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Buyer FAQ |
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Tax Considerations |
 Are
points deductible?
Are seller-paid points deductible?
Are taxes on second homes deductible?
Are there tax credits for first-time
home buyers?
Explain the home mortgage deduction.
How are fees and assessments
figured in a homeowners association?
How do I reach the IRS?
How do I save on taxes?
How do you choose between buying and
renting?
Should I buy a vacation home?
What are the rules for mortgage credit
certificates?
What home-buying costs are deductible?
What is the Mortgage Credit Certificate
program?
When is the best time to buy?
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Question: Are
points deductible?
Answer: If
you are a buyer, and you or the seller
pays points, they are deductible
for the year in which they are paid
only. You also can deduct any points
you pay when you refinance your home,
but you must do so ratably over the
life of the loan. Consult your tax
or financial advisor. |
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Question: Are
seller-paid points deductible?
Answer: As
of Jan. 1, 1991, homeowners have
been able to deduct points paid by
the seller. This deduction previously
was reserved only for points actually
paid by the buyer. |
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Question: Are taxes on second homes deductible?
Answer: Mortgage
interest and property taxes are deductible
on a second home if you itemize.
Check with your accountant or tax
adviser for specifics. |
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Question: Are
there tax credits for first-time home buyers?
Answer: Many
city and county governments offer
Mortgage Credit Certificate programs,
which allow first-time home buyers
to take advantage of a special federal
income tax write-off, which makes
qualifying for a mortgage loan easier.
Requirements
vary from program to program. People
wanting to apply should contact their
local housing or community development
office.
Here is a list of four general
requirements to keep in mind:
- Some
credit may be claimed only
on your owner-occupied principal
residence.
- *There are maximum
income limits, which vary by
locality and family size.
- You must be a first-time
home buyer, which means you
must not have had any kind of ownership
interest in a principal residence
during the past three years.
This restriction may be waived, however,
if you are buying property
within certain target areas.
- Allocations must be available. A
local MCC program may have to decline
new applications when it runs out
of funds.
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Question: Explain
the home mortgage deduction.
Answer: The
mortgage interest deduction entitles
you to completely deduct the interest
on your home loan for the year in
which you paid it. Mortgage interest
is not a dollar-for-dollar tax cut;
it reduces taxable income. You must
itemize deductions in order to do
this, which means your total deductions
must exceed the IRS's standard
deduction.
Another point to remember
is that the amount of interest
on your loan goes down each year
you pay on your mortgage (all standard
home-loan formulas pay off interest
first before significantly paying
into principal). That's why paying
extra on your principal every year
can help you pay off your loan
early. |
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Question: How
are fees and assessments figured in a homeowners
association?
Answer: Homeowners
association fees are considered personal
living expenses and are not tax-deductible.If,
however, an association has a special
assessment to make one or more
capital improvements, condo owners
may be able to add the expense
to their cost basis. Cost basis
is a term for the money an owner
spends for permanent improvements
throughout their time in the home
and is used to reduce eventual
capital gains taxes when the property
is sold. For example, if the association
puts a new roof on a building,
the expense could be considered
part of a condo owner's cost basis
only if they lived directly underneath
it. Overall improvements to common
areas, such as the installation
of a swimming pool, need to be
considered on a case-by-case basis
but most can be included in the
cost basis of any owner who can
show their home directly benefits
from the work.
To find out more
about how the IRS views condo association
fees, look online to IRS
Publication 17, "Your Federal
Income Tax," which
includes a section on condos. Or
order a copy by calling (800) TAX-FORM. |
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Question: How
do I reach the IRS?
Answer: To
reach the Internal Revenue Service,
call (800) TAX-1040; irs.gov. |
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Question: How
do I save on taxes?
Answer: Here
are some ways to save money on
taxes:
- Mortgage interest
on loans up to $1 million is
completely deductible for the
year in which you pay it to buy,
build or improve your principal
residence plus a second home.
- Points, or loan
origination fees, also are deductible
no matter who pays them, the
buyer or the seller.
- Most homeowners, except the
wealthy and those living in high-priced
markets, no longer need to worry
about capital gains taxes. The
exemption has been raised to
$500,000 for married couples
and $250,000 for single owners.
It can be taken every two years.
Homeowners should always keep
all receipts of permanent home
improvements and of mortgage
closing costs. If you do have
to pay capital gains taxes, these
costs can be added to your adjusted
cost basis. Consult your tax
adviser for more information.
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Question: How do you choose between buying and renting?
Answer: Home
ownership offers tax benefits as well as the
freedom to make decisions about your home.
An advantage of renting is not worrying about
maintenance and other financial obligations
associated with owning property.
There also
are a number of economic considerations.
Unlike renters, home owners who secure a
fixed-rate loan can lock in their monthly
housing costs and make prudent investment
plans knowing these expenses will not increase
substantially.
Home ownership is a highly
leveraged investment that can yield substantial
profit on a nominal front-end investment.
However, such returns depend on home-price
appreciation. |
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Question: Should I buy a vacation home?
Answer: Today
a vacation home can be purchased for investment
purposes as well as enjoyment. And yes, there
are tax benefits.
Some people
buy a vacation home with the idea of turning
it into a permanent retirement home down
the road, which puts them ahead on their
payments. Another benefit is that the interest
and property taxes are tax deductible, which
helps to offset the cost of paying for a second
home. A vacation home also can be depreciated
if you live in it fewer than 14 days a year,
or 10 percent of the rented days - whichever
is greater. |
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Question: What are the rules for mortgage credit certificates?
Answer: To
qualify for a mortgage credit certificate,
both your income and the purchase price of
the home must fall within established city
guidelines. These guidelines vary by city but
generally only permit people who earn an average
income or slightly higher than average income.
A limited number of cities
have authorized the MCC program. Contact
your municipal housing department for more
information. |
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Question: What home-buying costs are deductible?
Answer: Any
points you or the seller pay to purchase your
home loan are deductible for that year. Property
taxes and interest are deductible every year.
But while other home-buying costs
(closing costs in particular) are not immediately
tax-deductible, they can be figured into
the adjusted cost basis of your home when
you go to sell (any significant home improvements
also can be calculated into your basis).
These fees would include title insurance,
loan-application fee, credit report, appraisal
fee, service fee, settlement or closing fees,
bank attorney's fee, attorney's fee, document
preparation fee and recording fees. Points
paid when you refinance an existing mortgage
must be deducted ratably over the life of
the new loan. |
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Question: What is the Mortgage Credit Certificate program?
Answer: The
Mortgage Credit Certificate program allows
first-time home buyers to take advantage of
a special federal income tax credit. This program
allows buyers credit in qualifying for the
tax advantage they'll receive after they purchase
the home.
The amount of the
credit is tied to a local formula that every
city with an MCC program must follow. A MCC
credit, which can total $2,000 or more, reduces
the borrower's federal tax liability by an
amount tied to how much one pays in annual
mortgage interest. Both the borrower's income
and the purchase price of the home must fall
within established guidelines.
To see if your community has an
MCC program, call your local housing or redevelopment
agency. You also may inquire with your real
estate broker or the local association of
Realtors. |
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Question: When is the best time to buy?
Answer: Here
are some frequently cited reasons for buying
a house:
- You need a tax break. The
mortgage interest deduction can make
home ownership very appealing.
- You are not counting on
price appreciation in the short term.
- You can afford the monthly
payments.
- You plan to stay in the
house long enough for the appreciation
to cover your transaction costs.
The costs of buying and selling a home
include real estate commissions, lender
fees and closing costs that can amount
to more than 10 percent of the sales price.
- You prefer to be an owner
rather than a renter.
- You can handle the maintenance
expenses and headaches.
- You are not greatly concerned
by dips in home values.
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FEATURED PROPERTIES |
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San Mateo |
| Bed/Bath |
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2/1 |
| Sq ft |
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N/A |
| Asking Price |
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$777,000 |
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S. San Francisco |
| Bed/Bath |
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4/2.5 |
| Sq ft |
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2410 |
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$868,000 |
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San Carlos |
| Bed/Bath |
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3/2 |
| Sq ft |
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2050 |
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$1,385,000 |
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San Mate |
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1/1 |
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692 |
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$395,000 |
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San Mate |
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2/1 |
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918 |
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$435,000 |
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Foster City |
| Bed/Bath |
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3/2 |
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1,540 |
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$798,000 |
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San Mateo |
| Bed/Bath |
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2/2 |
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$529,000 |
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San Mateo |
| Bed/Bath |
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2/2 |
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1213 |
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$535,000 |
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| City |
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San Mateo |
| Bed/Bath |
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3/2.5 |
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1312 |
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$775,000 |
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Redwood City |
| Bed/Bath |
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5/3 |
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N/A |
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$1,399,950 |
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| City |
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San Mateo |
| Bed/Bath |
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2/2.5 |
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1,254 |
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$750,000 |
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San Mateo |
| Bed/Bath |
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2/1 |
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1,130 |
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$935,000 |
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Redwood City |
| Bed/Bath |
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4/3.5 |
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2,951 |
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$1,626,000 |
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