Consumer Warning: IRS Scams

This just received from my CPA today and is very timely for your clients and family. Feel free to pass along.

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Tax Deductible Items for 2013 Mortgages

Here is a general overview of some information that may be helpful to you and your CPA as you prepare your 2013 tax returns:

Points Paid on a Home Purchase in 2013

Item 803 on the HUD-1 – If the adjusted origination charges on line 803 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.

Points Paid on a Mortgage Refinance in 2013

Item 803 on the HUD-1 – If the adjusted origination charges on line 803 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.

Upfront Mortgage Insurance

Item 902 on the HUD-1 – 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 2013 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.

Property Taxes (actual and pro-rated)

Items 106 and 107 on the HUD-1 – Property taxes are generally deductible in the year they are paid. These are listed as items 106 and 107 on the HUD-1. Whatever you put into your escrow account for property taxes is listed as items 1004, 1005, or 1006 on the HUD-1. These are deductible in the year that your mortgage company pays them. Assessments are listed as item 108 on the HUD-1, and these are generally not deductible.

Pre-paid Interest

Item 901 on the HUD-1 – 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 “daily interest charges” on line 901 of the HUD-1 statement. These daily interest charges cover the interest for the current month. If your mortgage interest is deductible, then anything you pay on line 901 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 2013. 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 2013. You can now deduct the remaining 27/30ths of those old points that you have not yet deducted.

Pre-Payment Penalties

A pre-payment penalty paid on an old loan would be deductible on your 2013 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.

Don Parsons
Commerce Mortgage
[emailprotect]don@donparsons.com[/emailprotect] http://www.donparsons.com
(949) 428-3099
2130 Main Street, Suite 260,
Huntington Beach, California 92648

Good news… for homeowners refinancing or buyers purchasing

alert-redDue to the government shutdown and some flight to quality in the markets, interest rates have gone down some and mortgage applications have started rising.  The “4506 transcript” requirement from many lenders on closing loans will remain an issue for many.  However our company has been authorized to close your conventional loan up to 625,500 without the IRS transcript, subject to successful quality assurance control.  (caution: if you are self-employed, there could be additional requirements) We still will require the 4506-T request to be signed and in the file to possibly be used at a later date, but IRS transcripts will not be hold up your refinance or purchase transaction.  You need to be CERTAIN, if applying for any mortgage at this current time, that the lender you are using will close your loan without the 4506-T transcripts from the IRS.

Also, since there are some lenders not willing to close your loan without the IRS transcripts, that means there will be some scrambling on houses currently in escrow and additionally some sellers getting nervous about all this.  That could mean a possible softening of positions by some sellers on their prices, worried that this could slow things down some….So with rates down and these added anxieties, now might be a strategic time to make those offers.

Government Shutdown and Lending

Before my comments, this is what you may see for a while in the news:

obamayikes

It appears that loan applications will continue on, rates will still be locked, appraisals ordered and loans underwritten.  However, that “4506 transcript” from the IRS will still be required by all lenders I have researched at this point, but instead of at the origin of underwriting, will be required as a funding condition, at least by lenders who are putting their customers first.

I requested several years ago that my personal staff and underwriter NEVER hold up a file over a 4506 transcript. Either the file is a viable file or not at origination and holding it up for a transcript is an insult to your clients, both borrowers and Realtors. So, the only question mark here is how long it will be before that part of the government is operational so loans can actually close. Well, there is one other question….or two, or three…..if we as a people become more and more dependent on the government, e.g. turning over more and more of our independence…..Health Care, retirement, housing, to name only a few, how does this not teach us a lesson about worse things to come?  Does it not make sense to furlough all politicians for about 9 months out of the year, so they only have 3 months a year to wreak havoc on the American public?  Notwithstanding the few who are really looking out for us and our kids and grandkids future, the rest of the lot should get real jobs, paying taxes, and living under everything they have handed down for decades. NO exemptions or special health care or special retirement packages.  Statesmen are what we need, God fearing not ballot box fearing!

Here are a few additional remarks I have pulled from Rob Chrisman’s Leadership Report.

“…..the IRS staff is also staying in bed today, and lenders are telling staff that it is doubtful that Tax Transcripts can be obtained and therefore they can process and underwrite loans without the Tax Transcripts but will not be able to close or fund until the Tax Transcripts have been obtained.”

stress350“Does anyone know whether FNMA is offering relief on validation of tax returns since the IRS is not validating returns during the shutdown?” Fannie just issued a new selling guide announcement. It provides details on a number of underwriting considerations for lenders with regard to the shutdown. It is posted on www.fanniemae.com. The mortgage market, including Fannie Mae and Freddie Mac, should not be affected by the government shutdown, SIFMA Managing Director Chris Killian said. “Fannie and Freddie should be unaffected by the government shutdown (Freddie Mac went so far as to issue a client update stating this), Ginnie Mae informs us that their [mortgage-backed securities] and Multiclass Securities Programs and operations continue uninterrupted, and [the Federal Housing Administration] appears to be able to endorse loans,” Killian said. “However, SIFMA urges Congress to come to a resolution as soon as possible.”

More to come…