Learn what you can deduct from your taxes as a homeowner

Since we are getting painfully close to tax day … I thought it might be useful to share with you the top 10 homeowner tax deductions that are allowable under certain circumstances.   This list is for informational purposes so make sure you consult a tax attorney or CPA with any questions you may have!

1. Mortgage Interest Deduction

Homeowners who itemize their deductions can deduct the interest paid on a mortgage with a balance of up to $1 million. While there is some movement to limit the total itemized deductions for taxpayers with higher incomes (over $400,000), the current deductions holds for all tax brackets. Americans save around $100 million every year by deducting mortgage interest on their tax returns.

2. Home Improvement Loan Interest Deduction

The interest on home equity loans used for “capital improvements” to a home can also be a tax deduction. On loans with balances of up to $100,000, the interest is tax-deductible for a homeowner who uses the loan to make improvements to the home such as adding square footage, upgrading the components of the home, or repairing damage from a natural disaster.

3. Private Mortgage Insurance (PMI) Deduction

If your mortgage was originated after Jan 1, 2007, and you have PMI, it can be a tax deduction. The deduction is phased out, 10% per $1,000, for taxpayers who have an adjusted gross income between $100,000-$109,000 and those above that level do not qualify. The extension of this tax deduction in 2013 was one of many last-second saves by real estate industry advocates.

4. Mortgage Points/Origination Deduction

On a home purchase loan, taxpayers can deduct the entirety of the points that they paid in the same year. On a refinance loan, the points must be deducted as an amortization over the life of the loan. Many taxpayers forget about this amortized benefit over time, so it’ important to keep good records on the deduction of points on a refinance.

5. Energy Efficiency Upgrades/Repairs Deduction

Homeowners can deduct the cost of the building materials used for energy efficiency upgrades to their home. This is actually a tax credit, one which is applied as a direct reduction of how much tax you owe, not just a reduction in your taxable income. 10 percent of the total bill for energy-efficient materials can be used as a tax credit, up to a maximum $500 credit. Insulation, doors, new roofs, and many other items qualify for the energy efficiency credit. There are also individual limits for certain items, such as $150 for furnaces, $200 for windows, and $300 for air conditioners and heat pumps.

6. Profit on Sale of Real Estate Deduction

If you’ve sold a home in the past year, you’re likely aware that individuals can claim up to $250,000 of profit from the sale tax-free, and married couples can claim up to $500,000 tax-free. Of course, there are some requirements to escaping the capital gains tax on this profit. The home must be a primary residence. This means that you must have lived in the home, as your primary residence, for two of the past five years. You could rent it out for years one, three, and five, while living in it for years two and four. In this way, a homeowner could potentially claim this tax break on multiple homes within a fairly short time frame, but each tax-free sale must occur at least two years apart from the previous tax-free transaction.

7. Real Estate Selling Cost Deduction

For those lucky folks whose profits on the sale of their home might exceed the $250k/$500k limits, there are still some ways to reduce the tax burden. The costs of selling the home can be significant, and those in themselves can be claimed as tax deductions.  By adding up all of the fees paid at closing, capital improvements made to the home while you owned it, money spent to make repairs to damaged property, and marketing costs necessary to sell the home, you can add a significant figure to the cost basis of your home. This basically raises the original price you paid for the home. Your cost basis begins with the original price of the home, and then adds in the improvement and selling costs. When the new cost basis price is compared to your selling price, it reduces your potentially-taxable profit on the home significantly.

8. Home Office Deduction

Homeowners deduct a percentage of their mortgage, utilities, and repair bills in direct proportion to the amount of their home that is dedicated office space. The home office must be your principal place of business (the primary office location where you get the majority of your work done). It needs to be exclusively used for business (it can’t be your kitchen by day and office by night). You need to be realistic with its size and use (unless you enjoy audits).

9. Property Tax Deduction

New homeowners often don’t know that their property taxes are deductible. While it may sound strange to have a taxdeductible tax, the overall effect is that you don’t pay income tax on money that was spent on property taxes. Homeowners should be careful to only deduct the amount of property tax actually paid to their local municipality for the year. This is not necessarily the amount you paid to your escrow account, and should not include any other city/county fees that might potentially be on the same bill as your property taxes.

10. Loan Forgiveness Deduction

The Mortgage Debt Forgiveness Relief Act of 2007 was created when short sales were becoming a new and growing part of the real estate market. An underwater homeowner might convince their lender to agree to a short sale of their home at $100,000, even though they owe $150,000 on their mortgage. While the lender forgives the extra $50,000 owed after the short sale, the government views it as $50,000 in taxable income (a gift from the lender to the borrower).

The Debt Forgiveness Act temporarily relieved the taxpayer of that burden, but was set to expire this year. Through much effort, it was extended along with many other homeowner tax relief measures this year and homeowners can continue to claim this tax relief in 2013

The post Top 10 Homeowner Tax Deductions appeared first on Bethesda Home Sales.

A 5-STAR property in every regard!  The finest home on the best lot in Bethesda Crest will impress even the most discerning buyers!  Over 6,000s’ with 5 bedrooms, 4.5 baths plus a 3-car garage, cherry-panelled elevator & dramatic circular staircase w/iron rails & Shoenbek chandelier. 10′ ceilings on main, cherry-paneled library, stunning gourmet kitchen + 2 high-end wet bars w/SS Subzero & Viking appliances. Huge master suite w/enormous dressing room & dual bath. Less than 1 mi to 495, NIH, Walter Reed/Navy Med & downtown Bethesda!

VIRTUAL TOUR      LISTING FACTS       REQUEST A SHOWING

The post 5010 Cedar Croft Lane, Bethesda MD appeared first on Bethesda Home Sales.

The post Real Estate ROI Beats Dow, S&P and NASDAQ! appeared first on Bethesda Home Sales.

Perhaps the most telling statistic is the “Months Supply” which is the absorption rate established by dividing the available inventory by the number of properties selling in a month. The definition of a buyers vs sellers market is:

• SELLERS MARKET – 1 to 4 months supply of homes
• NORMAL MARKET (neither side has significant advantage) – 5 to 6 months supply of homes
• BUYERS MARKET – 7 or more months supply of homes

You will see from the following chart that we are currently in a very strong seller’s market in all of these local area markets.  Distressed property sales can skew the statistics but there are not many short sales and foreclosures in these markets currently to have much impact.

The post Bethesda Market Update November 2012 appeared first on Bethesda Home Sales.

The recent storms throughout Bethesda, Chevy Chase, Potomac and the Washington DC metro area forced us to fret about the hazards of falling trees among many other concerns that now haunt homeowners. My own experience was pretty scary when this huge tree fell in our front yard. This photo shows me in front of the immense root ball!  Had it fallen in the other direction, it would have likely crashed through the roof of our bedroom where we were fast asleep. Fortunately, we were blessed that the winds took it in the other direction. Since the storm, I have received several questions from clients and through my website about the liability of fallen trees and who pays for the cleanup. Does the burden lie with the owner of the property where the tree originally stood or does it lie with the homeowner who had the tree fall within its property lines through no fault of their own? The answer may surprise you.

If you have large trees on or close to your property, you should read this Washington Post article written by a real estate attorney.  You will discover that it is your responsibility to protect your own property.  In fact, if a tree on another property falls onto your land or even into your home, it is most likely your burden to clean up and your insurance may or may not cover the damage.   However, you probably have the right to trim overhanging branches from neighbors’ trees to protect your own property.  Also where you live… whether in DC, MD or VA could impact your cleanup efforts.

The post Hazards of Fallen Trees appeared first on Bethesda Home Sales.

SOLD!  Amazing Elevator Townhome in Bethesda Crest!

Spectacular Albemarle end-unit townhouse w/elevator! This Bethesda Crest townhome has a huge gorgeous gourmet kitchen, large patio off kit/fam room overlooking trees, 3-car garage, mahogany paneled library, fully equipped media room w/8 theater chairs & wet bar, huge master suite w/sitting room & 3 en-suite bedrooms, exercise room & much more! A 5-star MUST SEE property!!! Close-in Bethesda!  Less than 1 mi to 495, NIH, Walter Reed / Navy Med & downtown Bethesda!

The post 5002 Cedar Croft Dr, Bethesda, MD 20814 appeared first on Bethesda Home Sales.

There are very few short sales in the Washington DC and  Bethesda real estate market compared to other parts of the US but they do come along on occasion.  However, in the coming year, the market is expected to see increased short sale listings throughout the country.  In 2011, short sales were in short supply due to the robot-signing legal issues but now the banks have settled with the Federal government so they are finally loosening up their tight grip on the inventory and simplifying the process somewhat in order to encourage buyers and agents to make offers.  Understand, however, that if you are thinking about trying to purchase a short sale assuming you can find one, it is a very different type of sale than the traditional resale model.  There could be several parties involved and issues that are unknown to the buyer and buyer’s agent can affect the outcome of the final transaction. Short sales are subject to third-party-approval by the lenders/lienholders so the path, timing and outcome can be completely unpredictable.

As an extreme example, I personally represented the buyer in a short-sale transaction that went on for months and the bank insisted on negotiating a sales price at the last minute that exceeded the ratified contract amount and the appraisal value by 5% so the buyer would have been paying ABOVE the ‘retail’ market value.  This was an astonishing eye-opener about how illogical the short sale process can be depending on who is handling the transaction for the lender.   In this case, there were two lienholders who had to agree on the terms and the one in the second position insisted on receiving a certain amount that ended up killing the deal.

Short sale approvals usually take approximately 60-90 days from ratified contract plus 30 days to closing.

The many layers of getting a short sale approved typically includes the mortgage insurer, an end investor  like Fannie Mae or Freddie Mac as well as the loan servicer, which means it has to go through three different processes and a fourth if there is an additional lienholder from a second trust etc.   Buyers need to be prepared to wait at least 60-90 days for an approval and then another 30 days to go to settlement.  Banks are promising to shorten the timelines but all you need is one slow party in the mix to tie up the entire process.

Banks expect to sell for a slight discount from market value

The bank will usually be willing to negotiate from the list price (assuming they have already bought in to the market value), but will not reduce the price dramatically.  Some experts suggest that short sales are typically 10-25% under market value whereas REO (foreclosed properties) are generally discounted much deeper. In January of 2012, a home sold via short sale sold at a 21 percent discount on average nationwide compared to the average price of a non-distressed home, according to RealtyTrac.  So buyers  may be able to get a reasonable deal on a short sale, though it will not be, in most cases, as much of a deal as on an REO foreclosed property.   Plus short sales are typically sold in better condition than an REO so buyers of foreclosed homes can look forward to major renovations and repairs in most cases.

Short sales are very challenging for the parties so agents on both sides need to understand the process and be prepared to work diligently

With this type of transaction it takes a very experienced agent on the listing side as well as the buying side.  Both the buying and listing agent need to have ample experience dealing with these types of transactions, or buyers can be tied up in a contract for months that never gets to settlement. There are several different types of short sale processes and each bank is different so it takes a real professional to keep the transaction on target.

Most short sale homes are sold strictly “As Is”

Although there are some exceptions to this rule, generally short sales are sold “as-is” and no repairs will be made … period.  In fact, the bank will often require both the buyer and the seller to sign an addendum that states the fact that it is being sold in ‘as is condition’.

These are just a few facts for buyers who are considering the purchase of a short sale.  Those who have the patience  may be able to get a great home at a discount but be prepared for delays and potential disappointment.

The post Short Sale Reality Check appeared first on Bethesda Home Sales.

For anyone who is considering the purchase of one of our wonderful homes for sale in Bethesda or anywhere else in the US, and even those  of you who own but have not bought a home recently … it can be somewhat to very overwhelming trying to understand the entire process. The answers to questions about how to go about owning Bethesda real estate that were once easy to answer are more complex and convoluted these days given the various rate and financing plans, how credit scores affect your interest rates and eligibility, and so on.  Simply asking … how much can I afford and how much down payment am I going to need results in a wide range of answers.

These and other important questions are presented in simple terms in the following infographic that was provided by the lender The Provident Bank of NJ.  This “Path to Owning a Home” lays out in simple steps the various stages in the process of buying a home as well as takes into account several key things to consider as you begin the path toward becoming a homeowner. These steps are based on a pretty typical scenario. However, if a potential buyer were to have cash and assets in addition to annual income, of course that person could qualify for a higher loan amount than without additional assets, etc.

The post The Path to Homeownership appeared first on Bethesda Home Sales.

Custom Colonial in Downtown Bethesda!

One block from Wisconsin Ave in heart of Bethesda! Complete renovation & expansion of classic colonial w/white picket fence & large front porch! Gourmet granite kitchen, SS appliances & large island w/wine fridge open to huge family room w/vaulted ceiling. Hardwood on main level w/2 fireplaces & office or bedroom w/full bath. Lush landscaped lot, one-car garage & long driveway. By NIH/Walter Reed….   REQUEST A SHOWING

The post 4613 West Virginia Avenue, Bethesda, MD appeared first on Bethesda Home Sales.

How is the Bethesda real estate market and surrounding areas currently doing?  Just ask some of the leading economists about the current state of the real estate market and where it is heading.  According to the National Association of Realtors (NAR) Existing Sales Report released last week. sales were down 2.6% from the previous month. However, the monthly variations are not what determines where the market is going. In the same report, NAR also explained that sales WERE UP 5.2% over last March’s numbers. When assessing the direction of the markets, the experts consider the key underlying data that truly determines where the market will be heading over the course of the next several months.

Here are the most recent conclusions of several leading housing economists..

Paul Diggle, property economist, Capital Economics

“March’s decline in existing home sales probably reflects the normal month by month volatility rather than renewed underlying weakness. The increase in households’ confidence in the outlook for the housing market, coupled with a gradual improvement in the pace of the economic recovery, should drive a rise in home sales later this year….It is possible that the pattern within the quarter has been driven by the weather, with falls in the most recent two months reflecting a degree of payback after January’s gain.” 

Doug Duncan, chief economist, Fannie Mae

“Conditions are coming together to encourage people to want to buy homes. Americans’ rental price expectations for the next year continue to rise, reaching their record high level for our survey this month. With an increasing share of consumers expecting higher mortgage rates and home prices over the next 12 months, some may feel that renting is becoming more costly and that homeownership is a more compelling housing choice.”

Celia Chen, senior director of housing economics, Moody’s

“The residential property market is recovering, as the factors underlying demand and supply strengthen. Even after accounting for unusual seasonal patterns brought on by the unusually warm winter, conditions have not been this strong since the government ended homebuyer tax credits in 2010.”

Mark Vitner, senior economist, Wells Fargo

“Existing home sales dropped 2.6 percent, but are up 5.2 percent from a year ago. While existing sales are down for the second consecutive month, we are likely continuing to see payback from increases earlier this year. That said, we could see one more month of disappointing data, but we still contend the recent declines are not indicative of the trend. Stabilization will become more apparent once we return to normal weather.”

Mark Fleming, chief economist, CoreLogic

“Since the peak in home prices, mortgages rates have declined and affordability has risen dramatically. Housing affordability is at levels not seen since prior to the early 1990s …While real estate professionals often say that “now is a good time to buy,” it is clear today that April 2006 was probably not a good time to buy, while now may well be the time.”

The post It’s a Fact .. the Market IS Recovering appeared first on Bethesda Home Sales.