by Obama and the very smart strategy in the announcement.

Today the Labor Department made headlines on every news and business website and all of tomorrow’s newspapers with the announcement that the economy added a lot more jobs in January than anyone predicted.  Nonfarm payrolls increased by 243,000 jobs in January, a staggering number as the consensus was anywhere from 125-150,000 jobs being added.  For the past three months the job growth is averaging just over 200,000 per month, about twice the monthly average for May through October 2011. 

Included in the announcement was that the unemployment rate dropped to 8.3%, the lowest rate since February 2009 when Congress passed the $800 billion stimulus bill. While the number 8.3% is good news in that it is showing unemployment on the decline, the data that makes up this number tempers the good news with suspicion as to the importance of the figure.  A large portion of the drop in the unemployment rate was the result of 1.2 million workers being classified as not being in the labor force, in other words they have quit trying to find work.  This trend, large numbers of Americans quitting their search for employment, as been constant and is a concern for what the actual strength of the job market is nationwide.

Rates move up on the news as it comes on the heels of the Fed’s announcement last week regarding keeping their rates at current low levels through 2014 and testimony yesterday in Congress by Fed Chief Ben Bernanke that the Fed is concerned about the economy and its ability to show sustained and healthy growth.  With the surprising job numbers investors jumped into stocks where markets are rising after several days of losses and out of Mortgage Backed Securities which had seen several days of gains. 

For a visual look at the power of announcements from Federal Agencies look at the quick video I made this morning showing the movement in the Mortgage Backed Securities market on the Labor Department announcement.

Follow along with announcements, updates and news as it happens by following me on Facebook (www.facebook.com/stratisfinancial) , Twitter (www.twitter.com/dcslb) or YouTube (www.YouTube.com/stratisfinancial)

Rates for Friday February 3, 2012: Note that we have seen the 3.5% coupon opened up for FHA mortgages so our graph will reflect a sharp drop. Keep in mind rates and costs are inversely related so there is still a significant benefit to the 3.75% FHA rates at the greatly reduced costs and points.  Rates hanging on for no gain or loss on today’s large sell off.  Further rate increases are in store if/when Greece finally comes around to settle its financial crisis and conflict with the rest of the European Union.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                               3.625%             Flat

30 year high-balance conforming           3.875%             Flat

30 year FHA*                                                   3.5%                Down due to coupon (see above)

30 year FHA high-balance*                   3.75%               Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked.  Rates are based on 20% down (3.5% for FHA)  with 740 FICO score for purchase mortgages.

* Current rates include credit towards closing costs, call for quote on rate and credit.

Quite a busy weekend for the Smith clan enjoying memories, kids and family. 

Tomorrow is the memorial service for Skip Rowland, a fixture for many decades in the sports communities of Long Beach.  Skip was a multi-sport letterman at UCLA in the 1940’s where he became close friends with the legend John Wooden.  He went on to coach several sports at Wilson High in Long Beach.  Several of Skip’s students went on to play professional ball in the major leagues or the NFL.  As I told his daughter Sandy and son in-law George, Skip did not get cheated in life and lived strong until he was caught up with pneumonia—he was playing 18 holes of golf a week or so before his illness. You can’t swing a pitching wedge around in Long Beach without clipping someone who was impacted by Skip.

In the evening I have the honor of escorting my youngest to the Valentine Ball at her elementary school.  An opportunity to dress up and have a date with the prettiest and wittiest girl at Patrick Henry Elementary School (I can say that since her older sister is now in middle school).

Sunday we are heading out to La Quinta to spend a few hours with my aunt and uncle visiting from the East Coast taking advantage of a rare opportunity to see them and let the girls get some family history.  We should make great time coming home as we will be driving during the first half of the Super Bowl.  If you ever want to travel with little traffic, play golf with no one else on the course or ski with the slopes to yourself, do it during the Super Bowl!

On Wednesday I had the privilege of hearing Dr. Terrence Roberts speak at the Long Beach Rotary.  Dr. Roberts was one of the Little Rock Nine who integrated Central High School in 1957 aided by federal troops.  A fascinating speaker who has a fascinating tale.  One statement he said really got me thinking, “we are all born into a drama that is already taking place.”  What is your role in the drama that is continually unfolding for us?

I have no rooting interest in the game on Sunday in which the Patriots will win 27-24 with Brady steering the champs to the trophy in the closing minutes.

Have a great week,

Dennis